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Tony Blair (Prime Minister; Sedgefield, Labour)

With permission, Mr. Speaker, I should like to make a statement about the European Council in Brussels on 15–16 December.

The main issue at this European Council was the European Union budget for 2007–13, the first budget ever for the enlarged Europe of 25 member states, soon to become 27 with the accession of Bulgaria and Romania.

This country can be proud of the part that we played in the enlargement of the EU. The countries of central and eastern Europe that for so long suffered under communist dictatorship are now free democracies and vibrant new members of the EU. To have championed the cause of those new states, to have welcomed them into NATO and Europe and then to have refused to agree a budget that protects their future economic development would have been a betrayal of everything that Britain has rightly stood for in the past 15 years or more since the fall of the Berlin wall. They are our allies. It is our duty to stand by them. But it is also massively in our national interest. These new member states have fast-growing, open economies, new ideas, human capital and a political vision of Europe that is close to ours.

However, although they are catching up economically, they are still much poorer than most of the original European Union 15; their people half as wealthy as in the rest of Europe. The purpose of the budget is rightly to transfer resources from the wealthiest west of Europe to the poorer east of Europe. Over the coming years, within a broadly stable budget, funds for the new member states will increase from €24 billion to €174 billion, a seven-fold increase.

In time, of course, this makes them prosperous and us too. If we look at the example of Ireland and Spain, bilateral trade with those countries in goods alone is now more than €60 billion a year. Investment in the future prosperity and stability of eastern Europe brings big and lasting benefits to this country.

The reason that it was so important to reach agreement at the European Council is as follows: as all central and eastern European leaders made clear to me, it was essential to have a December deal to allow those countries to plan and prepare for using the EU funds when those funds start in 12 months' time. It was clear that the prospects for a deal next year were negligible, and, if there were to be no deal, then in 2007 the European Parliament would take over the budget process. That would mean the Parliament setting annual budgets, on the existing financial agreements, which would have meant that countries such as Poland would have lost around two thirds of their EU funds. That is why they wanted a deal now.

Of course, there is also a need for fundamental reform of the EU budget. As I said in June, what we need is to settle the budget on the basis of everyone paying their fair share of the costs of enlargement now; and then to open up the prospect of a radically reformed budget midway through the next budget period. The agreement reached on Saturday morning differed from that of the Luxembourg proposal in four key respects. The overall budget is smaller. The proposal in June was that the UK rebate should be reduced in commitment terms by about €22.5 billion; under this deal, the maximum we shall pay is €10.5 billion. In the review clause in June, the common agricultural policy agreement of 2002 was specifically endorsed. Now it is clear that all aspects of the budget can be examined in 2008–09. However, crucially for Britain, this agreement states expressly—unlike that of June—that the British rebate remains in full on all expenditure in the original 15 member states. It remains in full on all common agricultural policy market expenditure everywhere in the Union, including in the new member states. We have, however, agreed to disapply a proportion of the rebate on structural and cohesion spending in the new member states—in effect, on the spending directly designed for economic development. As I have said, the cost of this is up to a maximum of €10.5 billion or about £7 billion over the next seven years of the financing period. Moreover, because the rebate stays on all common agricultural policy and all spending in the original European 15, the rebate will rise, not fall, to an average of €5.8 billion in payments terms annually from 2007. Overall, the rebate will get us about €41 billion back in the next budget period—substantially more than in this period. That is then the crucial leverage for future reform.

As the strongest supporter of enlargement among all member states, I strongly believe that it was right—indeed, essential—that the UK should contribute properly to enlargement. The fact is that if we support and, indeed, drive through a policy of ending the post-war division of Europe, we have to be ready to accept our fair share of the costs of that policy. Enlargement was never, and could never be, a cost-free policy, and this Government are prepared to shoulder their responsibilities in this area, because it is the right thing to do. In this context, I want to dispel one misunderstanding that has arisen—the impression that only the UK is contributing to the costs of enlargement. All wealthier countries are contributing. In terms of net contributions, our contribution will increase by 63 per cent. over the next financing period in comparison with 2000–06. France's contribution will increase by 124 per cent. Italy's contribution will increase by 126 per cent. Spain will lose in the region of €40 billion. Moreover, after some 20 years of our paying, under the original rebate, twice as much as France, UK and French contributions will, from 2007, for the first time, be in rough parity. Because the UK economy is now bigger than the French economy, we will, in fact, on the Commission's figures, be contributing a smaller share of our national wealth.

Alongside this agreement on support for the modernisation of eastern Europe, we also agreed on a fundamental review of all aspects of the EU budget, including the common agricultural policy, to be led by President Barroso, with the recommendation that it begin in 2008. As the language in the European Council conclusions makes absolutely clear, it is then possible for changes to be made to this budget structure in the course of this financing period. This will also allow us to take account of any changes agreed in the World Trade Organisation round, including the decision to phase out all export subsidies for agriculture by 2013. In addition, it was agreed that any CAP spending for Romania and Bulgaria—about €8 billion—should be fitted within existing CAP ceilings, which is a significant budgetary discipline.

So to summarise, when people ask what we got for agreeing to pay our fair share of enlargement, the answer is an agreement that sees us, for the first time since we joined the EU, paying no more than similar countries, such as France and Italy; the rebate staying put on all CAP spending and rising, not falling, in value; and a process that can, in the years to come, lead to the necessary fundamental reform of both rebate and CAP that we all want to see.

I should report briefly that the Council also agreed on a strategic partnership between the European Union and Africa, on a new and strengthened policy on illegal migration and on a counter-terrorism plan. We also agreed that Macedonia should be granted candidate status—the next step in its path towards membership of the European Union. As a strong supporter of Macedonia's ambitions, I want to congratulate the Macedonian Government on the progress that they have made towards that goal.

The European Council also unreservedly condemned the Iranian President's recent remarks about Israel and warmly welcomed the 15 December elections in Iraq as a further step towards democracy and stability in that country.

Over the past six months, the UK presidency has delivered the historic launch of accession negotiations—[Interruption.] It has delivered the launch of accession negotiations with Turkey and Croatia—a long-standing British objective. We have delivered a number of important pieces of legislation, including the REACH—registration, evaluation, authorisation and restriction of chemicals—regulations and the data retention directive, which is an important measure against terrorism. We have delivered reform of the EU sugar regime and a strengthening of the EU position on climate change—[Interruption.]

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Michael Martin (Speaker)

Order. Mr. Bellingham, you are out of order, and you are not the only one. After the Prime Minister has finished, I shall seek to protect the Leader of the Opposition, and I cannot do that if hon. Members are shouting at the Prime Minister.

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Tony Blair (Prime Minister; Sedgefield, Labour)

And we have delivered an EU budget deal that is €160 billion cheaper than the original Commission proposals, provides for a huge transfer of spending from the original 15 to the new member states of eastern Europe, and preserves the British rebate in full on the CAP and all spending in the EU 15. I commend all this to the House.

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David Cameron (Leader of the Opposition; Witney, Conservative)

This was the year that Europe needed to change direction; this was the year that the people of Europe rejected the constitution; and this was the year that people called for the end of the obscenity of protectionism that damages the developing world. The Prime Minister rightly talked at the time of a crisis in European leadership, so the question for him is whether the British presidency and the new budget even begin to measure up to those challenges.

We warmly welcome the accession talks with Turkey and Croatia. We welcome what the Prime Minister said about Macedonia and the EU partnership with Africa, but has not progress elsewhere been desperately slow?

On the budget, does the Prime Minister remember having three clear objectives: first, to limit its size, when almost every country in Europe is taxing and borrowing too much; secondly, to ensure fundamental reform of the CAP; and, thirdly, to keep the British rebate unless such reform occurs? Is it not now clear that he failed in every single one?

First, the Prime Minister said that he wanted the size of the budget to be set at 1 per cent. of Europe's income. Can he confirm that the budget that he has just agreed is higher than that, higher than the compromise that he tabled and will mean £25 billion in extra spending? The Prime Minister says that that is intended to pay for enlargement, so will he confirm that Ireland, which is richer per capita than Britain, is getting more per head than Lithuania, Slovakia and Poland?

Secondly, the Prime Minister wanted to change the things that the budget was spent on. Is it not clear that he has failed to do that as well? Is it not the case that CAP spending will be higher next year, the year after that and in every year up to 2013? The Chancellor said that CAP reform was necessary to make poverty history. The Prime Minister told the House in June that he wanted to get rid of the CAP. Will he confirm that, four months later, his own Europe Minister said that the Government had not made any detailed proposals to reform the CAP? Is it not the case that the entire Government spent four years doing nothing about something that the Prime Minister thought was essential?

Will the Prime Minister be clear about what he has secured on the CAP? It is a review and it takes place in 2008. Can he confirm that, in that year, the presidency will be held by France? Is he aware that the French Foreign Minister has said that Jacques Chirac has secured that there will be no reform to the common agricultural policy before 2014? Is that not the opposite of what the Prime Minister actually wanted? In other words, he has completely failed to deliver CAP reform.

What about the Prime Minister's third objective: if all else fails, keep the rebate? All else did fail, and the Prime Minister's position was clear. He used to say the rebate was non-negotiable. He said at that Dispatch Box in June:

"The UK rebate will remain and we will not negotiate it away. Period."—[Hansard, 8 June 2005; Vol. 434, c. 1234.]

The Chancellor said that it was non-negotiable and fully justified. Then the Prime Minister changed his mind. The rebate could be negotiated, he said, provided that there was fundamental reform of the CAP. So it was clear that the only circumstances in which the rebate would be given up was if there were a commensurate and equal giving up of farm subsidies.

That is not an unreasonable position and, at that time, he knew all about the other considerations he mentioned today, including the importance of supporting enlargement. But what happened? The farm subsidies remain and £7 billion of the rebate has been negotiated away. If that was always the Government's plan, why was not any reduction in the rebate in the Chancellor's pre-Budget report? We are told that the Chancellor did not even know about the final deal. Normally, it is the Chancellor who does not tell the Prime Minister about what is in the Budget; this time the Prime Minister did not tell the Chancellor.

Can the Prime Minister confirm that, by 2011, the UK will be losing £2 billion a year and that that will be the baseline from which we negotiate? Will he confirm that the amount he has given up from the rebate is almost double our entire overseas aid budget this year?

In June, the Prime Minister told the House that no deal was better than a bad deal. He said:

"Europe's credibility demands the right deal—not the usual cobbled-together compromise in the early hours of the morning."—[Hansard, 20 June 2005; Vol. 435, c. 524.]

Did he remember that when he was cobbling together this compromise in the early hours of the morning? Why did he give up £7 billion for next to nothing? Vitally, how is the Chancellor going to pay for it—more taxes, more borrowing or cuts in spending? Which is it?

A good budget deal would have limited spending; it would have reformed the CAP and it would have helped change Europe's direction. Is it not the case that none of those things happened under the British presidency? Europe needed to be led in a new direction. Are we not simply heading in the same direction but paying a bigger bill?

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Tony Blair (Prime Minister; Sedgefield, Labour)

No, we are not, for the very simple reason that the direction of Europe is towards enlargement. That is why we have allowed those 10 new countries to come in.

Let us just see for a moment where we agree and disagree. The hon. Gentleman supports enlargement; yes, he supports enlargement.—[Interruption.] Come on. He supports the wealthy countries paying for the poorer countries. That is right too; isn't it? Although he supports enlargement and he supports the wealthy countries paying for the poorer countries, he does not support Britain paying any money for it. He talks about a crisis in the European Union. What sort of crisis would there be if he were in charge with that policy?

The hon. Gentleman talks about the rebate. Let me tell him that the rebate, as I have just explained, is rising not falling—[Hon. Members: "No, it is not."] Yes, it is, because it remains on all common agricultural policy money. He and his Back Benchers say, "Why is not France paying for this?", but France is getting a bigger net contribution loss than Britain in the next financial perspective.—[Interruption.] Let me explain to hon. Members what is actually happening: the structural and cohesion fund budget covers about 35 per cent. of all spending. At the moment, it mainly goes to wealthy countries, but it will mainly go to poorer countries. The wealthy countries will therefore pay to the poorer countries, and we are a wealthy country, which is why we should pay our fair share. People like the hon. Gentleman, who say that they are in favour of enlargement but refuse to follow through on the consequences of that position, are not exercising leadership; they are abdicating leadership.

The hon. Gentleman has said that he would have negotiated something different, but let us work out who his allies would be in such a new European Union.—[Interruption.] One of his first leadership decisions was to withdraw from the EPP, which contains the other Conservative parties in Europe, and this is what his own Members of the European Parliament have said about it. Mr. Struan Stevenson has said:

"We would have to sit round the table on a weekly basis with these fascists and nutters"—[Interruption.]

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Michael Martin (Speaker)

Order. If hon. Members stop shouting, I would be able to hear what the Prime Minister has to say.

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Tony Blair (Prime Minister; Sedgefield, Labour)

It is actually worse than that. If the Conservatives withdraw from the EPP, Jean-Marie Le Pen will sit there, Mrs. Mussolini will sit here, the Conservative party will sit there and, worst of all, Robert Kilroy-Silk will sit there. [Laughter.] Before the hon. Gentleman attacks my leadership in the European Union, he should start to exercise some himself.

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Charles Kennedy (Party Leader; Ross, Skye and Lochaber, Liberal Democrat)

As the Prime Minister knows, the Liberal Democrat party has consistently supported the enlargement of the EU and welcomes that development, which, following the collapse of the Berlin wall, is good for us in Europe and for the world generally. I acknowledge that that development must come with a financial price tag in order to meet moral, political and economic objectives. Having achieved a degree of expansion, we also welcome the opening of accession talks with Turkey and Croatia and the approval of candidate status for Macedonia in this presidency.

Given the ideals that the Prime Minister properly set out at the beginning of the UK presidency, there is a great deal of disappointment with its conclusion, not least where common agricultural policy reform is concerned. First, is not the truth of the matter that the stitch-up between France and Germany over CAP reform, to which the Prime Minister had to put his name, that took place two years ago is what has made the British position so difficult today?

Secondly, the French managed to call his bluff on the issue at the summit. The Prime Minister has said:

"and then to open up the prospect of a radically reformed Budget midway through the next Budget period."

The French Foreign Minister has said that there will be no reform of CAP before 2013.

Those two statements do not marry up. Will the Prime Minister confirm that when the much-vaunted review takes place, it will consist of a review by the Commission, which will result in a document being submitted to a subsequent Council of Ministers, which will decide the matter? The review carries no more force or persuasiveness than that.

In terms of pursuing long-term British interests, albeit that this has been a somewhat disappointing presidency, does the Prime Minister agree that disengagement within the European Parliament or elsewhere is a recipe for absolute disaster? This at a time when someone is making speeches about pursuing a green environmental agenda; indeed, Europe is a very logical place to pursue that. In the last European Parliament, the British Conservatives held the chairmanship of the Environment Committee. If they pursue their current course of action, they will not hold the chairmanships of any committees. That will be a loss not only for them but for Britain.

The outcomes of this summit are disappointing but not disastrous. It deserves to be particularly disappointing for those Eurosceptics who want to see Britain fragmented from Europe, rather than Europe succeeding in the longer term.

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Tony Blair (Prime Minister; Sedgefield, Labour)

I thank the right hon. Gentleman for his general welcome for what we have done. One can only imagine what would have happened had we failed to reach a budget deal this December in terms of our relationships with the central and eastern European countries who are our allies, and of course with other new Governments, not least the German Government.

The right hon. Gentleman is absolutely right to draw attention to what was said in June. I would repeat what I said in this House, if I may, when I reported from the Brussels Council:

"I proposed that we have a fundamental review of the EU budget, reporting in time for us to be able—midway through the next financial period—to alter fundamentally the structure of the budget, dealing both with the rebate and the CAP."

I went on to say:

"In the meantime, of course, we would ensure that we paid our fair share of enlargement."—[Hansard, 20 June 2005; Vol. 435, c. 524.]

The position is very clear. The opportunity to get the fundamental reform will come through the review. Twelve other countries joined with France in saying that they do not wish to disturb the CAP deal that was done in 2002. Of course, had we not been able to conclude that deal in 2002, enlargement would not have happened, because that summit concerned enlargement in respect of future spending. It is worth pointing out to people who criticise the deal reached in 2002 that, without it, we would never have got those countries coming into the European Union in 2004.

As the right hon. Gentleman said, there will, however, be a major battle when the review is published. As the President of the Commission made clear today, it will be a fundamental review of what the money is spent on and how it should be spent. It will also, of course, be about a proper and sensible way of deciding that according to wealth people should pay, and according to need they should receive. The one thing that is obvious is that the budget does indeed need fundamental change, but the whole point about getting this deal in December is that, without it, the new central and eastern European countries could not have planned ahead for the next budget period. That is why we had to have an immediate deal in December so that they could have the certainty of the money coming to them, and then, in the medium and longer term, the prospect of the mid-term review that would allow us fundamentally to change the structure of the budget.

The right hon. Gentleman is right that there will be a huge battle between the reformers and the non-reformers. But who are our allies in the reform struggle? They are the very countries in central and eastern Europe that, if we had not done a deal, would have been completely alienated from this country. No one should be in any doubt about that. After our ding-dong, I simply say to the Leader of the Opposition that it is important for the Conservatives to think very carefully about their position of withdrawing from the EPP. That would be a disaster in terms of this country being able to procure a good deal in Europe.—[Interruption.] The one thing that is very obvious from today's exchanges is that Euroscepticism is alive and well in the Tory party.

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Stuart Bell (Second Church Estates Commissioner; Middlesbrough, Labour)

Would it not have been absolutely shameful for this Government not to have agreed under their presidency of the European Union for transfers from the richer countries to the poorer countries? Would not we all be ashamed of ourselves had that not been the case? Is it not a fact that the forward march of Europe was halted with the referendums in Holland and France in the summer? Has it not been restarted with this presidency, this budget and the reform that will ensure that such last-minute horse trading will never happen again?

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Tony Blair (Prime Minister; Sedgefield, Labour)

My hon. Friend is absolutely right. As I said a moment or two ago, it would have been disastrous for this country's future relationship with central and eastern Europe had we not done our level best to get a budget deal. If we had not got a deal, in 2007 the European Parliament would have taken over a set of annual budgets on the existing financial mechanisms, and those countries would have ended up with about a third or a quarter of the amount of money that they needed. It is hard to overstate the importance to those countries of getting this deal. That is why it would have been a disaster for this country not to have pursued it to a successful conclusion.

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Michael Howard (Folkestone and Hythe, Conservative)

Did not the Prime Minister know about the costs of enlargement when he told the House in June that he would not negotiate the rebate away, period?

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Tony Blair (Prime Minister; Sedgefield, Labour)

Which is why the rebate is rising, not falling.

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Gisela Stuart (Birmingham, Edgbaston, Labour)

As it is the season of good will and new-found co-operation across the parties, when my right hon. Friend addresses the European Parliament tomorrow, will he send our condolences to Conservative Members about their new-found neighbours, now that they have left the EPP? Will he also be very proud when we open negotiations with Turkey on 3 October, because in years to come that will probably be seen as even more significant than the budget negotiations? Will he say more about why he is so confident that the review in 2008 will lead to true reforms of the CAP?

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Tony Blair (Prime Minister; Sedgefield, Labour)

I thank my hon. Friend for what she said. It is obviously extremely important that we begin Turkey's accession negotiations.

Three things will drive people towards reform through the Commission's review. First, it is absolutely clear that people want a budget that is more rationally directed towards what they need for the future, including research and development and innovation. Even though the CAP has come down in the last 20 years from about 70 per cent. of the budget to 40 per cent., that still means that 40 per cent. of the budget is spent on 2 or, at most, 4 per cent. of the working population. Secondly, the World Trade Organisation negotiations will push people towards that. Thirdly, and perhaps most importantly—and this is why it is important that we keep the rebate on all CAP spending and on all spending in the European member states—there is absolutely no way that we will be able to get that reformed and restructured budget unless everything is taken into account, and that was why it was important that the review specifically mentioned both the CAP and the rebate.

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Ian Paisley (North Antrim, DUP)

The Prime Minister mentioned that there was a discussion at the talks of terrorism and the counter-terrorist plan. Did he discuss the counter-terrorist plan in Northern Ireland? It seems strange to the people of Northern Ireland that the tragic situation that is developing in Northern Ireland cannot be debated in this House of Commons, but the Prime Minister can discuss it at the talks and skim over it when he makes his report. I remind him of the promise that he made to me on Wednesday that he would consider whether more information could be given to the House of Commons, and I hope that he will keep that promise.

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Tony Blair (Prime Minister; Sedgefield, Labour)

On that last point, although it is obviously not the issue of the statement, I am looking at what more we can say and put into the public domain, but it must be done in accordance with the advice that we receive as to what is legally proper. We are looking at that and I think that it would be helpful if we were able to give some more information, but it can be done only with the consent of the proper authorities. I emphasise once again, and I hope that the right hon. Gentleman accepts this from me, that neither I, the Secretary of State nor Ministers were involved in the decision. It was a decision taken by the Director of Public Prosecutions, as it should be. I am looking carefully at what more can be said, but it has to be within the bounds of what is legally proper.

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John McFall (West Dunbartonshire, Labour)

I congratulate the Prime Minister on achieving a deal that ensures that enlargement goes on. Does he agree with the shadow Foreign Secretary when he says that it holds out the prospect of an enlarged area of peace and stability, the former leader of the Conservative party when he says that it will heal the divide that scarred the continent, and the Leader of the Opposition, with his short-term memory, who I remind him stated that enlargement will be extremely important? Can the Prime Minister detail for me how much the budget deal will cost year on year from 2007 to 2014 in addition to what has already been budgeted for?

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Tony Blair (Prime Minister; Sedgefield, Labour)

In respect of the first point, it is important that people understand that if we support enlargement, it is absurd to say that we are not prepared to pay our fair share of the costs of enlargement. Over the budget period, the result of giving up a proportion of the rebate—it is only a proportion between 2007 and 2013—is a maximum cost of €10.5 billion. Once the increased budget is taken into account over the next period—this illustrates the absurdity of the suggestion that only Britain is paying—the total cost for France will be in the region of €31 billion. The contribution of Britain will be significantly less than that.

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William Cash (Stone, Conservative)

In those heady days in 1997, I suggested to the Prime Minister that he was walking on water now but that he would drown in Europe. With the failure of the European constitution, the Lisbon agenda and his negotiations over the rebate, and having conceded effective victory to Angela Merkel and Jacques Chirac and being outflanked by them, does he accept that his European legacy is holed below the waterline?

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Tony Blair (Prime Minister; Sedgefield, Labour)

Virtually whatever we might do, the hon. Gentleman will think the same, which is no surprise as we have fundamentally different views of Europe. He wants Britain out of the European Union, whereas I think, particularly when the European Union is enlarging and pulling in countries that share our vision of Europe, that it is absurd for Britain in the 21st century to withdraw from Europe. We have a different set of objectives from him, which makes him not a very good judge of whether we are successful or failing.

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Dari Taylor (Stockton South, Labour)

"Countries such as Poland are crying out for investment in their infrastructure, and wise use of structural funds could be crucial in helping their economies to prosper."—[Hansard, 5 June 2003; Vol. 406, c. 372.]

I hope that my right hon. Friend agrees with that quotation from the previous shadow Foreign Secretary. Is the budget that my right hon. Friend has been so bold in negotiating sufficient to assist Poland and other countries that desperately need our help?

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Tony Blair (Prime Minister; Sedgefield, Labour)

My hon. Friend is right that Poland stands to gain about €60 billion in economic development funds over the next financial period. That is of enormous assistance. We still have not had an answer from the Conservative party about whether it agrees that we should pay anything towards the costs of enlargement. Perhaps it will tell us now.

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Tony Blair (Prime Minister; Sedgefield, Labour)

The hon. Gentleman says from a sedentary position that we are in government, as if that is the answer. Occasionally, it is customary for the Opposition to have a position.

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Iain Duncan Smith (Chairman of the Social Justice Policy Group, Conservative Party; Chingford and Woodford Green, Conservative)

Back in June, the French were in disarray, President Chirac had lost the referendum on the constitution and was in a weak position, and the Prime Minister looked strong. Today, we are paying £1 billion more, and President Chirac has won the rebate and denied CAP reform. Does the Prime Minister realise that Britain, and not only him, now looks weak and pathetic in the eyes of the European leaders?

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Tony Blair (Prime Minister; Sedgefield, Labour)

How does the right hon. Gentleman therefore explain that France will pay more than Britain in the next financial period? France is also paying money. Let me try to educate him again. All the wealthy countries are paying more over the next budget period because the whole point of enlargement is to transfer from the wealthy to the poor. Let me read to him what he said about enlargement:

"The Prime Minister is right to say that enlargement is a great prize that is worth fighting for. The 10 countries seeking membership of the EU will bring 70 million customers for British goods and services in a single market extending from the Atlantic to the Baltic."—[Hansard, 28 October 2002; Vol. 391, c. 543.]

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Iain Duncan Smith (Chairman of the Social Justice Policy Group, Conservative Party; Chingford and Woodford Green, Conservative)

That is nothing to do with it.

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Tony Blair (Prime Minister; Sedgefield, Labour)

The right hon. Gentleman says from a sedentary position that that is nothing to do with it. The problem with the Tories is that they have not yet realised that Euroscepticism is a problem for them, not a solution. At some point, they might wake up to that. It is absurd, however, to say that one is in favour of enlargement, and that everybody else should pay for it but that we should not.

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Doug Henderson (Newcastle upon Tyne North, Labour)

Perhaps the barmy army on the Opposition Benches does not understand the importance of reaching a budget settlement and the link to future trade, but the British people do, British industry does, British workers do and most Members of Parliament do. Can my right hon. Friend give the Opposition more of what he has already given them this afternoon?

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Tony Blair (Prime Minister; Sedgefield, Labour)

I simply point out that in each of the central and eastern European countries, as my hon. Friend rightly implies, there will be a tremendous development in trade in goods and services. As a result of the economic development of Ireland and Spain, for example, our trade over the past few years has grown enormously. Our trade with those countries is now about £40 billion a year, which is of enormous benefit to this country. When we pay our fair share—and it is our fair share, not more—we are actually making an investment, not merely in countries that have supported us politically but in countries whose economic success is of benefit to Britain. There are orders for goods and services as their infrastructure improves, and so forth.

My hon. Friend is absolutely right. That is why it is important to recognise that this is not just about a deal at the European Union. It is also about fulfilling our role as champion of a Europe that is enlarging because enlargement, in the end, is in Britain's interest.

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Alex Salmond (Parliamentary Leader (Westminster), Spokesperson (Constitutional Affairs; Treasury); Banff and Buchan, Scottish National Party)

The wealthy countries may well be paying more, but they are also getting more. Will the Prime Minister confirm that as he sought agreement, he agreed to €2 billion extra for Spain and regional development funding, €2 billion extra for Italy, the regions of France and structural funding, €400 million extra for Germany, €150 million extra for Sweden, and the same for Austria? Meanwhile, the highlands and islands and the rest of Scotland will have a €500 million shortfall under the Commission's proposals for the European regional development fund. Given that the Prime Minister achieved such a wonderful deal on the rebate, will he guarantee to Scotland and the regions of England and Wales that the Treasury will make up that shortfall pound for pound, euro for euro?

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Tony Blair (Prime Minister; Sedgefield, Labour)

I have made clear what we can and cannot do in respect of the structural funds. Incidentally, the figures that the hon. Gentleman read out were completely wrong. Spain, which has been a massive net recipient, will receive some €40 billion less. Wealthy countries that have been big net recipients will become net contributors. That process is inevitable when—as I tried to explain for, I think, the fifth time—the wealthy countries pay more to the poorer countries. That is what enlargement is about, and in the end it will benefit Scotland as well as the United Kingdom as a whole.

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Hugh Bayley (City of York, Labour)

We all know who was responsible for blocking cuts in European agriculture subsidies, and it was not our Prime Minister. Will he reassure Make Poverty History that he will continue to campaign for trade justice? Will he also talk to the friends that the United Kingdom has made in francophone Africa as a result of the progress that has been made for Africa during our presidency and try to persuade them and the Canadians to raise the case for CAP reform with France, Belgium and Luxembourg in the Assemblée parlementaire de la Francophonie?

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Tony Blair (Prime Minister; Sedgefield, Labour)

I certainly will. My hon. Friend is right that it is important for us to keep up the pressure during the rest of the Doha trade round. The phasing out of agriculture export subsidies by 2013 represents at least some progress, and the aid-for-trade deal is also extremely important. However, I am aware—as, I think, are many others in the international community—that we must do far more if the trade round is to be a success.

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Michael Ancram (Devizes, Conservative)

For all his histrionics, is the Prime Minister really impervious to the feelings of betrayal among the people of this country who were led by him to believe that the British rebate was safe in his hands? Is not the truth that last weekend he gave away British jam today in return for French jamais tomorrow?

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Tony Blair (Prime Minister; Sedgefield, Labour)

I was pleased when the right hon. and learned Gentleman got to his feet, because I have a quotation from a speech that he made when he was shadow Foreign Secretary. This is what he said, talking of enlargement:

"structural funds cannot continue to be used as they have been . . . Now these funds will be needed elsewhere. Countries such as Poland are crying out for investment in their infrastructure, and wise use of structural funds could be crucial in helping their economies to prosper. I hope that that will also be pursued."—[Hansard, 5 June 2003; Vol. 406, c. 372.]

Well, we pursued it.

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Louise Ellman (Liverpool, Riverside, Labour)

The Prime Minister has reported that Iran was condemned for its President's recent remarks about Israel. Did that refer to Iran's threat to wipe Israel off the map or was it to do with holocaust denial? What discussions took place about how to prevent Iran from acquiring nuclear weapons?

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Tony Blair (Prime Minister; Sedgefield, Labour)

I can tell my hon. Friend that it was in respect of the remarks about holocaust denial, as we had already condemned at an earlier Council the comments about the state of Israel. We will continue to work closely with our European partners and with the United States to try to make sure that Iran faces up to its international responsibilities. As my hon. Friend rightly implies, those remarks caused enormous offence right across the international community and raised a whole range of doubts and concerns about the Iranian regime.

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Peter Viggers (Gosport, Conservative)

These proposals have enormous financial implications, so what opportunity will the House have to debate and then vote on them?

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Tony Blair (Prime Minister; Sedgefield, Labour)

I am sure that there will be plenty of opportunity to debate them. It would be nice if at least one of the Conservative Members who are asking me questions would confirm whether they accept that we have to pay something for enlargement. Surely that must be right.

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Edward Balls (Normanton, Labour)

Given that in the 21 years since the rebate was first negotiated in 1984, we have yet to see any fundamental reform of the common agricultural policy, does the Prime Minister think that this weekend's deal brings forward the prospect of serious CAP reform? What tangible steps does he believe that the Government and hon. Members can take between now and 2008 to make the prospect of real reform more likely?

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Tony Blair (Prime Minister; Sedgefield, Labour)

The important thing is that the Commission's review will relate to the whole of the budget, including the CAP, abatement and everything to do with how the EU is financed. The EU will then have to take decisions on the basis of that review, but I think that there is increasing recognition that we need that fundamental restructuring. It was never going to happen this December; it was going to happen only once a deal was secured for the short term this December and then followed up by a mid-term review that would allow us to make that fundamental reform. It is possible to achieve that, but it will mean increasing the pressure for change within Europe. Frankly, that is best achieved by forming alliances with other like-minded countries in the EU, and those alliances would all have been put at risk if we had not tried to secure a proper budget in the meantime.

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John Pugh (Shadow Minister, Transport; Southport, Liberal Democrat)

What provision is made in the settlement for structural funds received by Cornwall and Merseyside?

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Tony Blair (Prime Minister; Sedgefield, Labour)

I do not know the exact details, but perhaps I can write to the hon. Gentleman on that matter. Overall, of course, one has to accept that the structural and cohesion fund budget gets switched from the wealthy to the poor. That is true.

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Tom Levitt (PPS (Rt Hon Hilary Benn, Secretary of State), Department for International Development; High Peak, Labour)

Does my right hon. Friend agree that we had a rebate in the first place only because others acknowledged that there were injustices in the system? As we work towards getting rid of those injustices—and, more importantly, as we work to ensure that they are not meted out on those more vulnerable or weaker than ourselves—it is natural for the rebate to be adjusted accordingly. Does he agree that the deal is not only honourable and—

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Tony Blair (Prime Minister; Sedgefield, Labour)

There is a simple way of testing the proposition that my hon. Friend has rightly raised. Between 1984 and 2004, we paid roughly double the net contributions that France paid, but for the next financial period and for the first time in the history of the European Union, we will be in parity. That is why, frankly, it is so absurd to say that we have somehow got nothing from the deal. We have actually achieved parity for the first time. Naturally, both France and Britain will have to pay more if we want to see developments in eastern Europe.

Underneath all the debates and arguments lies an important question—not just about budget reform, but in relation to enlargement—about the direction of Europe. Do we want further enlargement of the EU? Macedonia is a small country so enlargement can happen fairly easily there, but Croatia and Turkey are also coming up for membership. There is no way that we will be able to create the right context of consent across Europe for those major enlargements—I happen to believe that they are in the long-term interest of this country—unless we have a more rational budget. Such a budget will have to be decided in the future.

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Richard Shepherd (Aldridge-Brownhills, Conservative)

When the Prime Minister made a statement to the House and stressed that the rebate was non-negotiable, he must surely have been aware that the EU had expanded to the east and that the common agricultural policy was dire and had grievous effects on the third world and the poorest nations, which the Government claim to be dedicated to helping. Does he realise that the House and the country believe that he threw away a good negotiating hand for nothing?

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Tony Blair (Prime Minister; Sedgefield, Labour)

Except that the rebate is rising and we have to pay our fair share of enlargement. But anyway, let me read out to the hon. Gentleman what I actually said back in June:

"I proposed that we have a fundamental review of the EU budget, reporting in time for us to be able—midway through the next financial period"—

not now, but midway through the next financial period—

"to alter fundamentally the structure of the budget, dealing both with the rebate and the CAP."

I went on to say:

"In the meantime, of course, we would ensure that we paid our fair share of enlargement."—[Hansard, 20 June 2005; Vol. 435, c. 524.]

That is precisely what I have secured.

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Mike Gapes (Ilford South, Labour)

The Prime Minister referred to the importance of our relations with the 10 new member states of the European Union, and he will be aware that one of them—Slovakia—will have the presidency of the EU in 2008. Is he also aware that there will be great support in the Balkans generally for the decision to give Macedonia candidate country status? Peace and security in the Balkans is vital for all of us in Europe and without this agreement, it could have been put at risk.

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Tony Blair (Prime Minister; Sedgefield, Labour)

My hon. Friend is of course absolutely right and that is another reason why this agreement is so important. Some Opposition Members seem to think that countries hold the presidency for a year, when, in fact, they hold it for six months. As my hon. Friend rightly says, the other presidency in 2008 is Slovakia, which is of course a great supporter of reform, but in any event, the real point that he makes is worth emphasising. In the end, we want to see the European Union expand to take in those Balkan countries that for decades—for centuries, even—have been a huge problem for the whole development of the European Union. If we ended up having no budget in respect of this enlargement—relating to central and eastern Europe—there is no way that we could have prepared the ground for future enlargement to include those Balkan countries. Whatever people may say about agreements such as this—there is always criticism of them—in the end, we had to do two things: to get an immediate deal that secures the short term and to get a process agreed that allows us to get the longer-term reform. My hon. Friend is absolutely right: had we not done the first thing, the enlargement that I assume all of us want to see—toward Croatia and Macedonia and, in time, other Balkan states—would have been put at risk.

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Brian Binley (Northampton South, Conservative)

I am most grateful, Mr. Speaker; you may call me what you wish.

There is clearly going to be a shortfall in respect of Treasury expectations and the lost rebate. Will the Prime Minister make it up through direct taxation, indirect taxation or more stealth taxes?

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Tony Blair (Prime Minister; Sedgefield, Labour)

Actually, as a result of the agreement, we start off with a zero percentage of the costs of enlargement and build up over time. I assume from what the hon. Gentleman said that he does not agree with paying any money toward enlargement, which is not very sensible.

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Angela Eagle (Wallasey, Labour)

May I warmly congratulate my right hon. Friend on his skill in bringing to a successful conclusion the EU budget negotiations, and on reaching an agreement that enables the new European Union countries—the EU 10—to have at their disposal during the next budget period a sum twice the size of the post-war Marshall plan in order to develop their countries, which is in all our interests? Could he give me his opinion—

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Tony Blair (Prime Minister; Sedgefield, Labour)

I thank my hon. Friend for that question and she is right to say that there will be a big transfer of money, but there are other interesting points to note about the central and eastern European countries. For example, my conversations with the Prime Minister of Estonia and with representatives of many of the other central and eastern European countries showed that they believe that they will very quickly become net contributors to the European budget. Their economies are doing extremely well, they are expanding quickly and they are massive economic reformers. What all of them therefore need is this seed corn investment, which allows them to grow quickly. In time, of course, the result will be a massive increase in trade between those countries and this country. That is an example of the way in which the European Union has granted us such prosperity over the years.

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David Curry (Skipton and Ripon, Conservative)

What steps can the Prime Minister take to ensure that the Doha trade round does not drift into failure in the early months of next year? Can he assure us that the 2008 expenditure review will not prevent the European Union from making a new offer on agricultural subsidies a great deal earlier than that, given that, in the light of world prices, the abolition of export rebates is a relatively low-cost option?

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Tony Blair (Prime Minister; Sedgefield, Labour)

I actually think that the opposite is true. Obviously, it is important that we do everything we can to secure progress in the Doha trade round, and that requires action by the European Union, the United States and Japan, as well as by Brazil, India and the other emerging economies. The review allows us to be in the position of saying that we are going to need fundamental reform in order to meet our trade obligations. The Doha round, even if it is fully successful, will not create immediate agricultural reform: it will set that reform out over a period of time. For example, export subsidies will be phased out by 2013. That helps us to get a better deal in the mid-term review for Europe as well as the individual countries.

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Jim Sheridan (PPS (Team PPS), Ministry of Defence; Paisley and Renfrewshire North, Labour)

Can my right hon. Friend assure the House that the additional resources afforded to our eastern European partners will not be used, directly, indirectly or through creative accountancy, to undermine this country's manufacturing base?

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Tony Blair (Prime Minister; Sedgefield, Labour)

I assure my hon. Friend that the rules that apply mean that the economic development of those countries must take account of the criteria set out for all spending of structural and cohesion funds. However, there is a bigger positive for us. Those countries will increase in wealth and growth quickly, and that will be a market for our manufacturing industry.

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Edward Leigh (Gainsborough, Conservative)

Would it be a fair summary to say that originally we were not going to give up any of the rebate, then we would give it up only for fundamental reform of the CAP, and now we will give it up to pay for enlargement? If that is not the case, what concrete reforms will there be of the CAP before 2013? Would it not have been more honest of the Prime Minister to have come to the House and said that to us six months ago?

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Tony Blair (Prime Minister; Sedgefield, Labour)

I have just read out what I said six months ago, and that is not an accurate summary of what I said. The rebate will rise in value and we will receive more back in the rebate in the next financial period than in the last. The rebate will remain on all agricultural spending. The rebate will remain on all spending in the original European 15. But we cannot say that those poorer countries should pay the rebate in respect of the money going to their economic development. Otherwise we would not be doing what I said in June that we should, which is in the meantime—before the fundamental CAP reform takes place—to pay our fair share of the costs of enlargement. If we had refused to do that, there would have been no budget deal and there would have been crisis in all the central and eastern European states, and we would have been blamed for that. That would not have been very sensible negotiating.

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Tony Lloyd (Manchester Central, Labour)

My right hon. Friend rightly pointed out that our natural allies in central Europe would have felt betrayed by Britain if we had failed to reach a deal. If we had betrayed our own national interest in not getting a deal, with whom would we have negotiated in the European Parliament and with whom would a future Tory Government negotiate in that Parliament?

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Tony Blair (Prime Minister; Sedgefield, Labour)

As I understand it, the position of the Opposition is that they would withdraw from the Conservative party grouping in the European Parliament. That would have the most serious repercussions for this country's ability to make its influence felt, which is no doubt why the previous leaders of the Conservative party, including the shadow Foreign Secretary, refused to do it.

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David Heathcoat-Amory (Wells, Conservative)

This descent by the Prime Minister from tough talking in advance to concessions and surrender is such a familiar path for his European policy that this latest humiliation is no surprise. But why will we pay twice the amount into a budgetary and control system in Brussels that is so riddled with corruption and inefficiency that the auditors have not signed it off for the past 11 years? Was that raised at the summit—

Photo of Tony Blair

Tony Blair (Prime Minister; Sedgefield, Labour)

The right hon. Gentleman and I just have a fundamental disagreement about Europe. I happen to believe that having championed the cause of enlargement it would be absurd for this country to say that we were not prepared to pay for it. That is our position. He apparently wishes to support enlargement but would refuse to have anything to do with paying for it. I would say that that is a ridiculous position. Sometimes it is actually better to have a situation in which we work with our allies to secure a proper deal, which will mean—as I said earlier—that France will actually pay more than us in the difference between their net contributions in the next period compared with the last. It is better to do such a deal than to end up alienating every ally in Europe and getting nothing for this country.

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Wayne David (PPS (Rt Hon Adam Ingram, Minister of State), Ministry of Defence; Caerphilly, Labour)

As part of this agreement, west Wales and the Valleys will receive £1.3 billion in structural fund assistance over the next seven years. Does my right hon. Friend agree that that will be a tremendous boost to the Welsh economy?

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Tony Blair (Prime Minister; Sedgefield, Labour)

Of course, which is another reason why it is a good deal and I thank my hon. Friend for reminding me of it.

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Nigel Dodds (Belfast North, DUP)

I note that the Chancellor has left the Chamber. Is that because he wants to lock the Treasury against further raids by the Prime Minister or is it to find the £7 billion? Can the Prime Minister assist the Chancellor and the House by telling us which areas of public expenditure will be targeted for cuts as a result of his largesse in Brussels?

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Tony Blair (Prime Minister; Sedgefield, Labour)

From what the hon. Gentleman is saying and from what the Conservatives are saying, they would not pay anything towards the costs of enlargement—[Interruption.] The Conservative party really has to understand that there is a choice. If we agree with enlargement, and if we agree that enlargement means a transfer from the wealthy to the poor, given that we are a wealthy country, I simply ask in all logic: how can they say that all other wealthy countries should pay but we should not? That is not a sensible position.