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Lord Strathclyde (Conservative)

My Lords, this might be a convenient moment to repeat a Statement on the European Council made a few minutes ago in the House of Commons by the Prime Minister. The Statement is as follows:

"Last week's Council was unable to reach agreement on a seven-year budget framework. This Government rejected a proposal that would have risked UK taxpayers paying for unaffordable increases in the EU's annual budgets. We did so together with like-minded allies from a number of different countries. As net contributors to the EU, these countries-like Britain-write the cheques. Together, we had a very clear message: we are not going to be tough on budgets at home and then sign up to big increases in European spending in Brussels.

Let me explain to the House the proposal we rejected, why a deal is still doable, why it is still in our interests to work to achieve that deal, and why throughout these negotiations I will continue to protect the UK's rebate.

Our objective for EU spending in the seven years to 2020 is clear: we want to see spending reduced and will insist on at least a real-terms freeze. As the House knows, the actual EU budget is negotiated annually. What we were negotiating in Brussels last week-and will return to again next year-is the overall framework for the next seven years, which includes the overall ceilings on what can be spent.

During the previous negotiation, which covered the period 2007-13, the previous Government increased the payments ceiling by 8%. The commitments ceiling was effectively set at €994 billion-well above the level of actual spending. It was a bit like having a credit card limit far above what you can afford. It was an open invitation to the EU's big spenders to push for higher and higher spending every year, and we are still paying the price for that decision.

This year, 2013, the Commission and European Parliament are attempting to grow the annual budget by another 6.8%. I am determined to get these ceilings down in line with what we can afford. Prior to the Council, the Commission produced a ludicrous proposal for increasing the commitments ceiling still further to over €1 trillion. We said no. The Cypriot presidency produced a slightly lower proposal. Going in to the Council, the President of the Council, Herman Van Rompuy, produced a new proposal: this time, a ceiling of €973 billion.

As you can see, we were making progress in getting the ceilings down. But as I and other leaders made clear, it was not enough. We set out a number of very reasonable ways in which the seven-year ceiling could be reduced even further, by tens of billions more. What was disappointing at the Council was that, having heard these proposals, the President offered a new proposal that failed to reduce significantly the previous total, and simply redistributed money to buy off different countries.

In a seven-year budget of almost €1 trillion, the idea that there are no real savings to be found is simply not credible. For example, when it came to the bureaucratic costs of the European Commission, not a single euro in administrative savings was offered-not one euro. We need to cut unaffordable spending. The deal on the table was not good enough and that is why we-and others-rejected it.

However, we believe that a deal is still doable. There is absolutely no reason why we should not be able to reduce the seven-year ceiling down to the level needed. There is plenty of scope for significant savings in the common agricultural policy and the structural and cohesion funds, but there are savings to be had in the rest of the budget as well. For example, freezing the ceilings for security, justice and external spending would allow €7.5 billion of additional savings. There are some programmes, like Connecting Europe, which have enormous proposed increases in their budget that can be radically scaled back.

As I have said before, there is simply no excuse for not taking a much tougher approach towards the EU's administrative costs. The EU institutions have simply got to adjust to the real world. A 10% cut in the overall pay bill would save almost €3 billion. Relaxing the rules on automatic promotion at the European Commission would save €1.5 billion. Reducing the extraordinary generosity of the special tax rules for Brussels staff-the levy-could save around another €1 billion. Changes to pension rights could save another €1.5 billion. These are all perfectly reasonable proposals. That is why a deal is still doable, and we will push hard for these reductions when negotiations resume next year.

Briefly, let me be clear about why we want a deal. If no deal is reached, the existing ceilings are simply rolled over and annual budgets are negotiated on a year-by-year basis, taking account of those ceilings. Crucially, we would not get the reduction that we need in the seven-year budget ceilings negotiated by the previous Government. The credit-card limit would stay beyond what is affordable, tens of billions of euros higher than the deal that we actually rejected at this council. It is in our interest to get a deal. That deal must not come at any cost. We must not lock in unaffordable ceilings for the next seven years. If necessary, we may have to galvanise a coalition of like-minded countries to deliver budgetary restraint through annual budget negotiations each year.

Finally, let me say a word about the UK's rebate. As well as ensuring fairness in terms of the overall size of the EU budget, it is also essential to ensure fairness in the net contributions to that budget that each country makes. At this council we faced, as ever, determined pressure from many sides for our rebate to be slashed. The changes on the table in the proposal in front of us would have cost the UK more than a billion euros every year, but I was clear that all of this was completely unacceptable.

Britain more than pays its way in Europe. On a per capita basis Britain is the 11th richest nation and yet as a share of our national income we are the third largest contributor and that is with the rebate, or what remains of it after so much was given away by the previous Government. Without it we would have the largest contribution in the European Union, double that of France and almost one-and-a-half times as large as Italy's or Germany's. That would be completely unfair. It is why Margaret Thatcher was right to fight so hard to win the British rebate. It is why the previous Labour Government did this country such a disservice in agreeing to give part of it away. It is why no Government that I lead will ever put that British rebate back up for negotiation.

We have put a marker down at this council. We stood up for the taxpayer. Together with like-minded allies we rejected unacceptable increases in European spending and we protected the UK's rebate. We are fighting hard for the best deal for Britain and that is what we will continue to do. I commend this Statement to the House".

My Lords, that concludes the Statement.

4:57 pm
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Baroness Royall of Blaisdon (Labour)

My Lords, I am grateful to the noble Lord the Leader of the House for repeating the Statement give to the other place by the Prime Minister. Clearly this is not the first EU budget negotiation to go into a second round and it will not be the last. However, the most important question is the deal that is eventually delivered. I would like to ask the noble Lord three main questions about the budget level, what the budget is spent on and the Government's negotiating position.

On the budget level, we on these Benches were surprised by one omission in the Statement? Somehow the Prime Minister seemed to forget to thank the Members of the other place for sending him into the talks with the strongest negotiating mandate. The Government now say that there is a widespread support in Europe for a tough settlement. Can the Leader of the House say what proposals there are for meeting the call in the other place for a real-terms cut? Does the noble Lord the Leader of the House agree that the truth is that the Government should have been starting to build the alliances for a real-terms cut in spending a long time ago? The Government should have spent the last two and a half years building alliances rather than alienating our partners.

In relation to the deal that still needs to be done, can the Leader of the House confirm in precise terms what the Government mean by a real-terms freeze? We have the Government's definition, set out by the then Economic Secretary in her memo of 16 July 2011, that is to say a European budget of €885 billion in actual payments over the seven-year commitment period. Will the Leader of the House confirm that that remains the Government's position?

Then we have the composition of the budget, which is as important as the budget level itself. We need to reshape the budget so that it supports jobs and growth with investment in infrastructure, energy, and research and development, which would be of real benefit to the people of this country and of Europe as a whole.

The Prime Minister has in the past called for major reform of the Common Agricultural Policy and as he arrived in Brussels for this Council meeting, he said that this is not "a time for tinkering". Indeed. The Prime Minister said at his press conference on Friday:

"Already being contemplated is a big cut in agricultural spending ... Our point has been you don't have to go beyond that".

Will the Leader of the House explain what the "big cut" is that the Government are talking about? Will he confirm that the proposal on the table sees agricultural spending remaining on average at 38.3% of the European budget over a seven-year period-almost exactly the same level as it is now? Do the Government really believe that this is the major reform required? Does the Leader of the House agree that, what is even worse, in order to keep agricultural subsidies high, money is being taken from much needed investment in energy and other infrastructure? Will he say whether the Prime Minister objected to this part of the proposal?

As we anticipate the further negotiations in the months ahead, the wider stance of the Government towards the EU will clearly have an impact. The Prime Minister says that he is in favour of us remaining a member of the EU, which I of course welcome, but, last month, the Education Secretary briefed that he was open to leaving the EU. The Work and Pensions Secretary is said to be of the same view, while only on Saturday the chairman of the Conservative Party said that we should threaten to leave. Today, we have the new vice-chair of the Conservative Party touring the studios not about a budget deal but about doing a deal with UKIP. Do the Government believe that these divisions help or hinder our national interest in delivering a budget deal? Why at this time of continuing negotiations is the Prime Minister allowing members of his Cabinet openly to undermine his own position on membership of the European Union?

It is no wonder that everyone, from British business to our European allies, believes that we are drifting towards exit. As we look ahead to the next round of the budget negotiations, the reality of the position seems to be that the Prime Minister has a divided party on Europe and that, instead of confronting the issue, he is just letting the problem get worse.

A good part of the Statement was spent talking about the deal that the Prime Minister did not do, but it is what the Government deliver for Britain which really matters. I believe that, as long as the Prime Minister allows his party to drag him towards the exit door, the Government will find it harder to build lasting alliances and far harder, therefore, to deliver for the national interest.

5:01 pm
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Lord Strathclyde (Conservative)

My Lords, I am increasingly at a loss to understand the noble Baroness's party's position on our great European home, particularly given her background in the European Commission. What did it do when it was in government? The Government in whose Cabinet she sat waved through above-inflation hikes to the previous EU budget; they gave away £7 billion of our rebate; they failed utterly and completely to get CAP reform in return; and they would not even use the veto to protect Britain's interests. All that goes on top of the promise in 2005, let us not forget, of a referendum on the Lisbon treaty. As soon as they got in, they forgot all about that.

The noble Baroness, speaking on behalf of the Labour Party, said that we do not have an alliance. The only reason that we are having this kind of Statement today is that we have a strong alliance. We have the Dutch, the Swedes, the Danes, the Finns and the Germans all backing our position. I would rather be with them on this issue than with the Labour Party. One might well ask where Labour's alliance is on all this. It seems to be muddled, with its leader in the European Parliament asking for more money in stark contrast to the leadership demonstrated by-

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Baroness Royall of Blaisdon (Labour)

My Lords, I should point out that Labour MEPs in the European Parliament, led very ably, voted together with the Conservative Members of the European Parliament against an increase and in favour of a freeze.

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Lord Strathclyde (Conservative)

My Lords, it is amazing how quickly policy changes in the Labour Party when it is in opposition, but its leader in Europe called for us to contribute £1 billion more to the EU. Its MEPs voted against freezing last year's budget at 2010 levels and its group in the Parliament has called for a 5% budget hike and new EU taxes. And then to our rebate-

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Baroness Royall of Blaisdon (Labour)

My Lords, that is not true. The leader of the group of European Socialists may well have voted in that way, but the leader of the British Socialists in the European Parliament, Glenis Willmott MEP, voted against, together with all British Labour MEPs.

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Lord Strathclyde (Conservative)

My Lords, I now wholly understand why I was confused. It just depends what kind of European Parliament socialist you are talking about. The noble Baroness also asked me about the real-terms freeze. We are of course in the middle of what will clearly be protracted and complicated negotiations. It is not possible for me to follow the noble Baroness into the detail of the numbers but we have said that we believe there is scope to reach agreement on a real-terms freeze, which would be a commendable objective to achieve. Furthermore, on the composition of the budget, if you look at the figures on agricultural policy, we were happy to go along with a cut from €336 billion to around €270 billion, which, with an added contribution from the Commission's administration savings, would have been sufficient. However, for some other European colleagues, that was a cut too far on the CAP and it was not accepted.

I finish by dealing with the conclusions of the noble Baroness. She accused us of trying to do backdoor deals with UKIP. I can confirm that there are no backdoor deals with UKIP or indeed with anybody else. As for the Prime Minister being undermined by members of the Cabinet, I absolutely assure the noble Baroness that he does not feel in the least bit undermined by anything that anybody has said because we have a completely united view that we should operate with British interests and in the best interests of the British taxpayer. That is what happened at the end of last week in the European Council budget negotiations and it is what we will continue doing in the future.

5:06 pm
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Lord Dholakia (Liberal Democrat)

My Lords, I thank my noble friend for repeating the Statement in your Lordships' House. Does he accept that under no circumstances should we deviate from a real-terms freeze and that we cannot support a real increase in EU spend at a time when there is deep fiscal tightening in the United Kingdom and indeed across Europe, with British taxpayers seriously feeling the pinch? Does he also agree that this is not the time for political opportunism? Government figures show that the UK household is, on average, up to £3,300 a year better off as a result of increased UK trading with the EU through the single market. There are 3.5 million more UK jobs and the cost of living is some £480 a year cheaper per person as a result of EU-wide competition driving down the cost of goods and services.

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Lord Strathclyde (Conservative)

My Lords, it is always good to hear my noble friend and his reiteration of the case for us being a member of the European Union, with the benefits that being part of the single market gives the British economy and indeed European consumers right across the Union. I also agree with what he said about our negotiating position. It is extremely important to get a message over to the European Commission that the days of continual increases in the budget have to come to an end. It is no longer possible for Governments to argue for reductions in their own national budgets while agreeing to extend those budgets in the European Union.

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Lord Williamson of Horton (Crossbench)

My Lords, I declare an interest in that I spent a good part of my career on European affairs in the British Government and some part of it in the European Commission. It is difficult to comment decisively on a negotiation that is not finished but will apparently be resumed in January in order to seek to agree on a multiannual budget framework for the EU. I know of course that, if agreement is not reached, we shall have annual budgets, so there will not be a deadlock. There will, however, be high costs, so we have to be attentive to that. There has also been talk about the British rebate-and there always is whenever there are EU financial negotiations. Can the Minister once again confirm that the UK rebate is subject to unanimity, that it cannot be changed without our agreement and that it is indeed an intrinsic part of the financial arrangements of the European Union?

The two key points of the negotiation of the noble Baroness, Lady Thatcher, in which I participated, was that the UK would receive a substantial amount of money-by the end of 2010, the British taxpayer had received £68 billion, which is well worth having-and that the rebate could not be taken away by qualified majority. My view is that we can sleep easy on that point.

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Lord Strathclyde (Conservative)

My Lords, it is always good to hear from the noble Lord, Lord Williamson, who brings to this House a good deal of experience and knowledge from having held such a senior position within the Commission. I agree that it is very difficult to comment decisively at this stage, as we do not have the normal conclusions that we would have at this time, and the negotiations are to continue. The noble Lord is also right to point out what happens if we end up with an annual budget, annual negotiations and annual rerating. I can confirm his understanding-I expect that that is his understanding because he was there when it was originally negotiated-that the UK rebate can be changed only if everyone agrees. In other words, I can confirm that it is subject to unanimity.

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Lord Grenfell (Other)

My Lords, one question that has not been answered needs answering. Where are the Government's red lines in the next negotiations? We do not know; perhaps the Government do not know. If at the next round in January, or whenever it is to be, no compromise can be found, or it is a compromise that does not match what the Government feel they can accept, what are the Government going to do? Will they veto the whole thing or what? We do not know-perhaps the noble Lord does not know-but let us at least get an idea of where those red lines might be.

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Lord Strathclyde (Conservative)

My Lords, I do not think it is sensible to go into every negotiation with a public view of what your ultimate red line might be. We have been clear that what is needed is, at best, a cut-

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Lord Grenfell (Other)

I am sorry, but on the Lisbon treaty we went into negotiations with red lines; they were very firmly laid out.

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Lord Strathclyde (Conservative)

My Lords, if I may revert to a sad period in our history, that negotiation was subject to the agreement of the British people. As soon as the Labour Party won the election, it reneged on that arrangement. The noble Lord himself voted against giving the British people a choice. If they had had a choice, we may have ended up with something rather different.

Going back to the noble Lord's original question, we feel that what is needed is, at best, a cut and, at worst, a real freeze to actual payment levels. Of course, we are still in negotiation. We will continue to have those negotiations until we start discussing it again. Noble Lords would not expect us to get into specific figures.

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Lord Howell of Guildford (Conservative)

Does my noble friend agree that this firm line from the Prime Minister has opened up an extremely healthy and much-needed debate on the future structure of the European Union-the so-called overall framework, which, as presently deployed, creates constant upward pressure on spending, which all parties deplore? It appears that we have many allies in taking the view that European reform is needed. Does my noble friend therefore agree that, if we can develop a view about how the European Union's overcentralised and outdated structure can be reformed, not only will we begin to have many allies throughout Europe but we ought to have the support of all sensible people in this House and elsewhere who want us to play a leading part in a modernised Europe that is fit for purpose in the 21st century?

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Lord Strathclyde (Conservative)

My noble friend reiterates a position that he has held for some time. Indeed, he has been very much in the vanguard of this thinking. I agree that there is a lot wrong with the centralised, bureaucratised and expensive European Commission and how it operates that needs to be sorted out. The EU itself faces its own internal crises, not least within the countries of the eurozone, but all that is an opportunity for those who think like my noble friend to come forward with proper modernisation, as he called it-proper reforms that I believe would command a great deal of support within both Houses of Parliament and throughout the rest of Europe. He is right in saying that my right honourable friend the Prime Minister is dealing with these negotiations in entirely the correct manner.

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Lord Davies of Stamford (Labour)

My Lords, has the noble Lord ever considered that our national influence in Brussels on this and other subjects would be enhanced-and therefore the national interest would be advanced-if the Government occasionally displayed some real, positive commitment towards our membership of the European Union, or even actual enthusiasm for it, rather than constantly carping, complaining and often threatening to leave? Would not such a more positive attitude better reflect the interests of the British people? Almost every subject on which the people of this country feel most strongly-whether it is prosperity within the single market, the future of world trade negotiations, our ability to respond to the challenge of climate change, our ability to cope with the threats of organised crime and terrorism, or the future peace and stability of our own region and regions around us on this planet-depends for its resolution on a cohesive and successful European Union. That must be part of the solution, not part of the problem, as the Government keep trying falsely to represent.

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Lord Strathclyde (Conservative)

My Lords, I think that the noble Lord is unduly pessimistic and that he exaggerates. There is no threat to leave; not from the Prime Minister, not from the Foreign Secretary, not from me-

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Lord Strathclyde (Conservative)

Nor from anybody else. There are those who suggest that at some stage there might need to be a referendum, and there may, but we will need to see what that will be about. On the contrary, I think that the noble Lord has completely misunderstood: we are very positive about the European Union, but a Europe which is cohesive and successful does not need to be bureaucratic, centralising and expensive. One needs only to hear my noble friend Lord Howell of Guildford talking with such enthusiasm about what a reformed Europe could look like to know the truth of that. I think that the noble Lord, Lord Davies, has exaggerated the position of the Government.

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Lord Stoddart of Swindon (Independent Labour)

My Lords, I have read the Statement and it seems to me to be an interim Statement. The Prime Minister is saying, "Not a penny more and, if possible, a lot less". I raise two points. The first concerns the position of the European Parliament, which seems to have a lot to say about expenditure but of course has no power to raise the money. I believe that the Prime Minister should be pointing out that those who raise the money-in other words, the nation states-should have the most say. My other point concerns the rebate and the report that sets out very clearly what a reduction in the rebate would mean for British taxpayers. I hope that the Leader of the House can promise that the Prime Minister will not do what his predecessor did and give away some £1 billion of our rebate for nothing tangible in return.

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Lord Strathclyde (Conservative)

My Lords, I totally agree with the noble Lord's concluding remarks. The Prime Minister has made it absolutely plain-if the noble Lord, Lord Grenfell, wanted a red-line issue, here is a red-line issue-that he will not surrender any part of the rebate. The rebate is absolutely crucial. There is a good reason for doing so: the last time a proportion of the rebate was surrendered by Mr Blair, he got absolutely nothing in return. It was a very positive act by the then Prime Minister, but it did not help the relationship or the further negotiations with the EU; quite the contrary.

I also agree with what the noble Lord said about the nation states. There is increasingly a division between the net contributors and the net benefactors within the EU, and it must be right that those who pay the most are listened to very carefully during these negotiations, which is why the UK finds itself not isolated over the course of the weekend but with some good friends who agree that these issues need to be debated and discussed in full and that reform needs to come.

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Lord Lea of Crondall (Labour)

My Lords, many of us have savoured the vision of Mrs Merkel swooning at Mr Cameron's feet-as they say in Manchester, "A likely story". I have two questions. The first is whether there is still some debate about what a freeze actually means. Where is the wriggle room in this debate? Is it to do with the price indices or the distance between the median amount in the present seven years and in the next seven, presumably with some prediction about price increases, or is it a freeze on where expenditure has now got to in 2012?

The second question is this: on the contrast in the Prime Minister's Statement between the freeze that he is looking for in Brussels and the "big cuts" in Britain, is it not the case that in Britain there is a balance and, while the cuts are certainly very damaging, part of the result of the zero or very slow growth is that with rising unemployment and expenditure on Social Security, disappointing returns to the Treasury from corporation tax and so on, the OBR and the Red Book both state that in real terms we are now on a plateau, absolutely level, and will be for three or four years, and in money terms we are creeping up? If I am wrong on that, could the noble Lord write to me and put a copy in the Library, or does he accept that in real terms a freeze is actually roughly where we are in Britain as well?

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Lord Strathclyde (Conservative)

My Lords, I am not entirely certain where the noble Lord is coming from. I am very happy to write to him, but we are fully supportive of the EU growth agenda. We want the single market to work; we want to extend it to make it deeper with better enforcement and better implementation. We want to increase the scope for the digital single market and e-commerce, and we want a far more ambitious programme of deregulation, which we believe will help growth. We are fully in favour of the EU's stance on free trade and trade with countries in the world, particularly with South Korea, Canada and Singapore. All this is in large part due to the influence and pressure that we in this country have exerted

We can get ourselves in a terrible pickle over what we mean by a real-terms freeze and which figures we are looking at, but we have been clear that we would like a cut and, at worst, a real freeze to actual payment levels-it is those levels that count; we want to protect the rebate; and we want no new taxes to finance the MFF. These are the key issues, but if I can clarify any of that in a letter to the noble Lord, I will certainly do so.

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Lord Elton (Conservative)

My Lords, the Statement came across as though the Government regarded a real-terms freeze as the best possible option. Given that, across Europe, Governments are actually having to reduce expenditure, could one not expect something rather better than that: a real-terms reduction?

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Lord Strathclyde (Conservative)

My Lords, that would be very attractive and definitely worth going for. However, I expect that while we might go for, at best, a cut, we may need to settle for, at worst, a real freeze to actual payment levels.

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Lord Pearson of Rannoch (UKIP)

My Lords, I press the noble Lord on two agreeable exchanges he had with his noble friends, the noble Lords, Lord Howell and Lord Dholakia. The noble Lord, Lord Howell, agreed that reform of the EU would be a wonderful thing. Does the Leader of the House agree that to get any reform of the European Union, to retrieve a comma from the treaties of Rome, requires unanimity among all 27 members? Secondly, on the claim of the noble Lord, Lord Dholakia, that 3 million jobs depend on our membership of the European Union, I thought that we had killed this old chestnut some years ago. Does the Leader of the House agree that we do indeed have 3 million jobs, making and exporting things to clients within the European Union, but they have 4.5 million jobs making and exporting things to us and we are in fact their largest client? Were we to leave the European Union, there is no prospect of any of our jobs being lost. On the contrary, millions of jobs would be created because we would be set free from the clutches of this corrupt octopus.

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Lord Strathclyde (Conservative)

My Lords, I do not think that the noble Lord has slain this particular chestnut, if that is not mixing my metaphors too much. The fact is that an enormous amount of jobs in this country are linked to our membership of the EU through exports to the EU. However, the noble Lord may wish to take heart that, despite tough conditions, British exports of goods have increased in the past two years to China by 72%, to India by 94% and to Russia by 109%. So we can get the best of all worlds: we can have rising exports, better trade within the single market and better trade with the rest of the world.

I think that my noble friend-I am sorry, the noble Lord, Lord Pearson-

Noble Lords:

Oh!

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Lord Strathclyde (Conservative)

I will get to my noble friends in a moment. The noble Lord was trying to create an artificial difference between my noble friends Lord Dholakia and Lord Howell of Guildford, of which I think there is none. In the coming months, we will find that the British Government are forceful in looking at ways in which some of the competences that are currently held in the EU could be returned to the United Kingdom.