European Council (Vienna)

– in the House of Commons at 3:30 pm on 14th December 1998.

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Photo of Tony Blair Tony Blair Prime Minister 3:30 pm, 14th December 1998

With permission, Madam Speaker, I will make a statement about the meeting of the European Council on 11 and 12 December which I attended in Vienna along with my right hon. Friends the Foreign Secretary and the Chancellor of the Exchequer and the Minister of State, Foreign and Commonwealth Office, my right hon. Friend the Member for Gateshead, East and Washington, West (Ms Quin). The Council conclusions have been placed in the Library.

The Council concentrated on employment and economic issues, Agenda 2000, enlargement, the future development of Europe and a number of foreign policy questions.

At Vienna—the last Council before the introduction of the euro by 11 member states—we confirmed and strengthened the strategy on economic reform and employment agreed at Amsterdam and Luxembourg last year and reinforced at Cardiff earlier this year. Macro-economic stability provides the essential basis for long-term growth. Supply-side reform must go hand in hand with that.

Member states have now submitted national progress reports on the reform of product and capital markets. Those will be subject to rigorous peer review in the first part of next year.

There will be a parallel review of national employment action plans, the first set of which were submitted during the UK presidency. At Vienna, we agreed revised employment guidelines on which next year's national action plans will be based. The new guidelines fully reflect British priorities. They place particular emphasis on tackling long-term unemployment; promoting equal opportunities; making a reality of lifelong learning; exploiting fully the potential of the service sector; creating the right climate for entrepreneurship; and reviewing tax and benefit systems to provide incentives for the unemployed to take up work or training. They promote social inclusion and examine regulations to ensure that they reduce barriers to employment. That work will be carried forward under the German presidency to produce an employment pact within the framework of a wider process aimed at employment, growth, stability and economic reform.

Jobs remain Europe's top priority. The strategy developed over the last 18 months is beginning to bear fruit, with more than 1 million new jobs created in the EU in the past year, including more than 250,000 in the UK, and the overall rate of EU unemployment falling below 10 per cent. for the first time since 1992. However, member states need to step up their efforts to implement real reforms in their labour markets, learning from one another. It was noteworthy that at Vienna representatives of small business people were included for the first time in the dialogue between Heads of Government, employers and unions.

Also in the economic field, we agreed new measures to complete the internal market, not least in financial services; to improve innovation; to increase the availability of risk capital; and to strengthen investment in infrastructure. We agreed on the gravity of the challenge posed by the millennium bug and the particular need to protect national and international infrastructure.

We also discussed the desirability of better economic policy co-ordination. A small part of that discussion concerned tax policy. The Council agreed that co-operation in that area is not aimed at achieving uniform tax rates or preventing fair tax competition; rather its aim is to reduce harmful distortions in the single market, prevent excessive losses of tax revenue and encourage employment-friendly tax structures. Work will continue on long-standing proposals on energy taxation and on taxation of savings, with a view to reaching agreement by next December. The UK Government will ensure that British interests—including those of the City of London—are fully protected and promoted in those discussions.

On a separate tax matter, I and others called for a review of the 1991 decision to end duty-free sales in Europe from next year, not least since the proposed successor arrangements risked ridicule. The Council asked the Commission and Finance Ministers to examine by next March possible means of addressing the problem, including a limited extension of the transition arrangements. Unanimity is required to secure such a change, but a door that seemed firmly closed is now at least half open.

The Council endorsed the Finance Ministers' report on external representation of the euro area. The UK's essential interests are protected—our membership of the G7 and other international forums will continue as before. We also confirmed an agenda for reform of the international monetary and financial system very much in line with the ideas for which my right hon Friend the Chancellor and I have been arguing: more transparency in international and national financial markets, better co-operation between the International Monetary Fund and other actors, and strengthened prudential and regulatory standards.

Much of the discussion in Vienna was about Agenda 2000. This is a wide-ranging and important negotiation embracing the reform of the common agricultural policy to help the consumer, to create a more efficient and competitive agriculture sector and to reduce the burden to the taxpayer; and reforms to the structural and cohesion funds to ensure that they are fair and affordable, including after enlargement. On future financing, the UK is among a large group of member states arguing for stabilisation of expenditure at current levels by 2006. Vienna confirmed the political objective of reaching overall agreement at a special meeting of the European Council on 24 and 25 March.

As for the British budget rebate, I repeat what I said in Vienna. The rebate is still fully justified and will remain. Even with it, the UK is the fifth largest net contributor in per capita terms, while we are ninth or 10th in terms of gross national product. We still pay far more than countries such as France, for example, with the equivalent population and slightly higher national income.

On enlargement, the European Council welcomed the fact that the first practical results have been reached in negotiations with Cyprus, Hungary, Poland, Estonia, the Czech Republic and Slovenia. It also welcomed progress made by Romania, Slovakia, Latvia, Lithuania and Bulgaria. It welcomed the reactivation of Malta's application, and recognised the importance of implementing the European Union's strategy to prepare Turkey for membership. Work in all these areas will intensify next year.

During the UK presidency, my right hon Friend the Deputy Prime Minister led work in the European Union on integrating environmental policy into other community policies. The Austrian presidency carried forward this work in transport, energy and agriculture. At Vienna, we agreed that it should be developed further into the spheres of international development, the internal market and industry.

At Cardiff, I launched a debate on the future development of the European Union which was carried forward at the informal summit in Pörtschach in October. We agreed in Vienna further steps to make a reality of subsidiarity and improve the effectiveness of EU institutions. We will issue a millennium declaration setting out the Union's priorities for the period ahead at the end of next year, to coincide with a new Commission taking office.

At Pörtschach, I urged the strengthening of the EU's foreign policy, not least by backing it with a credible capability for military action in regional crises where the US or NATO as a whole does not wish to be engaged. The joint declaration agreed with the French at St. Malo on 4 December gave us a sound basis on which to build this initiative. It was widely welcomed by partners at Vienna. We agreed that work should be taken forward under the German presidency. There is, of course, no question of undermining NATO in any way. Strengthening European defence capability will, I believe, strengthen NATO.

On current foreign policy issues, we underlined the urgency of bringing the parties in Kosovo to a political agreement and the importance of the European Union continuing its political and economic support for the middle east peace process. We repeated our readiness to help Russia overcome its present severe difficulties, and agreed that Russia should be the subject of one of the first common foreign and security policy common strategies when the Amsterdam treaty enters into force.

The Vienna Council also made useful progress on the economic and employment points, and above all laid a solid foundation for the difficult Agenda 2000 negotiations in the next three months. Britain's interests were safeguarded and promoted without difficulty. We defended our positions in a constructive way, just as others defended theirs.

In the days before Vienna, we issued joint statements with Spain on structural reform, with Sweden on social policy, with France on defence and with Germany on tax. All of those were welcomed in the discussion and reflected in the conclusions. At Vienna itself, we helped shape the debate on economic and employment issues, on Agenda 2000, on enlargement and on other issues, in sensible directions fully consistent with our own national interests.

This Government, I believe, have transformed Britain's relations with the rest of the European Union since they took office. It is in the fundamental interests of this country that we remain fully engaged in the debate on the development of the European Union. On the Government Benches, we have the confidence in our arguments, and in our ability to build support for them, to believe that we can win the debates in Europe in favour of economic reform and an open and decentralised Europe.

Those who would end up by taking us out of Europe, or so far to its margins as to eclipse any serious influence in Europe, would profoundly damage this country. This Government will not be swayed from their positive and constructive European policy because I have no doubt at all that this is the right course for Britain's future.

Photo of William Hague William Hague Leader of HM Official Opposition, Leader of the Conservative Party

On behalf of the Opposition, may I support some of the conclusions reached at Vienna, including the strong commitment to the universal declaration of human rights, statements on the importance of the middle east peace process, work on Kosovo and the desire to assist Russia, Ukraine and the western Balkans? May I welcome the Government's efforts to retain duty free? Does the Prime Minister agree that none of the steps set out in the original agreement is in place, so there is an overwhelming case for duty free to continue? Will he tell the Secretary of State for Health that, as he seems to have a different policy from the rest of the Government at the moment?

Is not the Prime Minister's habit of saying one thing to one audience in one place and another to an audience in another place finally catching up with him? He referred to the British rebate. Will he confirm that, while he was telling the British media that the rebate was not up for negotiation, he was busily telling the Austrian media that there would be wide-ranging negotiations in which the rebate would come up for discussion? If he did say that, did he mean it? If he did not mean it, why did he say it? If he did mean it, why not say the same thing in Britain? Will he cease his habit of saying one thing at home and something completely different abroad? Would not that be a much more effective way in which to ensure that his thoughts are reported accurately than simply whining about the British press?

Nothing causes the Prime Minister to complain louder than the British public being told about plans for tax harmonisation. He made great play of the fact that the communiqué rules out the possibility of "uniform tax rates". Apparently, that phrase was inserted at the Government's insistence. Why did we insist on that, when uniform tax rates are not the threat? Why did not the Prime Minister insist instead on an end to tax harmonisation? Why did he not call for the removal of references to "a tax policy package", "reinforced tax policy co-operation", or the far-reaching Commission "study on company taxation"? Why does not he guarantee to veto moves on the withholding tax or the so-called exchange of information—both and either of which would hit the City hard? Would not arguing against those real threats have demonstrated more backbone than arguing against imaginary threats?

Why did the French and Germans point out that the wording of the communiqué did not rule out harmonisation of specific taxes? Is that what the Prime Minister agreed? Why did the Luxembourg Economic Minister report: Everybody said there would be more tax harmonisation"? How on earth did he get that impression? Presumably, the Prime Minister was there, standing up for Britain's interests. If so, why did nobody notice? Why did not the Luxembourg Economics Minister notice? If the Prime Minister was prepared to say in Vienna that there would be more tax harmonisation, why will he not say that in Britain? Why will he not tell this House and the British public what he tells other Heads of Government?

What are the Prime Minister's guiding principles on Europe? What has happened to his defence policy? The Labour party manifesto states: Our security will continue to be based on Nato", and contains a commitment to the Western European Union, which is clearly under threat. Following the Amsterdam summit, the Prime Minister described proposals along precisely the lines now being suggested as, an ill-judged Franco-German transplant operation". Why has he changed his mind so dramatically? Do not the proposals in fact endanger our commitment to NATO?

The Prime Minister says that he wants to be fully engaged in Europe, but would it not be more accurate to say that, whatever the circumstances, he will go with the flow? Earlier this year, the Government promised to make EU enlargement a priority. Why is the Prime Minister now content for the timetable for the entry of countries such as Poland and Hungary to slip further? Will he confirm that they may not be able to join the European Union until 2005 or later—15 years after they threw off communism and first expressed an interest in joining?

In their original Foreign Office mission statement, the Government promised to work for a Europe of independent nation states. How does that promise fit with this agreement at Vienna—an agreement that can be summarised in the first sentence of the communiqué: European integration has gained new momentum"? The Prime Minister obviously agrees that that is a true statement of the facts, as he signed up to the communiqué. What has happened to the Foreign Secretary's assertion in August that Maastricht was the high-water mark of European integration"?European integration has gained new momentum is the first phrase of the communiqué that the Prime Minister has signed—and it has done so while he has been Prime Minister, saying one thing in one place and something else in another.

So let us have some straight answers. Is that greater integration something that the Prime Minister welcomes? If it is, why does he not say so, instead of running around Europe giving more false impressions than Rory Bremner? If that is not something that he welcomes, why does he not do something about it? And if he does not know whether it is something that he welcomes, he does not deserve to be Prime Minister.

Photo of Tony Blair Tony Blair Prime Minister

First, let me deal with some of the issues of fact. The right hon. Gentleman took me to task on duty free. Might I remind him that the people that agreed to abolish duty free were the previous Conservative Government, in 1991? Of course, the difficulty that we have had in the duty free argument is that unanimity is required to change the plans precisely because of the agreement that the Conservative Government made. As for the right hon. Gentleman's claim that I said one thing to the Austrian newspapers and another to the British press, that is apparently based on an interview that I gave to an Austrian newspaper, a transcript of which we provided to the British press; so I hardly think that that is consistent with saying a different thing to them.

Finally on the points of detail, the right hon. Gentleman said that we had agreed to shove the enlargement timetable back. We agreed no such thing. He said that our agreement on defence somehow undermined NATO. I suggest that he reads the recent words of Madeleine Albright, who has agreed that it is very sensible that Europe, in circumstances where the US does not want to become engaged, is able to do more of the cleaning up of problems in its own back yard. Only the Conservative party could see that as a negative move.

As for the right hon. Gentleman's strictures on tax, on unfair tax competition, he asks why I did not come out against the whole notion of greater tax co-operation. It could have been for the following reasons. First, before the general election, it was agreed by the previous Government that they endorsed the concern expressed … about the effects of special tax arrangements … and unfair competition, and believed that consideration is urgently needed of possible remedies to this problem". They then agreed, at the Dublin summit in 1996, to set up the taxation policy group, and the first meeting of the group took place under the previous Conservative Government. I feel that that would have somewhat inhibited me in saying that it was all wrong. Of course, the then Government were quite right in doing that, because some of the tax practices across Europe are harmful to this country, so it is perfectly sensible to have a discussion about them. I may say that the code of conduct on tax says in terms, right at the beginning, that it is a political commitment, not a legal one.

As for tax harmonisation, yes, we did agree words that made it very clear that uniform tax rates were ruled out, and made it very clear that no one was opposed to proper and fair tax competition. In the House of Commons on 9 December, I read the right hon. Gentleman a list of all those other Heads of Government who had made the same thing clear on behalf of their Governments—the French Prime Minister, the Spanish Prime Minister, the Irish Deputy Prime Minister and the Italian Finance Minister. I also read a quote from the Euro CBI, expressing a similar view.

I can add to that list now. The Austrian Prime Minister said: We are not against competition, and I am not against tax competition. Let us see what the Greek Prime Minister said. Any effort to create a common tax policy would be pointless. I could quote to the right hon. Gentleman virtually any newspaper anywhere in Europe, ruling out tax harmonisation in the terms that he has described it.

There is only one discordant note on tax harmonisation—the person who said this: We always accepted there was a case for minimal tax harmonisation … It was perfectly well known there was a case for minimal tax harmonisation for the development of the single market."—[Official Report, 9 December 1998; Vol. 322, c. 382.] Who was that? The shadow Chancellor last week. What did the Leader of the Opposition say this morning? He described the communiqué as the greatest threat to British independence for decades. More important than the Maastricht treaty, or the Single European Act?

That statement shows how extreme the Conservative party has become. If the Conservative party was in power today, we would not have an ally anywhere. We would have no influence, no authority and no ability to get our own way—nothing. The Leader of the Opposition says that he wants to build alliances in Europe: for heaven's sake, he cannot even build alliances in his own party.

I think it was the previous Prime Minister who said that the small group of Euro-sceptics was trying to give his leadership the run-around. He said that that group needed the men in white coats to come to rescue him. Under the present leader of the Conservative party, the lunatics have taken over the asylum. That is the position into which the right hon. Gentleman has put his party. He is not in charge of it. He is not running his party. The policy of the right hon. Gentleman's party is determined by the headbangers with whom he has surrounded himself in his shadow Cabinet. That is the truth, and the right hon. Gentleman is driven before them.

However extreme the right hon. Gentleman's position and that of his party, the country's national interest lies in being part of Europe. That is the way to win in Europe and that is what this Government shall do.

Photo of Mr Donald Anderson Mr Donald Anderson Chair, Foreign Affairs Committee, Chair, Foreign Affairs Committee

My right hon. Friend is justified in saying that the Opposition have form on key matters such as taxation and duty free and, therefore, are not credible in what they are now saying in their isolationist stance. However, will my right hon. Friend say a little more about the future, and particularly about subsidiarity? He will recall that he initiated the debate on the future of the European Union in Cardiff. That was followed through at the special summit in October in Austria. Can my right hon. Friend say what specifically was decided at Vienna on subsidiarity?

Photo of Tony Blair Tony Blair Prime Minister

Yes, I can. My hon. Friend is right to draw attention to the importance of subsidiarity. We agreed at Vienna on specific measures to imbed subsidiarity more firmly in the way in which the European Union works. In particular, we have agreed that the subsidiarity protocol—the Amsterdam treaty—should be applied immediately. We intend to examine existing laws when significant new legislation is proposed to ascertain whether they should be modified or repealed. That agenda on subsidiarity is making progress, but we must not let up on it at all. We must be eternally vigilant in pushing this agenda forward. I believe that most people in Europe can see that there are certain areas in which Europe should work more closely together and integrate more closely. There are other areas where it is important that we push power downwards.

Photo of Menzies Campbell Menzies Campbell Shadow Spokesperson (Defence), Shadow Spokesperson (Foreign and Commonwealth Affairs)

May I welcome the Prime Minister's statement, and particularly those parts of it which deal with the common foreign and security policy and the need for better defence co-ordination in Europe? May I congratulate the right hon. Gentleman on his apparent recent conversion to the view that Government policy on Europe will be determined by what is best for Britain, not by what is least offensive to certain newspaper proprietors? Does he accept that there is no point in attempting to placate the implacable?

So long as the reasons for the rebate remain, so too must the rebate. Does the right hon. Gentleman accept also that if there is wholesale reform of the common agricultural policy resulting in a substantial reduction in the European Union budget, inevitably different considerations would apply?

Is it not now abundantly clear that the United Kingdom will best maximise its influence in Europe with membership of the single European currency? Why today does the right hon. Gentleman not declare the intention in principle to join and to prepare for a referendum to obtain the British people's endorsement?

Photo of Tony Blair Tony Blair Prime Minister

The answer to the hon. and learned Gentleman's final point is: precisely because I believe the British national economic interest should determine our membership. For the reasons that we have given, we do not believe that that is satisfied by entry into the single currency. We have set out the very test that would be applied to a decision whether to join the single currency.

I welcome some of the hon. and learned Gentleman's other remarks, but I pick him up on the common agricultural policy and the rebate. On any basis of CAP reform now being proposed, the British rebate will remain justified. I agree that we need fundamental reform of the CAP, and we are certainly prepared to examine mechanisms such as co-financing to try to get that reform through. On any basis, Britain will still be a big net contributor to the EU. We are at present the second largest cash contributor after Germany.

Photo of Gerald Kaufman Gerald Kaufman Chair, Culture, Media and Sport Committee

Will my right hon. Friend confirm that the best way to gain concessions in Europe, such as those on duty free or the beef ban, is not by the tantrums and boycotts in which the Conservatives indulged when they were in government, but by co-operation and winning friends? Will he also confirm that Britain's national interest, of which he and the Government are guardians, is best served by sane and sensible discussion with our European partners? In expounding and assessing Government policy, will my right hon. Friend compare the hostility of the Leader of the Opposition to democracies in Europe with his support for a south American dictator accused of murder and torture?

Photo of Tony Blair Tony Blair Prime Minister

I agree entirely with my right hon. Friend that the best way to get results in Europe is to build alliances and to be constructive. All other countries in Europe find no difficulty in standing up for their national interests and still being constructive about Europe. For the life of me, I cannot see why we are incapable of doing the same in our country. If there are issues, such as the beef ban or the rebate, on which we have to remain firm, we do so. We argue our case on the basis of reason. That is the best way to get results. As we showed with the lifting of the beef ban, when we approach issues in that way, people respond. What is the point of being in Europe if we always treat the rest of Europe as something that is done to Britain rather than something from which we can get an advantage? That is the worst thing that we can do.

Photo of Peter Tapsell Peter Tapsell Conservative, Louth and Horncastle

What exactly is meant by the words in the Vienna communiqué about closer British association with European defence and security policy? Bearing in mind the momentum that apparently innocuous European suggestions often develop on their own, can the Prime Minister give us an absolute guarantee that we shall not in due course be asked to put a European or a German finger on the British nuclear trigger?

Photo of Tony Blair Tony Blair Prime Minister

Yes, I certainly can say that. No one is even suggesting such a thing. There are situations in which closer co-operation between European countries makes sense. We are already setting up an individual to be Mr. or Ms CFSP, and a deputy. A whole apparatus already exists to develop closer common foreign and security policy links. The most intelligent thing for this country to do is not to pretend that that debate is not happening, but to get in there and shape it so that we act in a way that is consistent with NATO and do not allow the agenda to be set by those—I do not think that there are many—who want to undermine NATO. That is the right way to get results for this country.

Photo of Mr Giles Radice Mr Giles Radice Chair, Treasury Committee, Chair, Treasury Committee

Does not the Vienna summit show that it is not a question of Britain standing alone, but of discussions and agreements that are of mutual benefit to the United Kingdom and to the European Union? Let us forget for a moment about the Conservative party and consider the Euro-sceptic press. Is it not time that they stopped trying to whip up anti-European hysteria and started reporting the facts about European affairs?

Photo of Tony Blair Tony Blair Prime Minister

People are entitled to their views on Europe, but it is best that we should judge everything according to the facts as much as we can. From a reading of the press in the rest of Europe on the Vienna summit and the British contribution, if there are criticisms of the summit they are not that it was the greatest step towards integration for decades, but that not as much was decided there as some would have liked, although I personally think that it was a successful summit. But the important fact is that the British contribution was welcomed. That is in our country's interests. We can satisfy the British national interest and be constructive in Europe because they are one and the same thing.

Photo of Ian Taylor Ian Taylor Conservative, Esher and Walton

Does the Prime Minister accept that after the publicity of the past few weeks, he has to do even more to persuade the British public and one or two people closer to home that positive engagement in the European Union is in the British national interest? When making that case, will he explain that reforms, such as that of the common agricultural policy, and enlargement will probably cost more money? Will he also explain that of course there needs to be a discussion about taxation in a single market as well as a single monetary zone? Those matters are on the agenda. When there are differences of opinion, the British view must be put across clearly. That view would be more emphatic if there was a clearer statement from the Prime Minister about the timetable towards euro entry and the fact that his economic policy is designed to secure the prospect of that entry.

Photo of Tony Blair Tony Blair Prime Minister

I have set out our position on the euro. On the other points that the hon. Gentleman raised, it is important not to disengage from the argument on tax competition or unfair tax competition in the European Union because there is much to be gained by co-operating on these issues and much to be lost if we disengage. I hope that we have tried to explain that in the context of the Vienna summit. It would help—not to intrude too much on other disagreements—if people such as the hon. Gentleman were given a bit more support from their Front Benchers, as having a legitimate view about Europe in the Conservative party.

Photo of Mr Denzil Davies Mr Denzil Davies Labour, Llanelli

I believe that my right hon. Friend mentioned that there is to be a Commission study into the taxation of savings. Will it involve looking at the different ways that income tax is imposed on savings, and the different rates of income tax on savings, in the different countries?

Photo of Tony Blair Tony Blair Prime Minister

The issue of savings tax has been raised specifically by countries that are worried about what they consider to be unfair tax advantages given in certain European countries. The withholding tax idea is something about which we have difficulties, because of the Eurobond market in the City of London. We have other difficulties with it, too. We are not the only country with problems there, and we have no intention of agreeing to anything that would sacrifice essential British interests.

Photo of Mr Teddy Taylor Mr Teddy Taylor Conservative, Rochford and Southend East

Having listened to optimistic and positive statements from European Council meetings for 23 years, one tends to look at the small print, where proper guidance is given. What exactly does the Prime Minister mean by saying that the Government, along with the others, are committed to long-standing proposals on energy taxation and the taxing of savings, with a view to reaching agreement by December of next year? Will he say clearly and precisely what ideas he and the others have for taxing energy, to be agreed by next December? What proposals does he have in mind for taxing savings by next December—and is that the basis for the reported flight of a great deal of money from Britain, and, indeed, from Jersey and Guernsey, to Switzerland over the past few days?

Photo of Tony Blair Tony Blair Prime Minister

In relation to energy, that work has been going on for a long time, through the Deputy Prime Minister and others. Domestic energy is specifically excluded from that, but we are all trying to make sure that we meet our obligations under the agreement concluded, for example, at the Kyoto climate conference which has just taken place.

As I have already said, as a country, we have great difficulties with doing anything in respect of the savings tax. The question is, what do we do when we are faced with proposals—

Photo of Tony Blair Tony Blair Prime Minister

We are not saying that we agree with the proposals on savings taxes. The document and the communiqué actually say that there is an attempt to conclude an agreement by Helsinki next year. That does not mean that we will agree to it. With the greatest respect to the hon. Gentleman, if we disengage from that debate, all it would mean is that the debate would happen without a British voice. There is nothing that is being proposed there that we need fear in the least, which is why we will carry on arguing the British case constructively. If we do that, we are more likely to win.

Photo of Mr Robert Sheldon Mr Robert Sheldon Chair, Liaison Committee (Commons), Chair, Standards and Privileges Committee, Chair, Liaison Committee (Commons), Chair, Standards and Privileges Committee

My right hon. Friend voiced his criticism of the Euro-sceptic press, quite justifiably. Will he explain more fully to our country the advantages of joining the euro and—even more important—the disadvantages of not joining?

Photo of Tony Blair Tony Blair Prime Minister

I have nothing to add to the statements that the Chancellor of the Exchequer and I have already made on that issue, but people are perfectly entitled to their views, for or against. It is important that the debate takes place on the basis of facts. The truth is that the debate about tax harmonisation for the past two or three weeks has had, in certain quarters, precious little at all to do with facts.

Photo of John Gummer John Gummer Conservative, Suffolk Coastal

Does the Prime Minister accept that those of us who are in favour of as much engagement in Europe as is suitable for the United Kingdom are also concerned about his statement about Agenda 2000? After all, he managed to speak about the reform of the common agricultural policy without mentioning the environment once.

The one area where the environment is most important is making sure that we reform the CAP in a way that pays farmers for looking after the land, instead of producing too much and dumping it on third-world countries. The Prime Minister need not look at his notes, because he did not mention the environment then, but later, in respect of other things. None of those other things matter anything like as much as putting over our point of view on the environment in the agricultural debate.

Photo of Tony Blair Tony Blair Prime Minister

I certainly agree that it is extremely important to take the environment into account in common agricultural policy reform. We are ahead of the other countries in arguing for reform—the more fundamental it is, the better. As I think I pointed out in my statement, our arguments on the environment have been strengthened by the work of the Deputy Prime Minister, who has insisted that the environment be taken into account across a range of issues where currently it is not.

Photo of Stuart Bell Stuart Bell Second Church Estates Commissioner

The House may have overlooked the earlier comments of my right hon.

Friend the Prime Minister that 1 million new jobs have been created in the European Union in the past year and that the unemployment rate has fallen to less than 10 per cent. Does not that suggest that jobs can be created by following a vigorous micro-economic policy within the framework of low inflation, low interest rates and a fixed element to the currency? My right hon. Friend mentioned influence and authority; does he recall the words of a former Prime Minister, Winston Churchill, who said: To jaw-jaw is better than to war-war"? Is not persuasive diplomacy better than the clanging cymbals of the Conservative party?

Photo of Tony Blair Tony Blair Prime Minister

If we do not try to persuade people, we are not listened to at all. The Leader of the Opposition said this morning that he wanted to build alliances with other centre-right parties in Europe, but I do not know who would build an alliance with him. I do not think that the Belgian Prime Minister or the Spanish Prime Minister would; to be honest, I do not think that any of them would.

May I correct something that the right hon. Member for Suffolk, Coastal (Mr. Gummer) said? I said in my statement—I apologise for not finding this when I replied to his question—that, under the United Kingdom presidency, my right hon. Friend the Deputy Prime Minister led work in the European Union on integrating environmental policy into other community policies and that the Austrian presidency carried forward that work in transport, energy and agriculture.

Photo of Mr David Madel Mr David Madel Conservative, South West Bedfordshire

The German Government are paying a huge bill towards the modernisation of east Germany and they are now insisting on paying less towards the European Union budget. If Germany, as the biggest contributor, pays less, there will be consequences for the time scale of enlargement. What is the Government's attitude to Chancellor Schröder's insistence that Germany should pay less?

Photo of Tony Blair Tony Blair Prime Minister

I understand why the hon. Gentleman says that. The answer is stabilisation of the finances and then reform of expenditure. The best thing that we can do to put our national case forward most sensibly is to argue for limits on expenditure, about which the Germans and others are naturally concerned. That is the way forward; it is, in fact, the central argument in European Union financing. If we agreed stabilisation and fundamental reform of the CAP, that would go a long way towards meeting German concerns.

Photo of Bill Rammell Bill Rammell Labour, Harlow

Will my right hon. Friend the Prime Minister confirm that the decisions made on taxation at the summit were totally at odds with what, in the run-up to the summit, the Euro-sceptic press led us to believe would happen? Is it not a cause for concern that our people are so ill informed by our national newspapers on this issue? Is it not time for the Government to go on the offensive to rebut the distortions, half-truths and downright untruths of the Euro-sceptics? During 18 years in opposition, the Labour party learned to put straight the record straight away when our political opponents misled—that is more important on Europe than on many other issues.

Photo of Tony Blair Tony Blair Prime Minister

I think that many members of the public understand exactly what is going on. They want us to present the facts calmly, which is what we try to do—it is the best antidote to scare stories of any kind.

Photo of Michael Spicer Michael Spicer Conservative, West Worcestershire

Did not the Prime Minister miss the real point on tax in his statement? The single currency is bound to lead to a massive increase in the tax burden, as resources have to be shifted from the north of Europe to the otherwise impoverished south.

Photo of Tony Blair Tony Blair Prime Minister

I do not agree. There is no reason why the single currency should mean a higher tax burden in Europe. The northern countries in particular want their tax burdens reduced, which is one reason why it was so false to say that the rest of Europe wanted tax harmonisation to bump up taxes all over Europe. Many countries are trying to reduce their tax burdens and we should be working with them to achieve that.

Photo of Mr Robin Corbett Mr Robin Corbett Labour, Birmingham, Erdington

I welcome my right hon. Friend's assurance that the talks on the admission of Cyprus to the European Union are proceeding and are on track. What progress has been achieved between the Commission and Turkey on making it clearer to the Turkish authorities what they have to do, and over what time scale, to enhance their prospects of entry?

Photo of Tony Blair Tony Blair Prime Minister

In respect of Cyprus, we made it clear that the accession negotiations should continue. Obviously, it would help the negotiations to proceed faster and better if we got a resolution of the essential problem of Cyprus. On Turkey, we specifically and in terms endorsed the European strategy vis-a-vis Turkey which was agreed at the Cardiff summit, and we will continue to pursue that. As I have made clear on many occasions, we want relations between the EU and Turkey to be developed and strengthened. I believe that they can be strengthened.

Photo of Mr Cynog Dafis Mr Cynog Dafis Plaid Cymru, Ceredigion

Does the Prime Minister accept that in a single market with a single currency, there will be a trend to strengthen advantaged regions and to weaken disadvantaged regions unless there are strong mechanisms for financial transfers—which, in Europe, means structural funds? Does the Prime Minister understand that, as we move into a single currency, his opposition to the strengthening of structural funds is diametrically opposed to the interests of the economies of Wales, Scotland and some of the English regions—especially when that is compounded by the Government's support for the Fontainebleau agreement, which provides a disincentive to using European structural funds? If he cares about Wales and Scotland, will he reconsider his position on that matter?

Photo of Tony Blair Tony Blair Prime Minister

We have done our very best to secure the position of Wales in particular during the negotiations. It was as a result of the Government's intervention during the United Kingdom presidency that we underpinned objective 2 financing. We have managed to secure significant advances in relation to objective 1 funding, precisely because of the way in which we have approached the negotiations. Within the context of enlargement, we are doing as well as we possibly can.

Photo of Gisela Stuart Gisela Stuart Labour, Birmingham, Edgbaston

Does the Prime Minister agree with the former Chancellor who said yesterday that there is no question of majority voting on matters of tax, either now or in the future?

Photo of Tony Blair Tony Blair Prime Minister

Yes, I agree. That point has been made, to my certain knowledge, by at least three or four Heads of Government over the weekend. That matter is simply not on the agenda, and most people understand why—because it is right that Parliaments set national taxes in the way that they wish.

Photo of Roger Gale Roger Gale Conservative, North Thanet

I am sure that the House welcomes the initiative instigated by the Irish Government to carry out a review of the effects of the abolition of duty free trade before that is done. It is a pity that the Prime Minister has sought to claim credit for that. The review should have been carried out as a prerequisite before any implementation of the 1991 agreement. The Prime Minister made his view clear in three parliamentary answers in May, and his Government did nothing about the matter during the entire United Kingdom presidency of the EU. Will he flesh out his triumph a little, and indicate who will carry out the review, how long it will take, whether it will report to the Commission or the Council of Ministers and what weight it will be given?

Photo of Tony Blair Tony Blair Prime Minister

To be honest, it really does not matter who takes credit for the initiative, but we have worked closely with the Irish Government on this matter. The hon. Gentleman's interpretation would be regarded as a trifle bizarre by most of those who were at the Vienna summit. The only inhibition that we have about this matter is the fact that the Conservative Government agreed to the abolition—that is our problem. Not only did they agree to abolition, they agreed that the matter could not be reopened, except by unanimity. We have worked on the matter recently because, first, it has become clear that the successor regime will not work properly—that is the reason for the review—and secondly, we have been able to build the type of alliances that he and the rest of his party would not wish us to have with anyone in Europe.

The review will be conducted by the Commission and the Finance Ministers, and we will make our views known very clearly indeed. For the first time, we have managed to get the door a little bit open, thanks to this Government and no thanks to the previous Government.

Photo of Gwyn Prosser Gwyn Prosser Labour, Dover

Is my right hon. Friend aware how heartened my constituents are that he has managed to prise open that door to duty free in Europe, which the Tories wanted to slam shut? May I remind him of the 20,000 jobs that duty free supports in Dover, in east Kent and throughout the United Kingdom? The Government's approach to duty free along with our more positive engagement in Europe shows that we are on line to look after our own interests while becoming more closely involved in European affairs.

Photo of Tony Blair Tony Blair Prime Minister

That is absolutely right. I do not believe that we would ever have succeeded in getting other countries behind us in trying to reopen the issue if we had not had a different attitude. There is a long way to go. The door is open, where it was previously shut. I do not pretend that all the difficulties are over with—they are not at all—but at least we have the chance to argue the case. I am quite sure that, as with the beef ban, we do better in the end by being constructive.

Photo of Bill Cash Bill Cash Conservative, Stone

What percentage of gross domestic product does the Prime Minister think should go to Europe? Does he understand that factors including the enlargement process, the costs of the common agricultural policy, high unemployment, the structural and cohesion funds, the intention to increase taxation to a level that is more satisfactory to Germany and pension liabilities are all bound to put more and more pressure on the budget? What should be the level of our European budget, and how will he be able to contain it while at the same time preventing tax harmonisation?

Photo of Tony Blair Tony Blair Prime Minister

As the hon. Gentleman knows, there is a 1.27 per cent. ceiling. We will argue for stabilisation of expenditure. I simply do not know what he means by saying that the Germans want to set our tax rate.

Photo of Tony Blair Tony Blair Prime Minister

The hon. Gentleman did effectively say that. He was effectively saying that Germany wants to ensure that everyone's tax rates go up to its level. If we carry on conducting his type of argument in the way that he wants to conduct it, this country might as well leave Europe. That is what he wants. The tragedy for his party is the fact that his views now dominate the Conservative Front Bench. In a sense, he should be rejoicing: he was once a small minority in the Conservative party, and now he runs the party's policy. That is its tragedy.

Photo of Dr Norman Godman Dr Norman Godman Labour, Greenock and Inverclyde

Despite my right hon. Friend's commendable commitment to enlargement, might I suggest that it is in fact a far distant prospect? We need to conclude the reform of the common agricultural policy, the budget and other institutional matters. Given those near intractable problems, have the applicant countries been told that they are engaged in a long, long game?

Photo of Tony Blair Tony Blair Prime Minister

Yes, there will obviously be long negotiations, but we will conclude them as quickly as possible. It is worth restating why enlargement is important for the European Union: it allows us to bring in the former communist countries of eastern Europe, which will not only bring them greater security and prosperity for their future but be good for the whole of Europe. I was just reading what the previous Prime Minister said about enlargement. He was absolutely right when he said that it would require "imagination, flexibility and generosity." We will have to ensure that we bring those countries in as quickly as possible. It was under our presidency, at Cardiff, that we started the pre-accession process properly.

Photo of Eric Forth Eric Forth Conservative, Bromley and Chislehurst

Can the Prime Minister guarantee that the net contribution by the British taxpayer to the European Union budget will not increase, and is he prepared to be judged on that criterion?

Photo of Tony Blair Tony Blair Prime Minister

We have made it clear that we will fight for the stabilisation of European Union expenditure. On any basis, even if we keep the rebate, British net contributions will be the second largest in the European Union. That is why we will carry on fighting for British national interests.

Photo of Dr George Turner Dr George Turner Labour, North West Norfolk

Before we go much further towards restoring duty free, will my right hon. Friend consult the Secretary of State for Health to see whether it is in British interest for duty free to continue for cigarettes and tobacco products coming into this country? If there is a case for tax co-operation in Europe, might not that mean that taxes should be raised in Europe to this country's levels on such products?

Photo of Tony Blair Tony Blair Prime Minister

The reason for extending the existence of duty free is to establish a sensible successor regime. We do not have that at the moment. We are not arguing that we should reverse the 1991 decision: that would be impossible to achieve even if we sought it. However, there is a growing view that a successor regime is not properly in place and, to safeguard our interests and those of many people who work in companies connected with the trade, it is important to get an extension. We seek an extension, not an overall reversal of the decision.

Photo of Anne McIntosh Anne McIntosh Conservative, Vale of York

The Prime Minister said that the door is now half open on duty free, so by definition it must be still half closed. I understand that Denmark is one of the countries that are still against any extension of duty free. What measures are the Government pursuing to bring other countries on board? I welcome the fact that small businesses were represented at the Vienna summit for the first time at that level, and small firms in the vale of York will welcome it also. Does the Prime Minister agree that we need less, not more, employment policy and a more flexible social policy from Brussels?

Photo of Tony Blair Tony Blair Prime Minister

On the latter point, the employment chapter that was agreed at the Amsterdam summit specifically focused on measures that Governments could take on training, skills and apprenticeships and direct measures to help the unemployed, rather than on regulation. We have tried to move the argument away from that and the best way to do so is to make the argument within the European Union.

I agree with the hon. Lady's point on duty free: the door is still half closed. That is an improvement, but I cannot mislead people by saying that the deal has been done. We have a chance to do it, and probably only two or three countries now stand in the way. We will make what attempts we can to persuade them, but we now have a large and impressive majority in favour of an extension.

Photo of Mr Harry Barnes Mr Harry Barnes Labour, North East Derbyshire

I can accept a lot—the euro, tax harmonisation and even European armed forces—but only if we first tackle the most serious problem in the European Union, which is its massive democratic deficit. It is said that if the European Union applied for membership of itself, it would be refused on the grounds that it does not have democratic institutions. Is anything being done to change that situation?

Photo of Tony Blair Tony Blair Prime Minister

I am not sure that I can completely satisfy my hon. Friend on that point. The dilemma is that most of us want to see as much democracy in the European Union as possible, but that it must be consistent with national Governments having a strong role to play. We have discussed the issue of tax and tax harmonisation and most people would wish to proceed cautiously on that issue. When we talk about the democratic deficit in the European Union, we should not forget that the Governments of the European Union are democratically elected. When they come together to negotiate, they do so on a democratic basis. Most people would be concerned if we took too much power away from national Governments in the negotiation of European issues.

Photo of Mr John Wilkinson Mr John Wilkinson Conservative, Ruislip - Northwood

Why did not the Prime Minister raise—at least, he did not report that he raised—the issue of European Union subsidies for tobacco growing? Does he recall his words in the article he wrote for The Times today: if Europe proposes something foolish, I will work to stop it. If necessary, I will do it alone."? Why has he had so little success? I am sure that the Secretary of State for Health regards it as foolish that British taxpayers' money should be devoted to the subsidy of tobacco growing. Is it because the Prime Minister finds stability sexy, or does he have a soft spot for tobacco sponsorship in Europe?

Photo of Tony Blair Tony Blair Prime Minister

No, it is probably for the same reason that the Conservative Government did not get very far on the issue in 18 years. Some very big interests are at stake, and they push their case firmly. Let me repeat that the negotiations to reform financing in the European Union for the purposes of enlargement give us the best chance to try to make progress on tobacco and other issues. The big negotiation will take place on future financing, and that is where we can make much of the case for fundamental reform of the common agricultural policy. To the hon. Gentleman, I must say that we are better able to make that case if we engage in it constructively rather than being isolated and negative.

Several hon. Members:


Photo of Miss Betty Boothroyd Miss Betty Boothroyd Speaker of the House of Commons

Order. We must now move on to the main business of the day.