Future European Union Finances

– in the House of Commons at 4:04 pm on 7th March 2005.

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[Relevant documents: Thirty-fourth Report of the European Scrutiny Committee, Session 2003–04, HC 42-xxxiv, paragraph 13; Seventh Report of the European Scrutiny Committee, Session 2004–05, HC 38-vii, paragraph 1; Ninth Report of the European Scrutiny Committee, Session 2004–05, HC 38-ix, paragraph 1.]

Photo of Stephen Timms Stephen Timms The Financial Secretary to the Treasury 4:10 pm, 7th March 2005

I beg to move,

That this House
takes note of European Union documents No. 11607/04, Commission Communication: Financial Perspectives 2007–2013, No. 11741/1/04, draft Decision on the system of the European Communities' own resources and draft Regulation on the implementing measures for the correction of imbalances, No. 11745/04, draft for renewal of the Inter Institutional Agreement on budgetary discipline and improvement of the budgetary procedure, and No. 11752/04, Commission Report: Financing the European Union—operation of the own resources system;
supports the Government's efforts to refocus the European Community budget towards the Union's key priorities in line with the principles of subsidiarity and European Union value added and stabilise the budget at no more than 1 per cent. of European Union Gross National Income;
shares the Government's concern over proposals for new flexibility instruments;
opposes the Commission's proposals for a Generalised Correction Mechanism;
and in particular supports the Government's view that the Commission's overall proposals are unrealistic and unacceptable.

I welcome the opportunity to examine the Commission's communications for the next financial perspective of 2007 to 2013, its draft proposals on the system and operation of the European Community's resources and on the implementing measures for the correction of imbalances, and its draft on the renewal of the inter-institutional agreement. Taken together, the documents outline the Commission's proposals for the policies and financial decisions that underpin negotiations on the future financing of the European Community budget. This will be the first full financial perspective for a European Union of 25 members, so we are at a significant point in the history of the EU. It is thus appropriate that the debate is taking place on the Floor of the House and at a time that will allow it to inform the negotiations that will take place in the next few weeks.

The Government take the view that the next financial perspective is an important opportunity to increase the effectiveness and transparency of EU expenditure and to consider how allocations within a limited budget can best be applied in support of the European Union's priorities, especially the Lisbon strategy. That is why we have proposed that all budget spending be focused on objectives, with an emphasis on policy outcomes rather than simply budgetary inputs. Decisions should be based on evidence with a proper evaluation of budgetary policy. The budget should be based on a proper assessment of both existing and new areas of spending. It should be decided whether the Union is the best institution to tackle specific matters. We have proposed that there be sound financial management and budgetary discipline, and we should make sure that spending throughout the EU is distributed equitably.

That view has put us at the forefront of calls for further reform. The budget should be stabilised at no more than 1 per cent. of European Union gross national income, or €815 billion over seven years on a commitments basis. That represents a 6.5 per cent. real-terms increase compared with the current financial perspective, and we believe that it is both realistic and affordable.

Photo of Ian Davidson Ian Davidson Labour/Co-operative, Glasgow Pollok

Will the Minister clarify whether the 1 per cent. limit is a firm commitment? Will the Government refuse to budge from that and give an undertaking that, if necessary, they will veto any proposals that would take Britain's contribution beyond the present level and the budget beyond 1 per cent.?

Photo of Stephen Timms Stephen Timms The Financial Secretary to the Treasury

The Government are making such a firm commitment, and I am pleased that that is gathering support from other member states—six countries signed the letter containing the 1 per cent. aim. As I shall say in a moment, there is a clear indication that several other member states are moving in the direction of supporting our position on that.

While we respect the Brussels agreement to press for a more liberalised and market-focused agricultural sector, including the reform of the sugar and dairy sectors, and support further modulation, we want to refocus the structural and cohesion funds of the lowest-income member states within an overarching framework agreed by all member states. Spending should be refocused within internal policies on a smaller number of initiatives with demonstrable added value, particularly research and development, freedom, security and justice. We also aim to improve the effectiveness of external actions in support of the EU and UK external objective—external to the EU—to which the millennium development goals are central, while retaining flexibility to cope with crises such as the tsunami if the need arises.

The Commission has not as yet responded adequately to the challenge that those aims present. In its communications of February and July 2004, which are before the House today, the Commission proposed a total budget for 2007–13 of more than €1 trillion. That is a real-terms increase of 34 per cent. compared to the current financial perspective, with little justification being provided for such a large increase and little prioritisation between the different elements. For example, despite the fact that, with enlargement, the richest parts of the Union would become more than 10 times richer than the poorest, the Commission proposes that less than half of the structural and cohesion funds go to the new member states, where they would have the greatest effect.

Despite our commitments at Monterey, the Commission proposes a regionally based policy approach to external actions—external to the EU—which would make it harder rather than easier to refocus the budget on low-income countries and the millennium development goals.

Photo of Adam Price Adam Price Spokesperson (Economy and Taxation; Education & Skills; Miner's Compensation; Regeneration; Trade & Industry)

Does the Commission not propose to focus the vast majority of structural funding on the poorest regions within the EU, including poor regions within relatively prosperous member states? It proposes that the vast bulk of the funding go to the poorest regions within Europe overall.

Photo of Stephen Timms Stephen Timms The Financial Secretary to the Treasury

The hon. Gentleman will recognise that there is not much value in rich EU countries swapping funding between themselves in the interests of their own regions. It makes much more sense for the Governments of the better-off countries to fund their regional development. As the hon. Gentleman knows, we have given a domestic guarantee for regional funding in the UK.

For all these reasons, I suggest to the House that the Commission's current proposals are neither realistic nor acceptable. The proposals for increased flexibility instruments are not necessary, as they would hamper sound budget discipline. Responding to unforeseen needs is best done through reprioritising spending and agreeing appropriate budgets for each heading.

The Commission also proposes some major changes to the financing of the EC budget, with its suggestion of a generalised correction mechanism. The intention would be to replace the UK abatement and, according to the Commission, reduce differences between net contributors at comparable levels of prosperity. That is completely unacceptable. It is neither fair nor principled. As proposed, it would widen rather than narrow the disparities between the large net contributors, and would cost the UK €5 billion a year by 2013. The proposed mechanism would also institutionalise the failure to redress the inequities on the expenditure side of the budget. Large receipts are going to countries of similar wealth to the UK, which receives the least in per capita terms. This means that the abatement remains fully justified. The continuing inefficiencies and inequities on the expenditure side of the European budget and the resulting unfairness of the UK position mean that the abatement is not up for negotiation.

As I said to my hon. Friend Mr. Davidson, I am pleased to tell the House that, as the negotiations progress, our views on both budget discipline and reform are gaining increasing support among other member states, including the newest members. The Dutch presidency progress report to the European Council in December showed that there is widespread dissatisfaction with the Commission's proposals among member states. The documents before the House contain information on the advances achieved by the Dutch presidency. The progress report also demonstrates that a budget of 1 per cent. of EU gross national income is viable, credible and affordable. As I have said, we are working closely with the other five signatories of the 1 per cent. letter—France, Germany, Sweden, Austria and the Netherlands—to make sure that the principles of budget discipline continue to form a central part of negotiations.

Photo of Gwyneth Dunwoody Gwyneth Dunwoody Labour, Crewe and Nantwich

I am a little bemused. Since the Community's accounts have not been qualified by the auditors for the past nine years, how can we say that it is behaving responsibly?

Photo of Stephen Timms Stephen Timms The Financial Secretary to the Treasury

My hon. Friend makes an important point. This is the 10th year in a row in which there has not been a satisfactory statement of assurance about the EU accounts. However, there has been progress in the right direction, particularly after the reforms that Neil Kinnock initiated when he was a Commissioner. Since January this year, an accruals accounting system has been in place, and it is a welcome step forward. To be fair to the Commission, it managed to implement it much more quickly than was widely expected or than has been the case in the UK. From that point of view, there is evidence that the Commission is putting its house in order, but my hon. Friend is right that there is some way to go before people across Europe can be confident that member states' financial contributions are being used properly.

Photo of John Bercow John Bercow Conservative, Buckingham

Does the Minister agree that one example of the absence of joined-up thinking in the Union is the disparity between what is said on the subject of development and poverty reduction by the European constitution and what is demonstrated by the composition of the European Commission and the allocation of responsibilities? Is he aware that Commissioner Michel, who is responsible for development, has good reason to object to the fact that important parts of what ought to be his portfolio and his responsibility for expenditure are, in fact, in the hands of the Commissioner for External Relations? Is that not an example of the way in which important objectives end up being watered down or compromised by the competing political ambitions of people within the Commission?

Photo of Stephen Timms Stephen Timms The Financial Secretary to the Treasury

I would not want to take issue with the hon. Gentleman's expertise on the Commissioners' portfolios, but there are important concerns about heading 4 of the EU budget, which applies to external actions and to which there is reference in the documents before the House. In the next financial perspective, we need an external budget structure that allows us to meet our priorities effectively and enables the European Union to be an influential and effective international development player. A number of issues need to be addressed if that is to be achieved successfully, and the hon. Gentleman may well have hit on one of them.

Photo of Chris Bryant Chris Bryant Labour, Rhondda

Obviously, all hon. Members would want the vast majority of EU development budgets to go to the poorest countries, and the Government have held out for that strongly in discussions with the Governments of other member states. However, there is concern, particularly in Spain, Portugal, France and Italy, about the Maghreb. It is almost the 10th anniversary of the Barcelona protest, but there has been remarkably little progress. Many nations regard the Maghreb countries as our neighbours, who need close attention if they are not to become asylum, immigration and terrorism problems for us.

Photo of Stephen Timms Stephen Timms The Financial Secretary to the Treasury

I agree that we need to give a higher priority to low-income countries to meet the millennium development goals. Those are objectives to which the whole world has signed up. The European Union needs to play its part and we need a budget structure to develop that. I also accept that there are issues around the European neighbourhood topic to which my hon. Friend refers, but my view is that those can be satisfactorily addressed within the parameters that we proposed—the 1 per cent. figure that I set out—by working closely with countries that have the characteristics that my hon. Friend mentioned. So I caution him against a view that large additional spending is required in order to address those concerns. I am not persuaded that that is the case.

Photo of Richard Spring Richard Spring Shadow Minister, Economic Affairs

Of great advantage to the countries around the borders of the Mediterranean, such as Algeria, are the Euro-Med agreements, which encourage trade and have a civil rights and democracy input. I am sure the Minister would agree that that is a valuable part of the role of the European Union in developing those countries.

Photo of Stephen Timms Stephen Timms The Financial Secretary to the Treasury

Yes, I do agree. I had some exposure to that process when I was Energy Minister previously. I agree with the hon. Gentleman about the value of those arrangements.

The next financial perspective gives us a valuable opportunity to make sure that the future activities and priorities of the EU and the principles on which they are based are right for the Union as a whole and for each of its member states, and right for the EU's relationship with the rest of the world, as we have just been describing. We are determined that that opportunity should be realised. The proposals that have been tabled so far do not meet the bill. We are determined, however, that we will reach a satisfactory conclusion. The European Council aims for political agreement on the 2007–13 financial perspective by June. We would welcome that timetable being achieved, but hon. Members will agree that the priority must be that we end up with the right deal for all member states. We are ready, if need be, to take that work forward in the UK presidency in the second part of the year.

Photo of Richard Spring Richard Spring Shadow Minister, Economic Affairs 4:27 pm, 7th March 2005

I thank the Financial Secretary for his opening remarks and I share his concerns that

"the Commission's overall proposals are unrealistic and unacceptable."

However, this is an extremely important debate as it is not only the future nature of the European Union that is at stake, but the impact on Britain's public finances. Last year we paid £11.8 billion gross and £4.8 billion net after the £7 billion rebate. Even with the rebate, Britain has been a disproportionate contributor ever since we joined the European Community.

The Government have problems with that already, without the European Commission's proposals which would increase the amount that the UK must contribute to the EU, even if the Government succeed in defending their own budget. I therefore commend the European Scrutiny Committee for recommending the debate. The Committee recognised the significance of the documents before us.

The Committee tells us:

"The new Financial Perspective for the EU will determine the overall revenue and expenditure of the EU and the expenditure on each category of EU activity for the seven years from 2007 to 2013. It will also largely determine the net contribution to the EU of each Member State, and the future of the UK's budget rebate. It will in practice be binding on the parties to it for those seven years. It is therefore one of the most crucial forthcoming EU decisions, with important consequences for enlargement and the draft constitutional treaty."

Because of the importance of the issue, we encourage the Government

"to adopt a robust negotiating position."

The Government have been high on rhetoric on this issue in the past. In a similar debate in June last year, the Paymaster General described the message being conveyed to EU Foreign Ministers by the Chancellor of the Exchequer as "uncompromising". She claimed that the Chancellor

"made it clear that, when each member state has to take tough decisions on spending and show fiscal discipline, it is unacceptable and unrealistic for the Commission to propose a 25 per cent. increase in its spending."—[Hansard, 15 June 2004; Vol. 422, c. 704.]

Nine months later, however, the same proposals are on the table in a more advanced form. It is time for the Government to translate their rhetoric into action at the European Commission, which is why we want a robust negotiating position to be spelled out. Words are not enough, because the matter is extremely important from a financial point of view.

To illustrate how little progress has been made—we seem to have travelled backwards since the issue was first debated in June last year—I shall briefly examine the history of EU financing. In the 1980s, tension between the two budgetary authorities within the Community, the European Parliament and the Council, disrupted the annual budgetary procedure, which led to a series of budget crises. The result was negotiations between the Community institutions, which led to the first financial perspective in 1988.

The framework lays down a maximum ceiling for spending under different expenditure headings. The current financial perspective, agenda 2000, covers the period from 2000 to 2006, so a new perspective is required. The European Union website states:

"Since the European Union's public finances underwent major reform in 1988 and the financial perspective was created, there has been little change: the financial framework has simply been carried over with a few alterations to accommodate new priorities. It was time to start afresh and think hard about the Union's policies and the nature and number of instruments at its disposal".

We do not doubt that logic.

Since 1988, the EU has expanded, with the accession of 10 new member states on 1 May last year. Enlargement, a policy instigated by Baroness Thatcher and John Major, and, to their credit, continued by the current Government, was an historic moment. Like the Government, we object to the nature of the reforms proposed by the Commission. The Commission's first proposals were published in February 2004 in the Commission's communication, "Building our common future—policy challenges and budgetary means of the enlarged Union, 2007–2013", which was debated on the Floor of the House on 15 June last year.

In "Building our common future", the Commission considers the enlargement of the Union, rather than proposing a reduction in the maximum size of the EU budget from 1.24 per cent. of gross EU income to 1 per cent., which is the figure that the Government and the Opposition want to see. The Commission proposes that the ceiling should remain at 1.24 per cent., and it cites commitments that have already been made, such as payments in the agricultural sector, cohesion policies in the accession states and accommodating Bulgaria and Romania, as an excuse.

In June, the Paymaster General told us that the Commission's proposals were "politically unrealistic and unacceptable". She said:

"It has failed to grasp the opportunity offered by the negotiation of a new financial perspective to increase the effectiveness and transparency of European Union expenditure and to consider how allocations within a limited EU budget can best be focused on adding value at the EU level, including underpinning the Lisbon strategy for European economic reform." —[Hansard, 15 June 2004; Vol. 422, c. 704.]

We agreed. My hon. Friend Mr. Prisk stated:

"The Conservative party supports many of the stated aims of" that day's

"motion, especially on limiting total spending and on the 'unrealistic and unacceptable' proposals for future spending priorities."—[Hansard, 15 June 2004; Vol. 422, c. 718.]

We can, and do, oppose and improve on the Government's mistakes in the UK Parliament, but by definition, as the Opposition, we cannot formally oppose or improve the European Commission's proposals in Brussels.

The Government promised that they would fight the Commission's proposals on EU financing:

"It is the Government's strongly held view that the Commission's current proposals are not a basis for . . . negotiation. The Government are working with other member states that share many of our principles and areas of common interest".—[Hansard, 15 June 2004; Vol. 422, c. 712.]

What was the outcome of that work? Were the proposals deemed to be not even a basis for negotiation, and scrapped? No—they have been built on. The Government were forced to admit that the Commission's new communication

"fails to respond to the diversity of views held by Member States, including the group of six Member States, including the UK, that wrote to President Prodi calling for the budget to be stabilised at 1 per cent. of EU GNI. It also fails to recognise the need for reprioritisation, so that funds are redirected where they will have most effect."

We now have four documents before us. Two are reports—one on the EU's financial perspective for 2007–13 and one on altering the own resources decision—but two go a step further than mere reports. They are draft proposals. The European Commission is proposing a clear programme for a change that goes against the grain of thinking in Britain and on both sides of the House. Is that what the Government mean by "Forward, not back"? I hope not.

I would like the Minister to explain. Now that we have actual proposals before us, rather than the less concrete plans of "Building our common future", how does the Commission intend to take those proposals forward? What room for negotiation is there in the proposals? How long is the period for negotiation likely to be? When does the Commission plan to issue what I hope will, by then, be substantially altered proposals for agreement? To put it another way, what is the deadline for an agreement to be reached? Can the Minister confirm that, if the worst comes to the worst, the UK or any other member state will have the right to veto the proposals? I sincerely hope that that scenario will not come about, but if a member state used a veto, where would that leave the framework for financing the EU? Is there a fall-back position of annual negotiation of the EU budget? I hope he can provide us with answers to those questions. If not, I hope that the Minister will undertake to write to me.

Photo of John Bercow John Bercow Conservative, Buckingham

My hon. Friend will recall the intervention of Mrs. Dunwoody who highlighted the disgraceful fact that for nine successive years—this year will be the 10th—the European Court of Auditors has refused to sign off the European Union's accounts. Is he aware that for the year 2003 the Court of Auditors' report found that no less than 89 per cent. of the EU's humanitarian aid expenditure to Zimbabwe was lost through currency manipulation by that corrupt regime? On that specific example of waste and misuse of public funds, what is the Commission doing to ensure that it is not taken for a ride in future, as it has been in the past?

Photo of Richard Spring Richard Spring Shadow Minister, Economic Affairs

I am grateful to my hon. Friend for making that point. I shall touch on the question of how international aid has been handled by the European Union.

On the essential point made by the hon. Member for Crewe and Nantwich and my hon. Friend, it is beyond disgrace that we contribute substantial sums of taxpayers' money to the functioning of the European Union when it is impossible to square the accounts. In any private company, that would quickly result in its bankruptcy or a lawsuit. It is greatly to our regret that, despite all the promises, that situation continues.

My questions are important because, as the Government freely admit, the Commission's proposals are unacceptable in their current form. It seems that no progress has been made on improving them since June last year, so it is useful to know what scope there is for achieving improvements and how long we have to achieve them. The crux of the matter is that it is essential that the Government explain how they will achieve improvements in the proposals. We need significant improvements on both the main issues at stake.

I want to speak about those two issues: the proposal for a new own resources decision and, first, the proposals for renewing the inter-institutional agreement setting out a new financial perspective for the period 2007–13.

I note that in the context of the new IIA, the Commission proposes a new classification of expenditure to increase flexibility by avoiding unnecessary ring-fencing, with five main expenditure headings. The explanatory memorandum to the European Scrutiny Committee states that

"The Government welcomes the Commission's proposal to retain the fundamentals of the previous IIA . . . breaking down expenditure by broad categories called headings".

Does the Financial Secretary agree with the headings proposed? Similarly, I note the Government's concerns regarding the new proposals for flexibility, expressed in the motion. I am a little perturbed that expressing concern is not exactly the same as expressing opposition. While in his memorandum he states that he rejects proposals for a procedure to revise ceilings through a trialogue meeting between the Parliament, the Council and the Commission, and states that there is no need for a growth adjustment fund, he appears equivocal on the issue of the replacement for the current flexibility instrument. He states that he

"will consider the Commission's proposals for a new reallocation flexibility, replacing the existing 'flexibility instrument.'"

Has he now carried out that consideration? If so, what were his conclusions?

Perhaps a bigger issue is the ceiling on the EU budget. The financial framework set out in the "Proposal for the renewal of the Inter-Institutional Agreement"—the IIA—sets a maximum ceiling on the budget of 1.24 per cent. of EU GNI. I believe that that is the same as the ceiling at the moment. Slightly alarmingly, the ceilings proposed by the Commission in December 2004 appear to be higher: the maximum is 1.3 per cent. and the Commission's proposed spending amounts to 1.26 per cent of GNI.

As the Financial Secretary has said, those ceilings are too high. We should be aiming at a budget of 1 per cent. of GNI. The letters sent from the Governments of the UK, France, Germany, Sweden, the Netherlands and Austria to Romano Prodi in December 2003 made the point that a 1 per cent. limit would still allow for annual increases in the EU budget above the growth rates of national budgets in most member states.

The issue of the EU budget is particularly thorny, because—as my hon. Friend Mr. Bercow made clear—the EU has a reputation for spending its money badly. Fraud is one reason for that, but I will not dwell on that point as my colleague the shadow Paymaster General spoke on it in Committee very recently. Suffice it to note that for the 10th year in succession, the European Court of Auditors felt unable to sign off the European regional aid funds.

In the explanatory memorandum, the Government flag up four issues on which they think that the EU should reform its approach. The issues raised are the common agricultural policy, structural funds, the Lisbon strategy and overseas aid. I am unclear as to whether those are the priorities to which the Government refer in their motion calling on the European Community budget to be refocused

"towards the Union's key priorities."

Perhaps the Financial Secretary would confirm that or, alternatively, explain to which priorities the motion refers.

In any case, the four issues to which the Government refer in the memorandum are undoubtedly major issues and I shall make brief comments on them. As I understand it, under the Commission's proposals, the amount earmarked for the CAP reflects the agreements reached at the Brussels European Council in October 2002. That was the occasion when right under the nose of the British Government, France and Germany stitched up a deal to keep CAP spending unchanged up to 2013. We should not forget that more than 40 per cent. of the EU budget still goes on the CAP. The Economist noted on 5 March:

"Yet it may be possible to reopen the Chirac Schroder deal . . . it sets ceilings not targets for spending. In the Doha round of trade talks, the EU has offered to scrap export subsidies for farm products. And, because past reforms of the CAP switch spending from production linked subsidies to direct payments, the case for financing these nationally, not at EU level is growing. If France's Government wants French farmers to have higher incomes than Greek farmers, why not pay for them themselves."

Photo of Ian Davidson Ian Davidson Labour/Co-operative, Glasgow Pollok

What would be the Conservatives' target figure for expenditure on the CAP, if we were to have a Conservative Government?

Photo of Richard Spring Richard Spring Shadow Minister, Economic Affairs

I was about to move on to our policy, so I thank the hon. Gentleman for pre-empting me.

The Government claim to be a leading advocate of CAP reform. According to the Paymaster General, the Chancellor has

"told Finance Ministers that it would be wasteful and inefficient to increase spending on current Commission programmes that do not match the European Union's economic reform priorities and in some cases, such as the common agricultural policy, work against them."—[Hansard, 15 June 2004; Vol. 422, c. 704.]

Since the debacle of 2002, the Government have had some success in achieving reform, and we welcome that. However, the CAP results in artificially high prices for consumers, harms the interests of third-world producers and leads to low incomes and red tape for farmers. My party has long campaigned for its reform, and the recent decision to break the link between farm subsidies and production is good news. CAP reform must now be taken further, and cross-compliance conditions should be reduced. I would welcome a commitment from the Minister that that process is under way.

British farmers must be given the freedom to produce for the world marketplace. We will therefore press for the full decoupling of subsidy from production across the EU and for an end to trade-distorting export subsidies in all appropriate cases. Our first target will be the appalling waste of £600 million of taxpayers' money in subsidising tobacco production annually.

We support the new single farm payment and press for it to be implemented with a minimum of bureaucracy and red tape. We will simplify the rules on cross-compliance and work for the return of more local and national control over agricultural policy, and we will stop the gold-plating of European legislation by British officials in the Department for Environment, Food and Rural Affairs.

Photo of Ian Davidson Ian Davidson Labour/Co-operative, Glasgow Pollok

Perhaps I missed it, but I failed to catch the figure that a Conservative Government would want to be spent on the CAP by the EU as a whole. Will the hon. Gentleman give us a figure that he believes that the Government should be aiming towards?

Photo of Richard Spring Richard Spring Shadow Minister, Economic Affairs

I have laid out what our policy will be when we win the next election in a few weeks' time—I am sure that that is why the hon. Gentleman is concerned about the issue. After that, and after the vote on the European constitution, which the good sense of the British people will reject, there will inevitably be a negotiation process about all the structures of the European Union.

Photo of Richard Spring Richard Spring Shadow Minister, Economic Affairs

I cannot give one, because we do not know exactly what the final budget will be. We have clearly set out the direction that we wish to follow. I cannot give a precise figure, and it would be absurd to try to do so when the budget has not been finalised, but the hon. Gentleman can rest assured that we will commit ourselves to fighting Britain's corner, as did a former Conservative Prime Minister, Margaret Thatcher, to return the rebate to this country. We will do that with all the energy that has ensured that although we have remained a very big contributor, our contribution would otherwise have been much greater. We will do the same on CAP reform.

Photo of Mark Hendrick Mark Hendrick PPS (Rt Hon Margaret Beckett, Secretary of State), Department for Environment, Food and Rural Affairs

Although the hon. Gentleman, like everyone else, does not know the total of the budget that will be agreed, can he tell the House what percentage of the EU budget his Government, if they were indeed elected, would want to have as CAP spending?

Photo of Richard Spring Richard Spring Shadow Minister, Economic Affairs

If the hon. Gentleman would like to answer this question, we might find common ground: what is his Government's objective on that percentage?

Photo of Mark Hendrick Mark Hendrick PPS (Rt Hon Margaret Beckett, Secretary of State), Department for Environment, Food and Rural Affairs

I am happy to answer that it would be the minimum. During the time of this Government, it has fallen from about 60 per cent. of the EU budget to about 40 per cent. What would the hon. Gentleman's target be?

Photo of Richard Spring Richard Spring Shadow Minister, Economic Affairs

The hon. Gentleman and I do have something in common, as it would be the minimum.

On structural funds, I again welcome the Government's approach. I agree with their policy of taking back control of structural funds. More national control over those funds would enable us to target them where they are most needed and to reduce the bureaucracy that surrounds their use. Philip Bradbourne MEP, Conservative spokesman on regional policy in the European Parliament, summed up our view as follows:

"It is no surprise to me that the funds have yet again not been signed off.

With ten years of dodgy accounts, including €5.3 billion going unused into Commission coffers from the Regional Aid Budget in one year, devolving grant aid back to Member States seems the only viable solution to an ongoing problem.

This would allow British Ministers to properly determine where and how this money is spent."

However, I believe that the differences will begin to show on Lisbon and international aid. The Lisbon agenda's economic objectives can only be supported, but economic reform is proceeding slowly on some matters and is frankly non-existent on others. I appreciate that the Government acknowledge that. The Prime Minister has taken the trouble to recognise it every year since setting out the Lisbon process. In the 2003 Treasury assessment of progress on Lisbon, his foreword admitted that

"there remains a daunting amount to be done . . . Reform on this scale is never easy."

In the 2004 assessment, he claimed:

"We have made significant, but not sufficient, progress . . . we need to go further to meet the standards being set by our competitors elsewhere in the world."

The 2005 report was published last month. The Prime Minister commented that

"we need to go further and faster."

The Government produce many fine words on Lisbon, and have done so since the agenda was first agreed five years ago, but little or nothing gets done. I welcome the fact that José Manuel Barroso, the new European Commission President, has presented a programme to re-energise the Lisbon process. It is vital that national Governments get a grip and push ahead with economic reform, on which the EU's future prosperity relies. Ministers pay lip service to Lisbon while eroding the UK's competitive position at home through ever increasing burdens of taxation and red tape.

I want to consider aid. It is essential to make more effective use of the money that is currently spent multilaterally. There is a strong case for increasing national control over the aid funds currently spent by the European Union. In 1990, 70 per cent. of EU development aid went to the world's poorest countries, but that has now fallen to 52 per cent. Half the EU aid budget is spent on middle or high-income developing countries. That cannot be the best use of our overseas aid, which should help the poorest people in the world. To its credit, British aid does that; European aid, in many respects, does not.

The former Secretary of State for International Development, Clare Short agrees. She said that

"anyone who knows anything about development knows that the EU is the worst agency in the world, the most inefficient, the least poverty-focused, the slowest, flinging money around political gestures rather than promoting real development."

I believe that the EU should commit itself clearly to devoting the great bulk of its budget to the poorest countries and the most impoverished citizens. We should not tamely accept the status quo. Britain should set an example and press other member states to follow it. I call on the Government to publish a detailed annual assessment of all EU aid expenditure, describing Britain's involvement, the procedure for monitoring each project and an assessment of the results.

Photo of Chris Bryant Chris Bryant Labour, Rhondda

I thank the hon. Gentleman for allowing me to intervene before he perorates—if there is such a verb. He makes the point that others have made in similar debates, that most international aid budgets should go to the poorest countries. However, does he accept that, in some instances, such as support for the Palestinian Authority or in the Balkans, some of the policies that we in this country tried to pursue ended up with commitments that the EU met on our behalf?

Photo of Richard Spring Richard Spring Shadow Minister, Economic Affairs

I understand the hon. Gentleman's point, but there are many mechanisms whereby the EU can deal with political and economic development in, for example, the Palestinian Authority, including Euro-Med agreements, which are helpful. I also believe that, in such a process, some assistance can be given. However, I think that he would agree that poverty and all that flows from it is the challenge of international aid giving in the 21st century, and that we should focus on that more than anything else. The problem is that the EU has not been efficient in doing that either managerially and functionally or in terms of the principles that underlie the aid programme. We handle these matters better in this country, and if that could be replicated in the European Union, it would not be the target of so much criticism.

Photo of John Bercow John Bercow Conservative, Buckingham

My hon. Friend makes a superb case, but he is characteristically inclined somewhat to understate it. Will he take it from me that an illustration of the problem in relation to the European Union aid budget came when I tabled a number of questions—admittedly about 300—to the current Secretary of State for International Development, asking him for his assessment of the efficacy and value for money of the European Union aid projects to which Britain was contributing? The Secretary of State could manage only to provide an answer that referred me to a website. Does not that demonstrate the paucity of accountability, and suggest that if any savings that we make in the agriculture budget by getting rid of trade-distorting subsidies are to be spent on aid projects, they should be spent on bilateral aid projects rather than on multilateral ones?

Photo of Richard Spring Richard Spring Shadow Minister, Economic Affairs

I am grateful to my hon. Friend for his intervention. A few minutes ago, I made the similar point that we needed greater transparency with regard to what exactly was happening to Britain's contribution to the EU aid budget. I pay tribute to my hon. Friend, whose knowledge and understanding of this matter greatly enhances the proceedings in the House. I agree that the focus that he describes commends itself to the House as we consider this important matter.

Photo of Ian Davidson Ian Davidson Labour/Co-operative, Glasgow Pollok

Does the hon. Gentleman agree that aid spending ought to be about assisting the poorest, and that those who seek to divert money earmarked for aid into financing the development of an EU foreign and defence policy—however worthy that might be—are in fact distorting priorities? There is no way in which aid money should be going to any other than the poorest people.

Photo of Richard Spring Richard Spring Shadow Minister, Economic Affairs

I could not agree more with the hon. Gentleman. We all agree about giving aid to the poorest, and the governance of the countries involved is crucial in that regard. There is no point in giving substantial sums of taxpayers' money to the poorest if it is being skimmed off and not reaching them. The institutional underpinnings for economic development and human rights in some of those countries certainly need to be improved, and there must be a linkage between that and aid. On the hon. Gentleman's point about wasting money on some futile exercise in creating a foreign and defence policy under which we would lose our national control of such matters, I agree implicitly with what I believe he was saying: it would be absurd. I can assure him that when we are in government in a few weeks' time, that will certainly not happen.

I should like to conclude by saying a few words about the Commission's proposals for a new own resources decision and its plans to scrap the UK rebate. Hon. Members will know that member states' financial contributions to the EU are based on the provisions of the own resources decision. The UK's contribution is adjusted by the rebate secured by Lady Thatcher, she of blessed memory, at Fontainebleau in 1984—

Photo of Chris Bryant Chris Bryant Labour, Rhondda

She is still alive.

Photo of Richard Spring Richard Spring Shadow Minister, Economic Affairs

Yes, and I hope that she will remain in blessed memory in hon. Members' minds for ever, whether she is alive or whatever, in the future.

Photo of John Bercow John Bercow Conservative, Buckingham

My intervention might be only tangentially related to the future of European Union finance, but before my hon. Friend digs himself in any deeper, may I assert that, in the minds of many, Lady Thatcher will never die?

Photo of Richard Spring Richard Spring Shadow Minister, Economic Affairs

I could not agree more with my hon. Friend. Indeed, as always, he has expressed so much better than I did what I was trying, however inadequately, to say.

The UK deserves the rebate, as it is ill suited to funding the EU through the current mechanisms. The Commission disagrees, however. Its report on "Financing the European Union" claims that

"in any event, granting a correction on an exclusive basis to one Member State appears to be unjustified, especially when taking into account the expected evolution of the net budgetary balances in the enlarged Union under unchanged conditions."

As a result, the Commission proposes to scrap the rebate, and to replace it with a general correction mechanism. As I understand it, that system would be available to any member state making what the Commission describes as "excessive budgetary contributions", but, unlike the current system, it would be entirely conditional on the application of what is called "the threshold" and all member states would be required to contribute.

I am glad that the Government claim not to accept that. As the Secretary of State for Education and Skills said when she was Financial Secretary:

"The Government believes that the current UK abatement remains justified and necessary to correct for the UK's disproportionate budgetary imbalance."

Likewise, the Chancellor of the Exchequer has commented:

"The abatement rebate is fully justified. We made that clear in Berlin in 1999 when the last EU budget was fixed and that continues to be the British position."

Photo of Gwyneth Dunwoody Gwyneth Dunwoody Labour, Crewe and Nantwich

I am grateful to the hon. Gentleman for allowing me to intervene. If the UK was unable to obtain a suitable arrangement whereby it retained exactly the same size of rebate, would he—if he were in government—cease to pay into the Community budgets money over and above the agreed sum? Can he make that clear?

Photo of Richard Spring Richard Spring Shadow Minister, Economic Affairs

I can assure the hon. Lady that this situation will not arise—I am confident, and I return to what will happen in a few weeks' time—because such will be the clear message from the British Government on these matters that it will be known that any attempt to move beyond this will be firmly and utterly rejected.

Most recently, the Financial Secretary stated:

"In terms of the Commission proposal for a new Own Resources Decision, the Government's view is that the proposals are unrealistic and unacceptable. The continuing inefficiencies and inequities on the expenditure side of the budget, and the resulting unfairness of the UK position, mean that the abatement remains fully justified and is not up for negotiation."

But these are all words. The Commission's proposals are still on the table. Nothing seems to have been achieved.

Recently, there have been worrying reports that the Government have secured a deal with European leaders to postpone negotiations on the rebate until after the general election. Why is this? What have the Government got to hide? It seems to me that the only possible reason for putting this off until after the election is that the Government are preparing for yet another possible surrender of British interests in Europe. I hope not. It may well be that Britain, holding the EU presidency, may have to take the leading role in resolving this issue, if, as seems likely, Luxembourg is unable to secure agreement by June.

In the unhappy event of Labour winning the election, British taxpayers will be landed with a bill not only for the black hole in the public finances, but potentially, although I certainly hope not, for the loss of the rebate. The Conservative party is as totally and absolutely committed to defending the rebate as a previous Conservative Government were to winning it in the first place.

Photo of Doug Henderson Doug Henderson Labour, Newcastle upon Tyne North 5:02 pm, 7th March 2005

Many of our colleagues in the House probably think that the relevant documents are somewhat esoteric. I am not one who would say that they are necessarily completely wrong on that matter, but, even if they are esoteric, that should not diminish their importance. I rather think that the issues contained in those documents and the policy outlined in the Government motion are central to the important debate that the country will have on the European constitution and, perhaps one day, on the euro itself.

There are more fundamental issues in those documents as to the size of the European Union budget and how the budget is spent than in all the constitutional changes, which I have always seen as methodological. I do not see them as fundamental to how the EU runs and what it does. Not just in Britain, but throughout the EU, people always say, "What are we going to get out of it?" In a way, we are all to blame in that respect, and I concede that I am as guilty as others, or I certainly was in the past.

I recall the public discussion in 1975 on whether Britain should remain in the European Union. In a sense, the earlier vote in 1972 on whether we should be in the EU was more honest. The issue got distorted in 1975 by the question of a little bit of money or a little bit of authority here or there. As a consequence, the British public—we are not unique, as other countries also have this approach—thought that the case for the European Union was wholly dependent on how much money we could get out of the organisation by belonging to it. Before the nationalist parties pursue their amendment, they should think a little more carefully about that. I shall perhaps mention later the importance of the EU to Scotland and Wales. We need to be cautious, however, about arguing for the European Union on the basis of how much money we get out of it.

In my view, the European Union is about doing things together, not subsidising each other. Clearly, there must be an exchange of resources as different issues are tackled in different eras in the development of the European Union. As I think that the Financial Secretary said in response to an intervention, however, it is not about rich countries cross-subsidising each other so that the poorer parts of Germany subsidise the poorer parts of Britain and vice versa. That makes no sense at all. When considering the EU budget, we need to identify more clearly what are the priorities of the EU. We need to ask what the EU is for as we move forward in the 21st century. Until we do that, our arguments about the financing of the EU will be rather sterile. I shall mention later the context of public opinion, in which finances are important.

Before the public are asked to judge on the finances, however, they should be aware—we all have a responsibility to encourage that awareness—of what the European Union is. I believe that the most important thing for which the European Union stands is the binding together of European countries to protect, to bring stability and security in Europe and to contribute to world security and stability. That is why I am in favour of the European Union—it is absolutely essential that the countries of Europe bind themselves together, and there is no other organisation to do that.

The second argument, in my view, is that a large international organisation, which claims to have, and should have, a major security and stability role, cannot do that without having an important economic role, as the two go together. That is why the European Union must have a major economic role, too. That major role does not need to cost a lot of money, however. Some of the things that the European Union does are costly. Stability and security involve costs, but not colossal ones, because most of the contributions in that area are made by individual members. Some countries in the Union might be better at naval interventions, some at troop interventions, and some, in certain parts of the world—for example, the French in Africa and Britain in some other areas—at contributing to aid programmes and so on. A lot of the resources for that come directly from member countries, but those countries cannot work together unless they are bound by as common a policy as possible. We will not get international security and stability at all if the European Union cannot even agree on priorities in a relatively rich area of the world. Therefore, there are costs in relation to security.

Economic policy can have costs, depending on how it is designed. As long as there is agricultural support, whether in the current common agricultural policy or some other regime, common funds will need to be raised to be disbursed according to rules and regulations agreed by everyone. So there will always have to be discussions about the size of the agriculture budget. Other measures, however—such as the economic initiatives of which, perhaps, a few more should have resulted from the Lisbon agreements—do not involve much cost, apart from a measure of administrative cost. They involve no huge subsidies.

If the enlargement of the European Union is to fulfil the hope of many of us throughout the House that the countries that entered in the last wave will establish values and standards similar to those in existing EU countries, and will aspire to the same economic conditions—if they are to be brought into the house, as it were—there will be some costs to the rest of us. As one who represents a relatively poor part of the United Kingdom, I can say that there will be costs even to areas such as the north-east of England. The structural fund regime that we in the north-east may have expected in the past cannot continue for ever, because of other important priorities in some of the new EU countries.

Some may ask, "What is the point of our being in the EU if we in Tyneside are not getting the deal that we used to get?" They should bear in mind the importance to Tyneside's electrical and manufacturing industries not just of inward investment following active participation in the EU, but of defence contracts for such things as aircraft carriers, which are largely dependent on European security and stability. I do not believe that those contracts depend solely on NATO, although I am a strong supporter of NATO; I think that, in today's world, the EU must play a major role.

Photo of Chris Bryant Chris Bryant Labour, Rhondda

As my hon. Friend said, his area—like mine—has received considerable support from structural funds and from the EU. Perhaps he will also point out that by allowing greater economic prosperity in some eastern countries in the new enlarged EU, we are helping them to compete in the bargain basement and thereby to deprive areas such as his and mine of jobs.

Photo of Doug Henderson Doug Henderson Labour, Newcastle upon Tyne North

That is absolutely true, but when considering the economic consequences of Latvia, Poland or the Czech Republic joining the EU, we should bear in mind the opportunity that it gives the British economy to trade with them at a higher level in future. Some may say that that is pie in the sky, but that does not apply to trade flows between Britain and Portugal and between Britain and Spain. There has been a vast increase in activity in both directions, but to our advantage in many respects. If I were speaking from the Dispatch Box, I would check the figures before making that assertion, but I think it is broadly correct.

There are many other spheres in which we must act together, which I think are important to democracy and civilisation in Europe and which involve minimum cost. Costs are involved in asylum and border policy—another important issue—but if we are to have public support in the west of the European Union, the people in the west must be satisfied that the same standards of asylum and border control obtain in the east. If some of the eastern countries cannot fund those standards at present, there must be a degree of payment transfer in the short and, possibly, the medium term. Many important things that the EU does, however, do involve minimum cost.

Members are bound to mention aid, and they can make that as big an issue as they want. Of course aid involves cost, which must be kept in reasonable proportion—although I support a common European policy on some aspects of aid. I am involved in the sugar regime because of constituency interests in the chocolate industry. I think that it would be wrong to restructure that regime without considering the consequences for the various poorer countries that are affected. If the European Union decides to restructure the regime—which I think it should—it must take account of those consequences. The process will not work if everybody in the EU is bound by the new sugar regime but not by the aid regime. So it is important to take common action within the EU on this issue and I strongly support doing so, although I recognise that there have to be limits. It is a question of bargaining with the other countries and of looking at what is acceptable to public opinion across Europe.

Photo of Ian Davidson Ian Davidson Labour/Co-operative, Glasgow Pollok

I am grateful to my hon. Friend for giving way on this important point. He has spoken very sensibly on the question of solidarity within Europe and across the world as a whole, but surely the test of financing via the European Union is whether or not it adds value. The objection that many of us have to giving ever-increasing sums to the EU is not that we do not want co-operation, but that such money is sucked into a morass of fraud, corruption and inefficiency. As a result, we obtain less bang for the buck than would otherwise be the case.

Photo of Doug Henderson Doug Henderson Labour, Newcastle upon Tyne North

I thank my hon. Friend for his intervention, with which I partly agree. The EU needs to decide the borders of the territory within which a common aid policy is to be implemented. Such borders will be movable, depending on world events. For example, there is a need sometimes to be involved in, say, Bosnia, and it is perhaps worth considering funding such undertakings from a security budget, rather than from the aid budget.

I want such money to be audited effectively and spent well. I know from past examination of such matters that it has not always been spent well, which is why, often, the auditors will not sign it off. But that issue is separate from the question of whether we should spend such money; rather, it concerns ensuring that if we do spend it, it is spent properly, and that there is proper accountability. I hope that my hon. Friend Mr. Davidson agrees that we need to draw that distinction.

Photo of Gwyneth Dunwoody Gwyneth Dunwoody Labour, Crewe and Nantwich

But let us consider the example of a local authority supported by large sums of money, raised through taxation measures implemented by this House. If, over a period of 10 years, there was clear evidence that the people taking in that money were not conforming to proper auditing rules, were unable to account for much of it and were frequently making it clear that they had been involved in fraud and corruption, would my hon. Friend accept that?

Photo of Doug Henderson Doug Henderson Labour, Newcastle upon Tyne North

Perhaps my hon. Friend could clarify her question. Would I accept what?

Photo of Gwyneth Dunwoody Gwyneth Dunwoody Labour, Crewe and Nantwich

Would my hon. Friend accept such behaviour? Would he accept such an arrangement in respect of any other organisation with which this House has dealings—or in respect of any other form of taxation, be it local or national—if there was clear evidence of fraud and corruption, and if the auditors refused for 10 years to sign off the accounts?

Photo of Doug Henderson Doug Henderson Labour, Newcastle upon Tyne North

Of course I would not, and as I tried to say in response to my hon. Friend the Member for Glasgow, Pollok, this issue must be tackled. There is a need to improve the EU's auditing process and its financial planning, but that is an argument not for getting rid of the EU or for curtailing its activities, but for ensuring that, once we have defined what its responsibilities and priorities should be, the budgets are fairly tightly geared towards them. That can be done, but such things are more difficult to do at international than national level.

On the point raised by my hon. Friend Mrs. Dunwoody, if a local authority were questioned about auditing, there would be discussion and argument among the various political parties and institutions in the city in question as to whether taking serious action against the authority was worth the candle. Hopefully, the answer would be yes, but a lot of negotiation has to take place before such action can be taken. However, I hope that my hon. Friend understands that in the EU, one has to multiply that process by the large number of member countries within it, which makes such discussion and the decision-making process more difficult. I do not say that to defend inefficient procedures or unaudited accounts, which I believe should be dealt with.

Before finishing, I want to mention a few important aspects of what the EU does that do not cost much money. Technology exchange and university links are significant developments within the EU that can help to bolster our industries. The aircraft carrier provides an interesting example. It is now unthinkable that such a complex and costly project could be developed within one country alone. The aerospace industry needs to look at the broader sphere. Technology transfer can be beneficial not only to the relatively well-informed technological nations of the EU, but to the less well-informed ones. The costs are minimal, but the EU has a fundamental role to play. Those are the arguments that we have to put before the public.

Photo of Doug Henderson Doug Henderson Labour, Newcastle upon Tyne North

I may give way in a few moments.

The EU has also had an important role to play in respect of human rights. We cannot talk about human rights throughout the world unless there is a system based on human rights within the EU. Again, systems based on human rights do not cost a lot of money, just relatively low administrative costs.

Environmental issues can be costly if major improvements are being sought in either the private or the public sector, and that applies whether or not those improvements are being implemented at the country level or the EU level. I believe that we have to strike an appropriate balance over funding, but the rules governing power station emissions and all the rest of it must be determined at European level. The only organisation in Europe that is capable of achieving that is the European Union. Many other examples of projects that do not cost much money could be cited.

If the question is how much money should be spent, the answer is that, in a sense, we can never spend enough. All the issues that I have articulated in my speech—they have also been articulated by Front Benchers and others in the debate—potentially cost money, and the amount of money needs to be controlled. There needs to be an ongoing public debate to justify the importance of what the EU does and to gain public support for the funding. We should justify the EU in the same way as we continually justify the importance of the national health service. Very few people argue against the need to finance the NHS, though there may be arguments about the effectiveness of the spending, and we have to make exactly the same arguments in favour of the EU. We need to bring EU budgets to a level that is acceptable to public opinion.

I ask the Minister to tell us a little more about the timetable for taking the process forward—Mr. Spring asked the same question—and to explain in greater detail what Britain intends to do during its six-month presidency.

Photo of Mr Paul Tyler Mr Paul Tyler Shadow Leader of the House of Commons 5:23 pm, 7th March 2005

I am delighted to follow Mr. Henderson, who said many things that I agree with. His comments are made on the basis of greater experience than I have in this particular area of policy. What he said about the linkage between aid and trade was particularly important. I heard the Front-Bench spokesmen debate the matter earlier and I broadly concur about the national role in comparison with the Europe-wide role. That is a perfectly fair point, but we should all recognise that no one is blameless in the matter.

No country's aid programme under any Government has been as effective or as well targeted as we would like, not least because it has occasionally been supplemented by arms sales policies that definitely do nothing to promote the right relationships between Governments. On that score, I agree with what the hon. Member for Newcastle upon Tyne, North said, and I also accept what he said about the constitution. The sooner Europe has a constitution that limits and codifies the different roles and governance, the better. I hope that we will achieve that—[Interruption.] I can hear some sedentary contributions from the Conservative Benches. However, the argument that Mr. Spring made on behalf of his party actually led to that conclusion; we need more effective codification of the different financial responsibilities in Europe.

The hon. Gentleman talked in most helpful terms about the context. I want to say a few words about the financial context. As I understand it, the EU budget is limited to about 1 per cent. of total national income in member states, compared to an average of about 45 per cent. for national Government budgets. That is a different cup of tea—a different scale of operation. Furthermore, the EU budget has risen about 8 per cent. since 1997, which is less than the rate of inflation, at a time when the UK budget increased by between 60 and 65 per cent. The common agricultural policy takes a whacking 45.8 per cent. of the whole EU budget—a point to which reference has already been made. That is a huge figure, yet in a sense it is outwith our discussion this afternoon. I shall come back to that point in a moment. Incidentally, those figures do not even include support for the common fisheries policy.

Built into the main document before us, "Financial Perspectives 2007–2013", is an implicit tug of war between two distinct approaches to regional aid programmes—structural funds, which have already been a feature of the debate. I represent an area that already benefits from objective 1 status. Other such Members are in the Chamber. I am well aware that in Cornwall, mid and west Wales, south Yorkshire and Merseyside we are subject to an explicit threat from the Treasury. It is for that reason that we have some sympathy for the amendment tabled by Adam Price. Unfortunately, by excluding the whole second half of the motion, the amendment would remove any hope of retaining the UK rebate. I do not know whether that was intentional. As the Minister said, the figure would be £5 billion by 2013. The Welsh nationalists are prepared to sign that away, so I am afraid that we cannot support the amendment.

Photo of John Gummer John Gummer Conservative, Suffolk Coastal

Does the hon. Gentleman agree that the European Union has had a remarkably good effect both on regional development and because countries such as Ireland started off being in receipt of large sums of money but will soon become net contributors? Is not that a remarkable achievement, given how much more successful they were than the British?

Photo of Mr Paul Tyler Mr Paul Tyler Shadow Leader of the House of Commons

The right hon. Gentleman is right. I am delighted to agree with him. Some years ago—possibly when he was a Minister—some of my colleagues from Cornwall and I visited Ireland to examine precisely what good use had been made of EU structural funds. We came to the conclusion that if we could complete the border between Cornwall and England by taking a bulldozer towards the Irish sea from the Tamar, to shift or tug ourselves over and attach Cornwall to Ireland we should be doing better than under the right hon. Gentleman's Government.

Photo of Kelvin Hopkins Kelvin Hopkins Labour, Luton North

The success of Ireland is welcome and I have many Irish constituents who agree. However, given that the net contributions from the European Union to Ireland amounted to 5 per cent. of gross domestic product, which in Britain would be more than £50 billion every year, and that Ireland joined the euro at a relatively low parity for its currency and had to reduce interest rates, it is hardly surprising that the economy boomed.

Photo of Mr Paul Tyler Mr Paul Tyler Shadow Leader of the House of Commons

I understand the point that the hon. Gentleman is making. I was not suggesting that England, or indeed Wales and Scotland, should join Ireland and benefit—simply Cornwall.

At present, there is a clear plot to undo some of the good work that Mr. Gummer and I agree is going on in some parts of the United Kingdom. The Library briefing shows that some real economic progress is beginning to come through from the objective 1 process. GDP per capita in Cornwall, for example, is up from 70 to 72.6 per cent. of the EU average in just two years. That is more than the whole of the previous six years. The situation is similar in other objective 1 areas although, of course, we all started from a low base and the improvement is painfully slow. To pull the plug on the objective 1 process in the period between 2007 and 2013 would deal a devastating blow to our economic and employment activity rates just when they are showing signs of sustained progress.

Unfortunately, UK Ministers constantly bad-mouth such programmes. In the debate in the House on 15 June last year, the Minister for Industry and the Regions said that she wanted

"to get away from the stifling effects of Commission bureaucracy on structural funds projects."—[Hansard, 15 June 2004; Vol. 422, c. 747.]

However, Members from all the objective 1 areas know only too well from our contact with the local communities, local authorities and their partners that the problem is not the bureaucracy in Brussels, but the bureaucracy up the road in Whitehall. We constantly face that problem. I accept that there is a trade-off because, of course, the bureaucrats say that they are monitoring and auditing everything that is going on, but to complain about the bureaucracy in Brussels is completely misplaced in this respect.

As a result of what is now proposed, there is a well-founded suspicion that the Chancellor has set his sights on the repatriation of regional support funding programmes, not so much to save taxpayers' money, but to gain control of the direction of such investment, first, to concentrate it where it can be of political benefit to the Labour party—regretfully that clearly will not be in Cornwall—secondly, to limit the Treasury's match funding commitments and, thirdly, to avoid longer-term investment in specific areas of the UK.

The Chancellor and his ministerial colleagues have done nothing to remove our fears, and almost all MPs from objective 1 areas have expressed serious concern about the complete lack of realistic guarantees. The objective 1 group in the House has, for example, pointed out that the EU programme lasts for seven years, but that the Treasury can promise only three years of assistance, with no commitment to match funding comparable with what we have experienced in phase 1. So are the savings sought by the Government, within the package and implicit in what we are considering now, real and realistic?

Incidentally, I find it odd that the Conservative spokesperson, the hon. Member for West Suffolk, assumed that we could do nothing about all this. He even seemed enthusiastic about what the Chancellor is up to in respect of objective 1 areas. It happens that Cornwall is a Tory-free zone—indeed, as are most of the other objective 1 areas—but to deny the useful contribution that objective 1 status has made to our economy and so on seems extraordinary.

My colleagues and I have met officials from the appropriate directorate of the Commission in Brussels who believe that such savings are neither real nor realistic. Unless the Chancellor is prepared to preside over a sharply reduced impact on regional development in the UK and is successful in persuading the majority of the other 24 member states to do the same, this attempt at a unilateral break-out is clearly doomed. Meanwhile, the effect of the Government's refusal to compromise is delaying vital decisions and leaving UK local authorities and their partners in a state of dangerous confusion—they simply have no idea what will happen or when—and the potential for avoidable waste and dissipation is immense.

We seek an explicit reassurance from the Minister. What will happen and when to such regional funds? What guarantee is he prepared to make? Frankly, given the Chancellor's obstinacy, there is little prospect of finding any solution to the problem before the end of June. If he thinks that he can bully his opposite numbers into agreeing with him during the British presidency, many MEPs, from all parties, are simply convinced that that is wishful thinking.

A great deal has already been said about the CAP. As I made clear at the outset, the CAP is the real meat of the EU budget. The 2002 deal, which was referred to earlier, struck between the French and German Governments has resulted in a continuation of many of the least satisfactory and least sustainable aspects of CAP expenditure. Reference has been made to the sugar and tobacco regimes, both of which are clearly undesirable in the medium to long term. The sugar regime is not finalised and could still be revised much more effectively.

I recall that the then Minister for Europe, now the Leader of the House, whom I shadow, said that the CAP's

"quick reform is imperative, and it will not bear the weight of enlargement without it."—[Hansard, Westminster Hall, 16 April 2002; Vol. 383, c. 121WH.]

We now have enlargement, yet the CAP is not fully reformed. That is unfinished business.

Where were the United Kingdom Government when the latest Franco-German CAP deal was struck? Did our Ministers, let alone the Chancellor, fight for effective restraint on that huge element of the overall Brussels budget? They seem to have been conspicuous by their quiet acquiescence.

Photo of Ian Davidson Ian Davidson Labour/Co-operative, Glasgow Pollok

I agree with the hon. Gentleman about the need to reform the CAP. What is the amount he believes that the European Union should allocate to the CAP?

Photo of Mr Paul Tyler Mr Paul Tyler Shadow Leader of the House of Commons

If the hon. Gentleman has farmers in his constituency, he will know that we are in a difficult transition period. I think that he will agree that change should have taken place under the previous Conservative Government.

Photo of Mr Paul Tyler Mr Paul Tyler Shadow Leader of the House of Commons

I am trying to explain the situation to the hon. Gentleman because I am not sure how many farmers he has in his constituency. The process of transition is, by its nature, expensive—change is always expensive—so I do not expect a reduction to below 40 per cent. of the total EU budget during the transition period. However, we should certainly aim for such a figure after that period and thereafter I hope that we will see real improvements. I hope that that satisfies the hon. Gentleman. I also hope that he will note that the most important thing for both farmers and consumers is not the CAP, but tackling the problems caused by middlemen in the food process. Although it would be inappropriate to discuss that matter at length today, the processors and the retailers are creaming off money that should go to the original producers.

Photo of Ian Davidson Ian Davidson Labour/Co-operative, Glasgow Pollok

I am just a simple country boy, so I do not understand from that long answer the amount that the Liberals want spent on the CAP. Can he just give me a figure?

Photo of Mr Paul Tyler Mr Paul Tyler Shadow Leader of the House of Commons

I do not think that the hon. Gentleman is listening. I explained carefully that the process of transition—it should have started much earlier and it is unfortunate that it did not happen under the previous Government—will be expensive. I cited a reduction to about 40 per cent. of the total budget by the end of the process and hope that it will come down further after that. I hope that that satisfies the hon. Gentleman.

Photo of John Gummer John Gummer Conservative, Suffolk Coastal

Is it not noticeable that Labour Members are extremely good at attacking the common agricultural policy without recognising the important changes that have taken place, the effect that those will have on farmers and the need for farmers to have a reasonable time to adjust to them? At the same time, those people expect to have farmers' votes.

Photo of Mr Paul Tyler Mr Paul Tyler Shadow Leader of the House of Commons

I entirely agree with the right hon. Gentleman, who speaks as a former Minister. The transition process is not easy. He has a big agricultural community in his constituency, as do I, so he will agree that if the process had been started earlier—I am not blaming him and his Government for that—things might have been easier, especially given what has happened over the past 10 years with bovine spongiform encephalopathy and foot and mouth. The livestock industry has suffered a lot of blows, although that might not worry him as much as me. The change process is not painless and will take time.

The European regional development fund to which I was referring is, frankly, small beer alongside the CAP. Only a small improvement to the application of the CAP would be effective, which is why those of us who represent objective 1 areas are worried, nay apprehensive, about the way in which the Chancellor seems to be targeting the development and structural funds rather than the CAP. We are far from convinced that the Government have either identified the right targets for reform and retrenchment, or secured the necessary allies to achieve that.

Anyone who doubts the wisdom of carefully extending the application of qualified majority voting should take a hard look at the way in which only a few Governments of member states have managed to stymie radical reform of the CAP and the common fisheries policy with the use of their vetoes. Surely such reform requires a consensual approach rather than unanimity.

Budgetary discipline is the subject of another of the papers before us. To a non-accountant, the paper seems to be dangerously complacent, and that was reflected by the exchanges between the Conservative and Labour Front-Bench spokesmen. The mechanisms might seem to be "an efficient tool" to those in Brussels, but the outcomes suggest otherwise. As hon. Members have said, the European Court of Auditors has refused to sign off the EU accounts for the 10th year. That is outrageous, as Mrs. Dunwoody has reminded us several times this afternoon.

Surely the UK Government should concentrate on achieving an effective audit trail in all member states for all EU funds. Until then, it might be more reasonable to insist on a freeze on the budget as a share of gross domestic product in the Union. That would allow a real increase, but only in line with the growth of the EU economy. I find it difficult to understand why that explicit statement—using both a carrot and stick—is not deployed more effectively by European countries that are worried about the lack of effective budgetary discipline. It should surely be said openly—it should have been said in the famous letter of 2003—that until the EU gets a firm grip on its budgetary disciplines, there should be no question of an increase in overall expenditure.

Photo of David Heathcoat-Amory David Heathcoat-Amory Conservative, Wells

If the hon. Gentleman is now so keen on budgetary discipline, why was it that no Liberal Democrats or their allies tabled or supported amendments to the European Convention to improve the scrutiny process or to strengthen budgetary discipline in the European constitution?

Photo of Mr Paul Tyler Mr Paul Tyler Shadow Leader of the House of Commons

I cannot answer that question because I do not know the details. I can tell the right hon. Gentleman that my colleagues on the Economic and Monetary Affairs Committee have been making a specific proposal to link any consideration of any increase in the overall budget to the issue that is before us. That is specific within the European Parliament. I cannot speak for the Convention, but the European Parliament has the same sort of responsibility for the scrutiny of the budget, but perhaps not to the same degree as we in this place in terms of the UK budget, and perhaps not as much as the right hon. Gentleman and I would like, and initiatives have been taken. I agree entirely that fraud continues to disfigure the reputation of the EU.

The lack of clear management accounts is clearly an obstacle to the scrutiny of spending. It seems odd that there is not a specific linkage in the Government's proposal, and in the motion, between that and the issue of the overall budget.

I move on briefly to the issue of a general correction mechanism and the own resources system. The two papers, and the Government's response to them, raise fewer issues of principle, at least to my mind, but as always, the devil may be in the detail. The Minister may be able to tell us that there are still some difficulties. I think that there is unanimity across the House that we must stand firm. That is why I find it unfortunate that the amendment to which the Welsh nationalists have put their names would seem to undermine that position. I hope that the amendment will not be carried.

Enlargement has been mentioned several times. The Government, and the Conservative Government before them, have been enthusiastic about enlargement. I have always believed that the reinforcement of budgetary control should have preceded the expansion to 25 rather than followed it. Deepening should have been given precedence over widening. However, we have to live with the world that we now have.

The Commission is now saying that the larger budget that it is seeking is necessary to consolidate and continue the process of enlargement and to achieve better cohesion with the economies of the new entrants. We have yet to see how it can persuade other Governments, including our own, that it has not wished the end without supporting the means. As has been said, the Lisbon agenda is also extremely relevant.

The core issue should not be only "How much?" but "What for?" We have the famous 2003 letter to the then President of the Commission to which there were six signatories, including the UK Government. It was remarkable in that it made no direct reference to CAP reform. It assumed that the Franco-German deal was a done deal and could not be reopened. That was a grave mistake. It was extraordinary that it did not make any direct reference to better financial management and audit supervision.

This morning, in The Guardian, Lord Hattersley quoted Mr. Gladstone, whom I suppose I could call my right hon. Friend. He made a sensible and sane statement some 120 years when he said:

"Things are done best by those who believe in them."

To us, the Chancellor seems all too anxious to carve up the most cost-effective EU regional programme while failing to insist on CAP pruning and meaningful audit tracking of waste. We just wish that he would believe more in the EU and less in his own omniscience.

Photo of Gwyneth Dunwoody Gwyneth Dunwoody Labour, Crewe and Nantwich 5:44 pm, 7th March 2005

The connection between politics and taxation is a direct one. Parliaments exist not only to collect taxes, but to decide the priorities for those who are involved in how those taxes should be spent. There is a direct relationship with elected Members, in terms of the decisions that are taken, that is emphasised by the fact that in a Parliament such as this, we are constantly presenting ourselves for re-election. We say to the electorate, "We want your taxes for these purposes. If we do not fulfil them, we shall offer ourselves for re-election and you may then decide whether we have fulfilled the programme that we offered you at the last general election."

It is therefore extraordinary that we should be debating, with the assistance of some extremely good reports by the European Scrutiny Committee, an arrangement that for a period of well over 10 years has not been audited properly and has resulted in the collection of considerable sums of money from the taxpayer. That money has been spent on a series of initiatives, some of which have rather strange priorities, but the Commission is still not capable of demonstrating in a clear or transparent manner how it controls its own finances. I asked my hon. Friend Mr. Henderson a question about what he would do if a local authority could not demonstrate how it had spent taxpayers' money and which projects it had supported, for the simple reason that the principles of accountability are the same whether the organisation is local, national or international. It is extraordinary that year after year, we have debates, sometimes attended by very few Members of Parliament—although that fact is of practically no importance—in which we consistently agree that we need more transparency, better audit trails and more control over the way in which the Commission makes decisions. We decide, however, not to take action that week or the week after. We might even fail to take action in a few months' time, but people need not worry because we will do something eventually.

Photo of Mark Hendrick Mark Hendrick PPS (Rt Hon Margaret Beckett, Secretary of State), Department for Environment, Food and Rural Affairs

Is my hon. Friend not aware that the European Parliament has a Budgetary Control Committee? Indeed, even though the auditors have not signed off previous budgets, the European Parliament is made up of directly elected Members from this country and 24 other member states who can stop the budget in its tracks, and have occasionally threatened to do so?

Photo of Gwyneth Dunwoody Gwyneth Dunwoody Labour, Crewe and Nantwich

I spent four and a half jolly years in the European Parliament, and I can assure my hon. Friend that not only do I know about the tricks and games of that Committee but I know that the European Parliament's powers, which could be used to control the Commission, are rarely used, because they are blunderbuss powers. There has been only one attempt to discipline the people in charge, so my hon. Friend's argument is singularly unconvincing.

Photo of Kelvin Hopkins Kelvin Hopkins Labour, Luton North

Is not the reality that Ministers in Governments across Europe, and, indeed, in the European Parliament, do not want to kick up too much of a fuss for fear of being seen as non-communautaire and guilty of shaking the whole arrangement to pieces?

Photo of Gwyneth Dunwoody Gwyneth Dunwoody Labour, Crewe and Nantwich

I am afraid that I cannot answer for any Minister, thank God. It is many years since I was a Minister. However, I would like to say something about one or two important matters.

I have listened carefully to my hon. Friend the Minister, and I accept that he and the Chancellor are strongly committed to the securing of a sensible arrangement. We should welcome the fact that they will not go above 1 per cent.—indeed, they should sing it from the rooftops as loudly as possible. Nevertheless, I have one or two questions for the Minister. If, for any reason, our position is not accepted by the other member states after the election, what will be the attitude of the United Kingdom Government? Will it be the same attitude adopted by the present Administration, who will not contribute a sum over the amount specified by the Chancellor? If so, how do we intend to maintain that position? Is it true that in moving to a different arrangement for the payment of regional funds we will insist that the community provide a buffer and a suitable amount of cash to ensure that UK regions that receive support will not lose it without a targeted and tapered programme?

Is it not possible for the Minister to say that if we are required, at the end of another 12-month period, to accept accounts that are not qualified or audited properly, a demand for extra money for a larger budget and a change in the way that the United Kingdom retains its rebate, we—the United Kingdom—will take action to protect the sums that are going into Community organisations?

It is all very well to say to the taxpayers of this country that, in comparative terms, we are dealing with a small sum of money. I noted in the papers before us the wonderful phrase that it is only 1 per cent. of budget, whereas, after all, the individual states are spending 48 or 49 per cent. more. Whatever the size of the budget, what happens to that money should concern us. We know that in certain cases, and certainly in relation to overseas development, money is not only squandered, but frequently lost. We know that in relation to many of the individual institutions, there is open corruption and frequently very little accurate accounting for the sums of money that are put into various developments. Beyond that, we also know that as a Parliament, for the first time in almost 800 years, we are being required to do something that would be unacceptable in any other sphere. We are being asked to tax the people of this country, to use that money by transferring it to a much larger organisation and to be unable to assure ourselves that those sums are being correctly, honestly and effectively spent. How long can that state of affairs be allowed to continue?

Photo of Adam Price Adam Price Spokesperson (Economy and Taxation; Education & Skills; Miner's Compensation; Regeneration; Trade & Industry) 5:52 pm, 7th March 2005

I beg to move amendment (a), leave out from "resources system;" to end and add

'and reaffirms the need to continue EU structural funding.'.

It is an honour to move the amendment in my name, and a rare privilege for Plaid Cymru and the Scottish national party. The issue is vital to West Wales and the Valleys, and we wanted to focus on the structural funds and regional policy. May I say to Mr. Tyler that it is always difficult to knit an Opposition amendment into a paragraph that eulogises the Government, and I am sorry if I failed on this occasion. We thought it was important to give hon. Members an opportunity to divide on an issue that is of such great importance to our communities before the general election and before decisions are made. That is the intention of the amendment.

Regional policy is important not just to my community; it goes to the heart of the European Union that we are trying to create. Implicit in the Government's policy is the notion of the renationalisation of solidarity. Solidarity is an important component of the notion of European citizenship that we are trying to create. We are grateful to Mr. Spring for pointing out that the spectre of Thatcherism, if not the spirit of Mrs. Thatcher, still haunts us.

In the experience of my community, European regional policy provided a valuable safety net through the terrible, devastating years of Thatcherism. It provided practical value to our communities in the form of individual projects, and was also a beacon of hope because it showed that another way was possible—that there was a different model for society and the economy, and that the neo-liberal model that was on offer at the time could at least be ameliorated by European regional policy, and we are grateful for that.

Photo of Richard Spring Richard Spring Shadow Minister, Economic Affairs

The hon. Gentleman is rewriting history a little. Massive inward investment into Wales was secured in those years, particularly from the Japanese, which transformed the manufacturing base in south Wales, much to the benefit of the economy of Wales. I also remind the hon. Gentleman—I hope he has the generosity to accept this—that there was during those times a regeneration of the Welsh language and an acceptance of Welsh broadcasting that had not happened before.

Photo of Adam Price Adam Price Spokesperson (Economy and Taxation; Education & Skills; Miner's Compensation; Regeneration; Trade & Industry)

If I were to respond, I would be going rather wide of the subject that we are debating. In the past few days, a report from Sheffield Hallam university showed that only half the jobs that were lost in heavy industry, mining and steel have been replaced through inward investment in manufacturing, so sadly they do not make up for the terrible policy of breakneck de-industrialisation under the Tories.

We were fortunate in those days that we at least had the safety net of European aid. That is why it is so important that we uphold the principle of an EU-wide regional policy. I have no appetite for the return of a Tory Government. I have no appetite for the present Government's dalliances with neo-liberal policies either, but I am certain of one thing: there is more economic security for our communities if we retain the principle of EU-wide regional policy.

Photo of Mark Hendrick Mark Hendrick PPS (Rt Hon Margaret Beckett, Secretary of State), Department for Environment, Food and Rural Affairs

Does the hon. Gentleman agree that that regional policy will continue, and that European structural funds provide a medicine to restructure industries in particular regions of the European Union, and are not intended as a permanent means of support? Are there not countries in the EU now that are more in need of that medicine as a result of the fall of communism than certain parts of the UK?

Photo of Adam Price Adam Price Spokesperson (Economy and Taxation; Education & Skills; Miner's Compensation; Regeneration; Trade & Industry)

I agree with the first part of the hon. Gentleman's intervention. His point is well made. What we want in all our communities is not charity. We do not want permanent dependence on any funding source, whether at central Government or European level. We want help to help ourselves. The Government are right to stress that in their statements on regional economic policy. Developing endogenous potential—indigenous potential—is the way forward. [Interruption.] "Endogenous" if I were giving an economic seminar; "indigenous", perhaps, in the Chamber. That has always been the key component of European regional aid as well.

The startling example of the Republic of Ireland was mentioned earlier. Since about 1987, it has had an incredible record of economic growth, partly—not wholly—because of a very successful strategic exploitation of structural funds, and also of the cohesion fund, for which it was eligible as a poorer member state.

Photo of Doug Henderson Doug Henderson Labour, Newcastle upon Tyne North

I do not want to labour the point, but does the hon. Gentleman accept that the nationalist parties in Scotland and Wales are effectively arguing that the structural fund regime, broadly as it stands, should continue because it is essential for the Scottish and Welsh economies, but that he fails to see the change in the nature of the European Union? If the existing principles were applied, very few parts of Scotland and Wales would qualify, unlike the areas mentioned by my hon. Friend Mr. Hendrick. It is in the interest of Scotland and Wales to move with the times.

Photo of Adam Price Adam Price Spokesperson (Economy and Taxation; Education & Skills; Miner's Compensation; Regeneration; Trade & Industry)

In the case of Wales, the new figures contradict the hon. Gentleman's point. At this point West Wales and the Valleys come beneath the 75 per cent. benchmark for eligibility for the new convergence fund, because unfortunately it is one of the poorest regions of the European Union, even after enlargement. Overall prosperity in Anglesey, for example, is 53 per cent. of the average for the 25 EU member states. We are always being told that the UK is one of the richest member states and that it has the third or fourth largest economy in the world, so it is incredible that an island in Wales has half the average EU prosperity, even with the inclusion of the enlargement countries, which had to cope with 40 years of communism.

Photo of Kelvin Hopkins Kelvin Hopkins Labour, Luton North

Does that point not make the case for a massively increased regional budget within the United Kingdom and for big transfers of income and wealth from richer areas to poorer ones? Is that not the real answer?

Photo of Adam Price Adam Price Spokesperson (Economy and Taxation; Education & Skills; Miner's Compensation; Regeneration; Trade & Industry)

I do not see it as an either/or proposition, and I am not sure whether the hon. Gentleman does. Nothing precludes member states from pursuing a more robust regional economic policy. The French Government, for instance, have a broader and deeper commitment to regional economic convergence than the UK Government. Nothing precludes the UK Government from, for example, using fiscal incentives more broadly. Spain allows the Basque country and Navarre to vary their own corporation taxes, because that proved to be such a valuable tool in obtaining inward investment in the Republic of Ireland. We could pursue a more robust regional policy while retaining European funding.

Photo of Doug Henderson Doug Henderson Labour, Newcastle upon Tyne North

I do not want to labour the point, but the assertion that Wales would qualify for structural funding is based on the old rules, not the future rules. Surely the hon. Gentleman understands that the average per capita income in Poland is about $5,000—even in Slovenia, it is about $10,000 or $11,000. I am not saying that there is not a street or small area in Wales that contains such income levels, but there is no overall area with such income levels in Scotland or Wales, which is why the House is asking the hon. Gentleman to understand that the structural fund regime is anachronistic.

Photo of Adam Price Adam Price Spokesperson (Economy and Taxation; Education & Skills; Miner's Compensation; Regeneration; Trade & Industry)

I hate to have to correct the hon. Gentleman again, but on 25 January EUROSTAT published the latest regional GDP figures, which show that the GDP of West Wales and the Valleys from 2000 to 2002 was 73.8 per cent. of the average for the 25 EU member states. That is less than the 75 per cent. threshold, which is the basis on which eligibility for the convergence fund will be determined.

Photo of Wayne David Wayne David Labour, Caerphilly

The hon. Gentleman has quoted the EUROSTAT figures, which do not take into account the most recent GDP figures from central Government. If the recent figures were taken into account, they would show that the GDP in West Wales and the Valleys has risen considerably.

Photo of Adam Price Adam Price Spokesperson (Economy and Taxation; Education & Skills; Miner's Compensation; Regeneration; Trade & Industry)

That is all the more reason why the decision to award convergence fund status should be made now. West Wales and the Valleys has a window of opportunity to achieve the highest level of European aid for seven years until 2013, as a result of which we would probably qualify for another seven years of transitional funding. We are discussing 15 years of the highest level of aid for my community and for the hon. Gentleman's community, which is why we urge the Government to ensure that a decision is made in June at the European summit meeting.

Photo of Wayne David Wayne David Labour, Caerphilly

By simply discussing regional policy in an abstract sense, the hon. Gentleman is not taking into account other issues, such as the British rebate and the size of the whole EU contribution.

Photo of Adam Price Adam Price Spokesperson (Economy and Taxation; Education & Skills; Miner's Compensation; Regeneration; Trade & Industry)

I am discussing the concrete fact that money is on the table for the hon. Gentleman's community and for mine. As elected Members from West Wales and the Valleys, it is our responsibility to make the case so that Wales gets that money.

Photo of Wayne David Wayne David Labour, Caerphilly

The hon. Gentleman has said that some money is on the table. What money? The EU budget has not been agreed yet.

Photo of Adam Price Adam Price Spokesperson (Economy and Taxation; Education & Skills; Miner's Compensation; Regeneration; Trade & Industry)

Precisely. We must obtain agreement to ensure that we obtain full value from the money that is available to us. At the moment, we qualify for the highest level of EU aid, but we will not get that money if the UK Government push the decision into their own presidency or beyond it into 2006. I am not the only one to take that view: when the Welsh Local Government Association met the European Commission recently, the Commission told it in clear terms that it is in Wales's best interests to ensure that a decision is made now.

Photo of Angus Robertson Angus Robertson Shadow SNP Spokesperson (Defence), Shadow SNP Spokesperson (Foreign and Commonwealth Office)

May I warn my hon. Friend against the view that structural funds are "abstract"? Part of my constituency is in the Highlands and Islands, which was turned down for objective 1 status on the basis of flawed figures from the UK Office for National Statistics. The people of the Highlands and Islands know that regional support and objective 1 status are not abstract, but fundamental to the economic regeneration of many places.

Photo of Adam Price Adam Price Spokesperson (Economy and Taxation; Education & Skills; Miner's Compensation; Regeneration; Trade & Industry)

I should emphasise that the Highlands and Islands will qualify for the second tier of regional funding, which the Commission propose and which the UK Government oppose. Parts of east Wales will qualify for the regional competitiveness and employment fund, and transnational projects in rural development areas, which have been valuable to rural communities throughout Wales and Scotland, will be lost to the UK. Our communities have a lot at stake, and it is our responsibility to make the case to the UK Government.

The UK Government's position is obviously to impose a 1 per cent. ceiling, which will preclude current levels of regional funding, and to pursue the policy of re-nationalisation to which I have referred. If the decision were pushed from June to December—I am grateful to the leader of my party for picking up my notes—new figures, which will push West Wales and the Valleys above the 75 per cent. threshold, would be a realistic prospect. In that case, we would lose out on this historic opportunity to achieve a 15-year basis for long-term economic planning in West Wales and the Valleys.

One of the benefits of European regional policy is that it allows regions at least seven years in which to develop a long-term strategy, whereas the Government can make only a three-year commitment.

Photo of Ian Davidson Ian Davidson Labour/Co-operative, Glasgow Pollok

The hon. Gentleman is being particularly generous in giving way—although if I were to drop my notes, I would not expect the leader of my party to come and pick them up. May I ask him why he has worded his amendment in this way? In general terms, I support the bit that he wants to add, but I oppose the deletion of the provision on the stabilisation

"of the budget at no more than 1 per cent.", which is essential. Does he agree that in many ways his dispute is not with the British Government, but with the EU, which insists that structural funding should be the last element of the budget to be considered, because it is not willing to adjust the common agricultural policy? If it were willing to cut money from the CAP to leave money for structural funding, the hon. Gentleman's problem, and my problem in Glasgow, would be resolved.

Photo of Adam Price Adam Price Spokesperson (Economy and Taxation; Education & Skills; Miner's Compensation; Regeneration; Trade & Industry)

I disagree with the Government, who have made their position clear. They see no future for structural funds in our communities, but structural funds are critical in my area, which is the point of the amendment.

On the UK abatement, which Mr. Tyler mentioned, I am an agnostic because its effect in Wales has been entirely negative. Wales has not had the full benefit of European structural funding, and some rural development programmes and the compensation arrangements for farmers in Wales were affected negatively by movement in the sterling exchange rate. We did not receive that funding, partly because the Treasury would have lost out if we had had more receipts and there would have been less for the UK abatement. The operation of the abatement so far has not always been to the benefit of Wales.

My principal reason for drafting the amendment was to emphasise a principle. I agree with what the Commission has said in the past few days about the need to protect the notion of EU-wide structural funds. Last week, Commissioner Hübner outlined the case for EU structural funds and said that the seven-year programming periods allow regions to think strategically and to plan for the long term. That will not be possible if we have a repatriation, because we will then have only the three-year period of a spending review to plan financially.The way in which structural funds have operated has allowed capacity to build up at local and regional levels. Local ownership and regional capacity-building has been welcome.

A third element is the raft of inter-regional co-operation, experience sharing, and networking, which have been positive and part of European regional policy from the beginning. According to the Commission's proposals, 4 per cent. of structural funds will be devoted to that element. That is critical, not just in the economic sphere but in spreading innovation, because one of the great virtues of the European Union is its diversity. We would lose that element if we lost structural funding, particularly the transnational programmes, in the UK. It is vital to continue to have structural funding available.

Empirical data show that structural funding, particularly objective 1 funding, has been successful in most objective 1 regions. EU-wide regional policy was first proposed in the late 1970s because of a fear that member states had failed to promote a convergence agenda. Contrast that with experience in objective 1 regions whose economic growth in 1988–2000 was three times faster than in Europe as a whole. That is true in the Republic of Ireland, Spain and parts of Portugal, which had positive economic growth records during that period. The one exception is West Wales and the Valleys, which, despite achieving objective 1 status, does not have a good growth record so far.

Photo of Elfyn Llwyd Elfyn Llwyd Shadow PC Spokesperson (Home Affairs), Shadow Spokesperson (Business, Innovation and Skills), Shadow Spokesperson (Communities and Local Government), Shadow Spokesperson (Culture, Media and Sport), Shadow Spokesperson (Defence), Shadow Spokesperson (Foreign and Commonwealth Affairs)

Is it not true that the reason for that is the slow start in getting things moving, including the various committees, and the absence of proper match funding from Westminster? I note that Mr. David is arguing against further structural funds for Wales and his constituency. I wonder what he will say in his election mail-outs.

Photo of Adam Price Adam Price Spokesperson (Economy and Taxation; Education & Skills; Miner's Compensation; Regeneration; Trade & Industry)

This is not the time to go into detail about the operational difficulties of the West Wales and the Valleys objective 1 programme, but there have been significant issues with the slow start to spending and what some people see as an overly bureaucratic and complex approach, which can be contrasted with the more strategic approach taken in other economic regions. West Wales and the Valleys region has seen a relative economic decline, contrary to the positive experience of other objective 1 regions. The available data show a further slide and it is vital that we have a second opportunity. We must learn from the failures of the past few years.

Photo of Mr Paul Tyler Mr Paul Tyler Shadow Leader of the House of Commons

Does the hon. Gentleman agree that the stifling bureaucracy to which the Financial Secretary referred during a debate last year has been more evident in the relationship between Whitehall and our local communities than in Brussels? Whitehall has been the problem, not Brussels.

Photo of Adam Price Adam Price Spokesperson (Economy and Taxation; Education & Skills; Miner's Compensation; Regeneration; Trade & Industry)

That is a good point. As I tried to argue a few moments ago, there is a powerfully enabling attitude and culture within the Commission on regional policy. It is all about grass-roots, bottom-up development to enrich and promote indigenous capacity. That has been powerful, but Wales could learn from the experience of Ireland and its identification of key strategic weaknesses in the Irish economy. Sectoral strategies and looking forward 15 years in terms of new technologies when they were on the distant horizon were key elements in Ireland's armoury and part of the reason for its powerful success. A similar strategic approach has been taken in some of the Atlantic arc regions, such as Portugal.

We can learn the lessons, but the central issue is the need for a decision. West Wales and the Valleys region is eligible. We have a second tier offer for disadvantaged regions, but the 15-year window of opportunity must be grasped. We must press the Financial Secretary on whether the Government will put the interests of Wales first at the European summit in June, or will allow that opportunity to slip through their fingers. It would be a terrible waste of a massive opportunity to regenerate our communities and would impact on other funds such as the European agricultural fund for rural development. Projects such as Tir Gofal, Tir Mynydd and Tir Cynnal, which have been important in many rural communities, are at risk because of the Government's intransigence. It is vital to have an early decision in June, as timetabled, so that West Wales and the Valleys can benefit from its eligibility. That is the simple message behind the amendment.

This is another historic opportunity for us. We did not think that we would have to have a second chance. It should not have been necessary because we should have had a successful programme that would have lifted our communities out of poverty. However, we are debating the matter day because of the failure and incompetence of the Labour Government in Cardiff. We should not be punished twice because of their incompetence and failure adequately to represent us in Brussels.

We are among the poorest communities in the European Union. I am not proud of that and I want to change it. I do not want to go, cap in hand, to London or Brussels. I want a future for my community, as Ireland has. Ireland lifted itself out of poverty and it is incumbent on the Government to ensure that communities that successive Governments have failed—I accept that the fault lies not just with the Government, because it is a legacy of the devastation of the previous Administration—have the opportunity to help themselves. We need the funding and, from the bottom of my heart, I appeal to the Financial Secretary. It means so much to our communities. We need to mount a cross-party campaign. Will the Minister please heed the voices from Wales? We need a decision for our communities now.

Photo of Chris Bryant Chris Bryant Labour, Rhondda 6:20 pm, 7th March 2005

I do not know whether I shall rise to the oratorical heights to which Adam Price has just risen, but perhaps he will be able to calm himself a little over the next three quarters of an hour. I remind him that Members on both sides of the House feel strongly about the issue of poverty in the valleys communities and want to try to rectify the inadequacies of past policies across the whole of the last century, including the inequity on which much of the valleys' prosperity was built from the 1850s to the 1980s when the mines closed. However, I do not necessarily agree with him on the amendment. I shall return to some of the issues that he raised later.

I shall start with a few comments about the gamut of papers before us. It is true that the financial prospects for the EU in the next few years will be challenged by several issues that the Union has not had to face before. The most dramatic of those issues is enlargement, which increased the population of the EU by 30 per cent. but its gross domestic product by only 5 per cent. The EU has always taken pride in trying to use structural funds and other measures to provide a measure of equity between the member states, and that will become a major challenge.

Another issue, which was mentioned by my hon. Friend Mr. Henderson earlier, is that of asylum and border controls. It is true that one of the issues that most interests many people in this country is how the EU can assist in developing a strong asylum and immigration policy that recognises the importance of strong borders with neighbouring countries. The days when Britain could have bilateral agreements with France, with Spain, with Greece and so on are long past. If we are to have a secure country, we must increase our co-operation through the EU, which will pose financial difficulties for the Union.

Mr. Tyler advanced an argument that he appeared to have lifted straight out of the Commission's document, and it was also mentioned by my hon. Friend Mrs. Dunwoody. That argument—that the EU gets to spend only 1 per cent. of GNI, whereas member states get to spend 45 per cent. of GDP—bears no weight at all. It is a fatuous argument and it undermines the Commission's document. After all, the Commission is not trying to create a superstate—[Interruption.] My hon. Friend Mr. Davidson is heckling me. Perhaps he is trying to persuade me to join Labour against a superstate. If so, I would be happy to join him, because I am opposed to a superstate. Indeed, I am probably more rigorously opposed to it than he is. However, I see that he has given up on that attempt.

I was interested to note that the debate has brought out areas of broad agreement between parties. It is important that the message we send from the House this afternoon to the Commission and to other member states is that some of the things that we are saying have broad cross-party support, the most notable of which is the 1 per cent. ceiling on the budget. Some people think that if one ever says a word of criticism of the EU, one is by definition a bad European, but I do not accept that argument. Indeed, many of those who have most ardently and successfully campaigned for reform of the EU have been those who have believed in it more keenly than others.

I agree that 1 per cent. is a sensible ceiling for the Commission's budget. I also believe that we need to be resolute in our attempts to reform the CAP. Some would argue that it is one of the most pernicious elements of the EU set-up, and I agree, but some use it to argue that we should not be a member. To those people I would simply point out that if we had not played Johnny-come-lately at the beginning of the European adventure, the CAP would not have followed the format that it has. It would have been better if we had been involved in the first drafting, rather than in attempts at redrafting. A Conservative Member claimed earlier that the CAP had been reformed in the past couple of years and that the Doha round was important in achieving another step forward. However, I think that we should start to reduce the percentage of the EU budget devoted to the CAP considerably.

Photo of Chris Bryant Chris Bryant Labour, Rhondda

Before my hon. Friend intervenes to ask me what figure I would put on that, I should say that I thought that all his interventions on other hon. Members to ask for precise figures were rather fatuous. The point is not the percentage of the EU budget, but the absolute figure—the amount of money. That is the figure that should fall.

Photo of Ian Davidson Ian Davidson Labour/Co-operative, Glasgow Pollok

In that case, can my hon. Friend tell me the absolute figure that should be spent on the CAP?

Photo of Chris Bryant Chris Bryant Labour, Rhondda

The amount should fall considerably. As I predicted, my hon. Friend attempted to entice me to give a precise figure, but our aim should be to reduce the absolute figure in real terms and not let it just rise with inflation.

I also believe, as do all pro-Europeans, that we should be more resolute in our attempts to improve the financial transparency of the EU, to tackle fraud and to insist on financial discipline from the Commission. The idea of a 5 per cent. margin of manoeuvre, suggested by the Commission, would be wholly inappropriate, because it would set up an expectation of poor financial discipline before we even start the next seven-year period.

Notwithstanding the unity in the House on the 1 per cent. ceiling, the CAP and the need to tackle fraud, several hon. Members have been too ideological and not pragmatic enough in their approach to the issues. One instance is the question of whether aid should go always to the poorest countries. Of course it is self-evident that we should try to ensure that the international aid provided by this country or through the EU should go to the poorest countries, but it should not be done on a straight mathematical model, for various reasons. For example, we should bear in mind governance issues. We should give aid only where it will make a significant difference. That may not be in the poorest countries, because countries that have poor records of governance and refuse to improve their human rights records should not be rewarded with money that may end up in the pockets, not of the poorest people in those countries but of the oligarchies that run them. The ideological obsession with simply giving money to the poorest countries is flawed.

In some areas, we may also wish to use international aid budgets to reinforce political objectives. I raised that point earlier with my hon. Friend the Financial Secretary. Our neighbourhood programme policies may entail some spending of money in other areas, most notably in the Maghreb, if we are to try to ensure our internal security within this country, and across the EU. We should also look at the policies that we wish to develop in the Balkans and the Palestinian Authority. In all those cases, the mere mathematical model that all EU aid money must go to the poorest countries is mistaken.

Photo of Mark Hendrick Mark Hendrick PPS (Rt Hon Margaret Beckett, Secretary of State), Department for Environment, Food and Rural Affairs

I agree with most, if not all, of my hon. Friend's comments about the criteria for giving aid. However, many opponents of the current system criticise it on the basis that much of the aid goes to countries that were previously part of the European colonial empire, and it is true that African, Caribbean and Pacific—ACP—countries seem to benefit quite well. What is his view of the EU's relationship with those countries?

Photo of Chris Bryant Chris Bryant Labour, Rhondda

I entirely agree with my hon. Friend in that I should like us to be far more effective in trying to ensure that the richest countries in the world, many of which are members of the European Union, contribute more in international aid and do so not only in those countries with which they have historical links, but in areas where they can be most effective, where there is good governance, where there are human rights, and where they can lever in not only significant improvements in people's quality of life in terms of trying to meet the millennium development goals, but significant improvements across a whole region. On the whole, that will be better achieved with a strong EU aid budget than with a minimalist one; otherwise, countries such as France and Belgium are most likely, in their bilateral aid agreements, to contribute to countries with which they have historical ties. If our main objective in terms of an international aid budget is to try to ensure that all the aid that flows out of the EU to other countries goes towards making the biggest difference to their poorest people, we will need a significant EU aid budget.

Photo of Chris Bryant Chris Bryant Labour, Rhondda

My hon. Friend seems to be wobbling.

Photo of Mark Hendrick Mark Hendrick PPS (Rt Hon Margaret Beckett, Secretary of State), Department for Environment, Food and Rural Affairs

I am not sure that I would call it wobbling. What would my hon. Friend do about our agreements with West Indian countries on trading bananas, which were traditionally traded with the EU as a result of previous relationships with the ACP countries and world trade disputes with the United States? Those islands may not be poor in relation to African countries, but the disappearance of their only industry, which may be bananas, would make them much poorer.

Photo of Chris Bryant Chris Bryant Labour, Rhondda

My hon. Friend is enticing me into a debate on trade instead of EU finances. Let me cite the example of the disaster relief work in which different countries around the EU have been involved. In the Caribbean, for instance, countries such as France, Germany, Belgium and Holland will often work only with the individual islands with which they have historical links, whereas a more concerted effort between all the different countries would probably be far more effective. I still hold to the view that although, in the main, we should try to increase the percentage of EU aid that goes to the poorest countries—I respect the work that the Government have been doing on that—it will still be necessary to consider the mathematical equations of poverty in arriving at the decision on where the money should go.

We have heard an excessive amount of ideology this afternoon, including the hyper-inflated peroration of the hon. Member for East Carmarthen and Dinefwr [Hon. Members: "Jealousy."] It might be envy, but it could not possibly be jealousy. The hon. Gentleman should not be ideological about structural funds. Ultimately, I want to ensure that the economy in my constituency is resuscitated after the decades of difficulties that we have experienced. The recent report by Sheffield Hallam university is a rude awakening for those who look at the south Wales economy and see, in many areas, greater growth than there is across the rest of the UK and significant improvements in the unemployment level, which in my constituency is only marginally ahead of the UK average. That is all well and good, but the truth remains that in other areas with objective 1 status jobs have been replaced much more significantly and effectively than in south Wales. That is partly why one in five people of working age in my constituency are on incapacity benefit. I am glad that the Government are working to address that. The issue of structural funds is not ideological—the point of principle is that we must ensure that we have programmes in place to resuscitate those communities.

Photo of Wayne David Wayne David Labour, Caerphilly

Is my hon. Friend saying that the most important thing, contrary to what Mr. Llwyd says, is not whether the money comes from London or from Brussels but that extra resources are coming into West Wales and the Valleys, in the most effective way possible?

Photo of Chris Bryant Chris Bryant Labour, Rhondda

My hon. Friend has said almost word for word what I had written down on the piece of paper that I am holding, and I am grateful to him for doing so. There are certainly areas where a national investment will be more effective than an international investment, simply because layers of bureaucracy might be added. A Welsh bureaucracy topped by a Treasury bureaucracy and then a Brussels bureaucracy might not be in the best interests of delivering value for money in the communities that we are talking about.

The hon. Member for East Carmarthen and Dinefwr missed a trick when he was intervened on by a Liberal Democrat Member, because the Liberal Democrats were the only people, apart from his party leader, whom he did not attack in his speech. He could have had a dig in that direction, because the Liberal Democrats' involvement in the objective 1 process when they were part of the Welsh Assembly Government gave us some of the hiccups and delays in the implementation of that funding in the valleys.

Photo of Elfyn Llwyd Elfyn Llwyd Shadow PC Spokesperson (Home Affairs), Shadow Spokesperson (Business, Innovation and Skills), Shadow Spokesperson (Communities and Local Government), Shadow Spokesperson (Culture, Media and Sport), Shadow Spokesperson (Defence), Shadow Spokesperson (Foreign and Commonwealth Affairs)

Does the hon. Gentleman recall that the substantial shortfall every year in the match funding element coming from Westminster was one of the main problems in getting things moving? That is not just an allegation by us, but a proven fact. What he says about the coalition is right, but he did not mention the important annual element.

Photo of Chris Bryant Chris Bryant Labour, Rhondda

In my experience, a large number of factors made it difficult to get individual projects up and running—for example, the lack of understanding on the ground, certainly in my own community, about how to access funding, and the Plaid Cymru-run local authority's inefficiency in bringing forward projects.

However, assigning blame is not important at this juncture. What is important is whether we should advance an ideological argument that says that we must have structural funds across Europe so as to provide money for Wales. Another ideological argument says that we should have no European structural funds because it is better to repatriate all structural funds to individual countries. I disagree with both those ideological positions. When Spain, Portugal and Greece joined the European Union, many people in Britain argued that that would be bad for us because it would make it more difficult to access funds from Europe and the investment that was going to those other countries would enable them to start to run ahead of us economically. What actually happened was that our trade with those countries grew dramatically—in the case of Spain, by 38 per cent. in a matter of three or four years. That was to the benefit of the UK economy. Similarly, some of the structural funds that might be used in countries such as Poland, Hungary, Estonia and Latvia will benefit us by increasing prosperity and opportunities for trade.

Photo of Richard Spring Richard Spring Shadow Minister, Economic Affairs

Does the hon. Gentleman agree that the extraordinarily impressive taxation policies of the accession countries, including flat and very low taxes, are ultimately far more likely to generate growth and employment than anything else?

Photo of Chris Bryant Chris Bryant Labour, Rhondda

That is another ideological position.

Photo of Kelvin Hopkins Kelvin Hopkins Labour, Luton North

Another country in the European Union has one the most successful economies and high, progressive taxation: Sweden.

Photo of Chris Bryant Chris Bryant Labour, Rhondda

Indeed. For that matter, Spain has lower taxation than the UK. However, I think that Mr. Spring tried to entice me into a general election conversation about whether we should be a higher tax or a lower tax economy.

My point is that we should not be ideological about either repatriating all structural funds to individual member states or insisting that we must have structural funds so that, for example, Wales can get money. If there are structural funds, I stress to the hon. Member for East Carmarthen and Dinefwr that my hon. Friends the Members for Ogmore (Huw Irranca-Davies) and for Caerphilly (Mr. David) and I will fight just as hard as him to ensure that some of the money comes to our communities. I am slightly sad and worried that the hon. Gentleman has intentionally designed his amendment to ensure that only members of the nationalist parties vote for it, so that he can use others' voting records as a party political tool, following the publication of his press release, which was doubtless issued earlier today.

Photo of Adam Price Adam Price Spokesperson (Economy and Taxation; Education & Skills; Miner's Compensation; Regeneration; Trade & Industry)

I made it clear that my intention was to concentrate on what constituted a key issue for me. I hope that the hon. Gentleman does not accuse me of misleading the House.

Photo of Chris Bryant Chris Bryant Labour, Rhondda

I would not like to accuse the hon. Gentleman of anything.

Photo of Wayne David Wayne David Labour, Caerphilly

Misleading the people of Wales.

Photo of Chris Bryant Chris Bryant Labour, Rhondda

As my hon. Friend says, perhaps the hon. Gentleman's rhetoric sometimes inadvertently misleads the people of Wales. If there are to be structural funds, it is important that the European Commission hears the voices of Members of Parliament from nationalist parties, Liberal Democrat parties and Labour parties, all arguing for the money to go to, for example, Welsh communities. It is important to build rather than dismantle that consensus.

Photo of Kelvin Hopkins Kelvin Hopkins Labour, Luton North 6:41 pm, 7th March 2005

The general election campaign appears to be up and running in Wales if nowhere else.

I support the Government motion, which takes a strongly critical tone about European financial arrangements. I support the tone, even if I would like to go further on specifics. For eight long years, I have been a member of European Standing Committee B. For eight of the past 10 years, we have received European Court of Auditors reports about the European Union budget's failure to add up or meet the Court's approval. I have made a speech on each occasion and I suspect that I have repeated myself because it is difficult after eight years to find something original to say. However, some things need repeating—I have said them in the Chamber as well as in Committees—about European finances.

For years, there has been endless talk about reform of the CAP. Ministers have returned from Europe, waving pieces of paper and saying, "I have secured reform." Yet it has not really happened. While France remains happy not to be too critical, one can be pretty sure that nothing substantial has changed. I believe that the CAP should be abolished and that agricultural policy should be returned to member states. Each member state has a different pattern of agriculture. For example, I believe that we should choose to subsidise Welsh hill farmers. Their way of life is valuable and preserves our countryside and I would therefore be happy to subsidise them. I am not so happy to give massive subsidies to the multi-millionaire grain farmers of East Anglia.

Photo of Mark Hendrick Mark Hendrick PPS (Rt Hon Margaret Beckett, Secretary of State), Department for Environment, Food and Rural Affairs

Is my hon. Friend suggesting that the UK should withdraw unilaterally from the CAP? What impact would that have on not only the grain farmers of East Anglia but farmers generally, the many poor farm workers and those who work in agriculture throughout the country? What impact would it have on any farmers in his Luton constituency?

Photo of Kelvin Hopkins Kelvin Hopkins Labour, Luton North

I did not suggest that we should withdraw unilaterally. I believe that we should have a domestic agriculture policy that may involve fairly heavy subsidies for some areas but not for others. It would be targeted to ensure that farm workers got proper wages and that we did not subsidise areas unnecessarily. I specifically mentioned Welsh hill farmers. However, that is a detail and my point is that each country should decide its agricultural policy internally. I ask our Ministers to propose that and argue the case in future. It will not happen this year and perhaps not next year but, in time, we must abolish the CAP. It has been a millstone round the EU's neck for a long time and we should get rid of it, start again and hand agriculture policy back to member states.

Photo of Kelvin Hopkins Kelvin Hopkins Labour, Luton North

My views on the common fisheries policy are also well known.

Minister after Minister in the Department for International Development has complained about the inefficiency and corruption in the aid budget, the fact that it is misdirected, that money goes missing and that it does not work. The Department for International Development is a model that other member states could follow. Whatever else we do in the world through our free trade policy in arms, we do a good job on aid. I therefore suggest that we should repatriate the aid budget to member states. We should not do it unilaterally, but propose it as a sensible way forward. We could then direct aid to the countries that we believed needed it—for example, those in sub-Saharan Africa.

It is clear that structural funds will not operate to our advantage in future and that we will be bigger net contributors. Given that many poorer countries have joined the EU, it is sensible and natural that the richer countries such as Britain make net contributions to them. I hope that our Government will replace what is lost in European structural funds with various types of national and regional funding, which would ensure that areas of the country do not suffer by the loss of European funding.

I hope that, when regional funding goes to parts of Britain, we might see notices with a little red rose and the words, "Donated," or given, or allocated, "by Britain'sLabour Government", instead of the little circle of yellow stars on a blue flag. I stress to my hon. Friend the Financial Secretary that previous Labour Governments have promoted such a regional policy. I did some work on regional policy funding when I was at the Trades Union Congress and in the 1970s, it genuinely worked. It reduces inequalities in growth, living standards and employment between regions. We should have more of that and there should be a more substantial national budget, too. We should not simply leave everything to markets, because they do not work without redistribution.

We are considering substantial changes and it behoves all of us who take a critical standpoint to propose something that will work instead of what we have. On page 104 of the document that is before us, the Commission examines the possibility of a GNI—gross national income—based system, whereby countries would donate according to their relative prosperity. The Commission notes that

"advantages of such a system would be that it would be simple and easy to understand, and gross contributions would correspond closely to member states' relative prosperity."

That is a sensible way forward. Sadly, the Commission rejects it. We should go on pressing that case. We should get rid of some of the distorting, inefficient and corrupt systems and replace them with a system based on relative prosperity whereby we donate to a budget on which the poorer countries draw. Rich countries such as Britain would therefore be net contributors and the poorer countries that join would be net recipients. That should be accompanied by a strong internal regional policy.

I have made the case many times in the Chamber and in European Standing Committee B and I believe that it is sensible. However, we will get nowhere by tinkering at the margins and hoping that nobody notices that we are not changing anything much. We must propose a coherent, comprehensive and radical alternative for the future of Europe. I envisage our going forward on the principles that I outlined.

Photo of Ian Davidson Ian Davidson Labour/Co-operative, Glasgow Pollok 6:49 pm, 7th March 2005

It gives me great pleasure in a European debate to speak enthusiastically in favour of the Government's policy. Indeed, I think that I am probably more in favour of the Government's policy on this matter than the Government are.

I take as my starting point the Minister's comment that the EU Commission was proposing a 34 per cent. increase in expenditure. If such an increase were proposed by any local authority anywhere in the country, or by any other body or organisation, there would be an enormous scandal involving accusations of overspending. That is what should be happening in this context. The European Union's proposal to spend 34 per cent. more in the next year demonstrates that there is clearly no internal self-discipline in that organisation. In those circumstances, the Government should do as much as they can to restrict that expenditure to a reasonable level.

Others have already touched on various aspects of EU spending, and I want to make two particular points in that regard. The first relates to extravagance. The waste, extravagance and corruption of the European Union are well known to all of us. I speak as a member of the Public Accounts Committee, which has been involved in studying this matter for many years, and that case is irrefutable. My second point relates to misdirection. The case that far too much is spent on the common agricultural policy has been clearly made and is similarly irrefutable.

Photo of Chris Bryant Chris Bryant Labour, Rhondda

How much precisely would my hon. Friend like to spend on the common agricultural policy, in either absolute or percentage terms?

Photo of Ian Davidson Ian Davidson Labour/Co-operative, Glasgow Pollok

I welcome that question and I am prepared to give my hon. Friend a straight and unequivocal answer: nil. I am in favour of the abolition of the common agricultural policy. If there is to be support for areas with a substantial element of agriculture or for areas with regional needs, it should be given through a regional policy. The agriculture and food production industry does not require, and should not receive, subsidy, for all the reasons that we have discussed in other debates, such as the CAP's impact on and destruction of the third world, and the extent to which the policy acts to transfer money from poor consumers in my area, whose food is priced up, to wealthy landowners and farmers in other parts of the country while depriving the third world of the valuable income that it needs.

Photo of Mark Hendrick Mark Hendrick PPS (Rt Hon Margaret Beckett, Secretary of State), Department for Environment, Food and Rural Affairs

Over what period would my hon. Friend expect expenditure on the CAP to fall to zero? If it did not fall to zero over that period, would he be in favour of withdrawing the UK from the European Union? [Interruption.]

Photo of Ian Davidson Ian Davidson Labour/Co-operative, Glasgow Pollok

A suggestion has been made that it should happen in 10 minutes, but that seems unrealistically speedy. We should go into negotiations with our European colleagues and see what progress can be made towards that goal. It would be unreasonable in the circumstances to set a finite timetable. We should not bog ourselves down in that kind of discussion. I suspect that, like many others, my hon. Friend believes that the CAP is effectively unreformable, that we simply have to put up with it, and that it must remain a bottomless pit into which money is poured. I do not take that view; I believe that drastic reform is needed.

Photo of Doug Henderson Doug Henderson Labour, Newcastle upon Tyne North

I know that my hon. Friend is an experienced political negotiator. What kind of response would he expect his views to receive from European countries, particularly France and countries dominated by parties socialistes?

Photo of Ian Davidson Ian Davidson Labour/Co-operative, Glasgow Pollok

My hon. Friend is too kind; his negotiating skills are probably far greater than mine, since he honed them in the back rooms of the GMB and elsewhere. But when did he ever go to an employer with a demand for an increase in anything that was beneficial to his members without initially being met with a refusal? It is the process of negotiation that leads to breakthroughs and brings us together.

Further to my points on the extravagance and misallocation of EU budgets, we have discussed the question of good governance in relation to trade and aid—aid in particular. If we applied to the European Union the standards of good governance that we seek to apply to the third world, we clearly would not continue to pour enormous amounts of money into the European Union in the way that we do. We must start to apply standards of good governance to the European Union as well. We ought to say, "No more money until there is reform."

As I said earlier, I support the Government's policy with a skip in my step and joy in my heart. I very much welcome the Minister's statement that—as I understood it—the British Government were in favour of stabilising the EU budget at no more than 1 per cent. and that they would veto the proposal unilaterally if that position could not be agreed. It was noticeable that the main Opposition party also agreed with that. I regret, however, that the Liberal policy on this issue—as on so many others—was entirely unclear to me. The Liberals need to make it clear whether they are prepared to see the EU budget rise by more than 1 per cent. I am waiting to see whether there is any flicker of life on the Liberal Benches; I see that there is not. I regret also that the nationalists tabled an amendment that would have deleted the 1 per cent. stricture on the Government. I waited to hear whether they supported that policy, but I was disappointed. I recognise that they perhaps made an error in the way in which they phrased their amendment, but they could have covered the issue in their speeches. However, we are left to presume that they are quite happy to see the EU budget grow and grow, a bit like Topsy.

The Government were perhaps not as clear as I might have wished on the question of protecting the rebate. I understand the general principle that they will be willing to use the veto if the rebate is not protected, but I was unclear as to the scale of the rebate that was being sought. Many of us remember, from our days working in local authorities and elsewhere, the various skills associated with creative accountancy. I would not wish to hear the Government argue that they had preserved the form of the rebate when the figure had in fact been whittled away completely. It is clear that, at present, we are the largest net contributor to the EU budget—that has been the case for a number of years, as far as I can see from recent figures—and on the basis of the EU Commission's proposals, that would continue to be the case. The Government need to tell us what their bottom line is, and to reveal the figure beyond which they are not prepared to go.

My hon. Friend Mr. Henderson talked about the need for co-operation and joint spending. His key point related to whether the EU adds value. There seems to be a whole range of areas in which it does add value to spending by individual countries, and in which it adds value to working together through its structures. However, in a whole range of areas, such as aid and the CAP, the EU actually destroys value. For example, when we compare the amount of money that goes into the EU for third-world aid with the benefits that flow out in terms of spending on the ground, we see that the output is less than the input. In those circumstances, the Government ought to be much more vigorous in arguing our case than they have been until now. This debate has tended to be about absolute figures, but it ought also to be about best value, and about whether value is being added by the EU. It is clear that, in too much of its expenditure and in too many of its areas of interest, higher value is not being added. In those circumstances, the Government should seek to reduce, minimise or eliminate expenditure entirely.

Photo of Stephen Timms Stephen Timms The Financial Secretary to the Treasury 7:00 pm, 7th March 2005

We have had an interesting debate that has shown the significance of the next financial perspective for the future direction of the European Union. I have been heartened by the wide support expressed for my contention that a 1 per cent. budget is realistic and affordable, and—with reform and reprioritisation—more than enough to meet fully the needs of an enlarged EU.

The continued inefficiencies and inequities on the expenditure side of the EU budget and the resulting unfairness of the UK position mean that the UK abatement remains fully justified. It is not up for negotiation; we are not proposing changes to the way it is calculated. Without the abatement, UK contributions since 1995 would have been at least 12 times more than those of countries of comparable wealth. We reject also the Commission proposals for a general correction mechanism, and for a 34 per cent. increase in the EU budget at a time when member states are having to take pretty tough fiscal decisions about their own spending at home.

A number of Members asked me about the timing for decisions on all this. Negotiations so far have shown increasing support for the position that the UK, among a range of member states, has taken. I think we will gather more support as the negotiations progress, and I am confident that we will secure our priorities in the best interests of the whole EU.

Specifically on the question about the timetable and the deadline asked by Mr. Spring, we are happy to work towards a June political agreement—that is, at the end of the Luxembourg presidency—but getting the right deal for us is more important than hitting any particular date, so we are certainly ready to take this work forward in our own presidency if no deal is agreed in June.

The hon. Gentleman gave the impression that ground had been lost since last year's debate, but I do not think that that is true at all. Indeed, the reverse is the case and we have gathered growing support for the position we have taken. He referred to some figures and suggested that the Commission, after the initial proposal of about 1.26 per cent. of EU GNI, came forward with an even higher figure of 1.3 per cent. That is not correct. I think he has misunderstood some figures—I do not blame him for misunderstanding some of the detail—that appear on page 167 of the bundle of documents. They indeed include the figure of 1.3 per cent., but he needs to know what that is.

That figure refers to a maximum budget drawn from the suggestions of all the member states in responding to the Commission's proposals. So, those proposals come from member states, not the Commission. The same table shows the minimum budget drawn from the same source, which is 0.82 per cent. of EU GNI. We see there the suggestions coming from the member states, which lead to a range of budget values between 0.82 and 1.3 per cent. That underlines the fact that our 1 per cent. package is perfectly credible in view of the concerns of the member states, as well as affordable.

There has been some discussion of the common agricultural policy. An agreement was reached at the October 2002 European Council, which provided for a slight real-terms cut in CAP expenditure. We regard those ceilings as maximums, not targets. We want to continue to work to ensure that CAP spending comes below the ceilings. My hon. Friend Mr. Davidson will agree with last July's trade and investment White Paper, where we said that

"there is no logical reason why agricultural products must be treated in a different way from industrial goods. Our long-term goal will be to abolish progressively, as for industrial goods, all trade-distorting agricultural subsidies".

Mr. Tyler asked where we were when CAP reform was being debated. Of course, we were, as always, playing a key role in an important decision, which was breaking the link between tax-funded subsidies through the CAP and production. That decision on decoupling was a big step forward.

There has been a good deal said in the debate about the future of EU regional policy. Our approach to EU structural and cohesion funds would provide for greater solidarity and better effectiveness by focusing funds on the least well-off member states, where they would have the greatest effect. My hon. Friend Mr. Hopkins suggested that only previous Labour Governments had taken this position, but we are strongly committed to a vigorous regional policy. However, three quarters of all regional regeneration funding already comes from this Government, rather than from the EU, so we have made the commitment that if our reform proposals are agreed, domestic regional policy spending will be increased so that the UK's nations and regions do not lose out.

I say to Adam Price that we pay €1.60 for every euro of structural funds we receive. In any scenario, the amounts coming to the UK are bound to be less in future, but his argument seemed to be that it is necessary to keep EU structural funds in place to protect his constituents from the danger of a future Conservative Government. The logic is that he should be urging people to vote Labour to avoid that disastrous outcome.

The hon. Member for North Cornwall made an interesting speech that was undermined for me by his suggestion that the Government are not interested in Cornwall. Anyone who has seen the benefits of objective 1 funding in Cornwall knows that this Government have made the case for Cornwall and promoted the programme whose benefits are being experienced.

My hon. Friend Mr. Henderson made an excellent speech, setting out the value of the EU and the need for budgetary discipline within it—not assuming that every need that arises requires extra EU spending. As he said, we gain enormous benefits from our EU membership. I agree with what today's Financial Times quotes Sir Digby Jones as saying—that we should

"exploit the 'very pro-British' mood in Brussels".

He also criticises the Tories' policy on Europe as

"potentially damaging to British interests".

He characterised it thus:

"Saying, 'well, I'm out of here', whether it is on separate issues or the whole thing".

Sound budget management, clear focus on objectives and priorities—those can only improve the value of the EU's work. I commend the motion to the House.

Question put, That the amendment be made:—

The House divided: Ayes 2, Noes 360.

Division number 114 Future European Union Finances

Aye: 2 MPs

No: 358 MPs

Ayes: A-Z by last name

Tellers

Nos: A-Z by last name

Tellers

Question accordingly negatived.

Main Question put and agreed to.

Resolved,

That this House takes note of European Union documents No. 11607/04, Commission Communication: Financial Perspectives 2007–2013, No. 11741/1/04, draft Decision on the system of the European Communities' own resources and draft Regulation on the implementing measures for the correction of imbalances, No. 11745/04, draft for renewal of the Inter-Institutional Agreement on budgetary discipline and improvement of the budgetary procedure, and No. 11752/04, Commission Report: Financing the European Union—operation of the own resources system; supports the Government's efforts to refocus the European Community budget towards the Union's key priorities in line with the principles of subsidiarity and European Union value added and stabilise the budget at no more than 1 per cent. of European Union Gross National Income; shares the Government's concern over proposals for new flexibility instruments; opposes the Commission's proposals for a Generalised Correction Mechanism; and in particular supports the Government's view that the Commission's overall proposals are unrealistic and unacceptable.