Question again proposed.

First, I congratulate the European Scrutiny Committee on the excellent work that it does, frequently without the credit that it deserves. If it were not for its recommendation, the House would not have this opportunity to debate a matter that is of real and pressing concern to the country.

It is however regrettable that we do not have a full day for this important business and our debate will necessarily be truncated, not something for which the Minister for Europe could normally be expected to take responsibility, but as he was responsible—as Leader of the House—for scheduling this week's business, it is entirely down to him on this occasion. Nonetheless, I am delighted to see the Minister in his place. There have been times since Friday when I was worried that he might not be joining us, but I am very pleased to welcome him to his new job, or should I say back to his old job. I hope that he stays in the brief for longer than the three months that he managed before, all of which fell during the summer recess of 1999.

In the less than two years that I have been shadowing Europe, he is already the third holder of his portfolio. Indeed, there has been no more consistency in personnel than there has been in the Government's European policy, which has variously been: in favour of the euro and against it; certain that a constitution for Europe was unnecessary and passionate in its belief that an enlarged EU could not function without one; determined to secure fundamental reform of the common agricultural policy, but happy to let months of the British presidency slip away without even tabling a proposal for change; and steadfast in defence of the British rebate, and yet prepared to surrender it while gaining nothing in return.

It will be interesting to see whether the new Minister follows the avowedly integrationist agenda of the current Prime Minister or the apparently more sceptical tone of the next one. His longevity in office may depend on him making the right decision. This debate is a welcome opportunity for the House to examine the shambolic events of the last 12 months as the Government have not only failed to achieve their targets, but—having conceded an unnecessarily costly budget deal in December—have flaccidly observed as the cost has escalated and the assurances they gave to British voters have proved worthless.

The experience of the British EU presidency and of the budget negotiations has been sadly typical of the utter incompetence of this Labour Government. It all started so well, as so often, with the Prime Minister's speech to the European Parliament—a speech about a "crisis of political leadership". Well, he should know that when he sees it. He spoke stirringly of the need to reconnect Europe with its peoples, and he spoke of a "moment of decision". He also set out Britain's bottom line for the budget negotiations, linking any reduction of the British rebate to fundamental reform of the CAP and saying in terms that

"we cannot agree a new financial perspective that does not at least set out a process that leads to a more rational budget".

He spoke of the rejection of the EU constitution by two referendums as a "wake-up call". He said:

"It is time to give ourselves a reality check".

But like all the Prime Minister's promises, all that has come to nothing and the ambition of his rhetoric serves only to emphasise the scale of his failure and of the massive opportunity that he has missed.

The Minister spoke about the need to finance enlargement. As he said, the Opposition have always strongly supported enlargement, but the necessary funds for that process should have come from reductions in the bloated CAP budget, not from growth in the overall budget.

At the beginning of their presidency, the Government set out to achieve three things—to contain the overall size of the EU budget, to achieve fundamental reform of the common agricultural policy and to protect Britain's budget rebate, at least until such a fundamental revision of the CAP was agreed. None of those objectives was secured.

The hon. Gentleman said that the Opposition supported enlargement, although they called for a referendum on the Nice treaty, which gave rise to enlargement. Bearing in mind that there was no fundamental review of the CAP, will he not accept that the budget was the best deal in the circumstances to ensure that the new countries would be properly financed?

Absolutely not. I am delighted to welcome another former Minister for Europe to the debate, but the Prime Minister's speech to the European Parliament at the outset of the British presidency made it clear that a better deal could be obtained, and that was his objective. However, it was not secured.

The EU budget is rising. The common agricultural policy has not only gone without fundamental reform, but is actually getting bigger. According to last December's joint report from the Treasury and the Department for Environment, Food and Rural Affairs—then under the leadership of the new Foreign Secretary—the CAP will leave the EU economy some €100 billion poorer over the next financial perspective 2007-2013, with a further €100 billion cost to consumers every year, in a combination of taxes and inflated food prices. That amounts to an average cost for a family of four of around €950 a year, and that cost will be far higher for families in the UK, as a major net contributor.

The hon. Gentleman pointed out that the Government failed to achieve any of their three objectives, but at least that has the merit of consistency. What is the Opposition's position? Will they vote against accepting this budget, and which other right-wing parties in Europe support that position?

The hon. Gentleman always has the merit of consistency of course, and I hope that I do, too. We oppose the budget, we think that it was a bad deal for Britain and we will be opposing it. The cost to consumers will be enormous.

The Prime Minister told this House in July that he wanted to get rid of the CAP, but in fact it will increase from 40 per cent. of the EU budget now, to 44 per cent. under the new arrangements. The Chancellor of the Exchequer said last September:

"If we are to make poverty history, let us seek to make the excesses of the CAP history".

Far from ending the excesses of the CAP, the Prime Minister agreed to a deal that increased its costs considerably. Billions more euros will be spent on protecting and sheltering inefficient and counter-productive agricultural subsidies.

Does the hon. Gentleman acknowledge that the new financial perspective agreement is very good news for some regions of the United Kingdom? West Wales and the south Wales valleys will receive about £1.2 billion in cohesion funding. Is that not good news?

I am delighted to hear that south Wales will do well from the funding, but the hon. Gentleman must be aware—as we all should be—that it is British taxpayers' money; it is simply being recycled through EU institutions, losing administrative costs meanwhile. It would be far more efficient, as I think the Chancellor of the Exchequer believes too, to pay the money directly, and I do not see why we cannot look into doing that instead.

Given all those issues, no wonder the Prime Minister identified the urgency of reform, but how shocking that reform has not been addressed. Not only did the Prime Minister fail to secure real reform of the CAP, but having linked the future of the British rebate to that reform he gave up £7 billion of the rebate while getting nothing in return. That £7 billion alone is equivalent to the total annual budget for policing in England and Wales.

The surrender on the rebate is only a small part of the increased cost to British taxpayers, however; the net cost of our payments to the EU will increase by far more. At present, we pay in about £2.8 billion a year more than we get out. Under the deal agreed in December, that net cost almost doubles to £5.5 billion every year. Furthermore, as Kelvin Hopkins pointed out, those funds do not always go to the most deserving places. Under the new financial perspective, we will pay in a fifth more than the French, but we shall get back only half as much. Per capita EU spending in the UK will be a quarter of the figure in Ireland and will be lower than in any of the other, soon to be 27, member states.

Remarkably, the expensive new Foreign Office booklet, "Guide to the European Union", which cost taxpayers a further £80,000 to produce, notes thatthe existing net cost is £3 billion a year—[ Interruption.] Keith Vaz is clutching his copy, so at least somebody was waiting for it to arrive on their doormat.

The booklet makes no mention, however, of the fact that the cost is set to double from 2007.

Can my hon. Friend advise us of the likely cost of reprinting the brochure, as we now have a new Minister for Europe?

I shall table a written question as soon as I have an opportunity.

I am reflecting on some of the hon. Gentleman's rather exaggerated figures for the UK's net contributions. In the period up to 1997, in the days when I debated at length with Mr. Cash, I was well aware of the arguments he used to put to the then Government Treasury Bench. Presumably if the hon. Gentleman is consistent, he will argue that the situation that we inherited was catastrophic and that since 1997 there has been a huge improvement in the relative contributions made by the UK, especially in relation to other member states. If Mr. Brady is still critical of that imbalance, he will be extraordinarily critical of the one person who unites most Opposition Members—the Baroness Thatcher.

I am clear and consistent; I want to see the British net contribution going down, not up. This deal doubles it, which is bad for British taxpayers.

No wonder the Chancellor was furious; no wonder he thinks he would have done a better job—it would be hard to have achieved a worse deal for Britain and British taxpayers. The total budget is rising, the cost of the CAP is rising, the rebate is being cut and Britain's net contribution is doubling.

Is not it the case, as significant media coverage suggested at the time, that the Chancellorwas actually not consulted about the final deal? Furthermore, he will be handed a poisoned chalice, if of course he ever manages to get hold of it.

Perhaps the Financial Secretary will shed light on that point when he replies to the debate, because he has been much closer to such matters. There has been considerable speculation that the Chancellor was kept in the dark throughout the process of agreeing the budget, even though he will have the task of trying to find the funds if the Prime Minister remains in office. Of course, if the Chancellor were to become Prime Minister, he would face a significant challenge.

May I put it to my hon. Friend that the concerns expressed a moment ago by our hon. Friend Mr. Cash are reinforced by the fact that although the new Economic Secretary—the Chancellor's representative on earth, Ed Balls—was in the Chamber for the start of the debate, he did not stay for very long?

My hon. Friend raises an important issue. It is also interesting to students of Kremlinology that the Chancellor's other representative on earth was the previous Minister for Europe, but I am not sure what the significance of all those movements is. Thankfully, that is a matter for others.

Everything I have described was clear in December, when it looked as though the Prime Minister had managed to reach the worst possible deal for Britain, but the picture has grown steadily worse since, with British Ministers giving away their strongest cards, apparently powerless to stop a further collapse in our negotiating position. In February, the then Minister for Europe submitted an explanatory memorandum that set out the Government's approach to the negotiation of the inter-institutional agreement, stating their priority that the agreement

"fully reflects the deal reached in December" and that,

"the Government will strongly oppose any proposals during the negotiation of an agreement to increase the overall expenditure ceiling...given the delicate nature of the compromise reached in December, the Government does not see the scope for re-allocation of spending between different expenditure headings".

However, despite the Government's supposedly "strong opposition", the European Parliament was able to push through a further £2.68 billion increase in the budget last month and, as has already been mentioned, the Budget Commissioner has suggested that the picture is actually worse than had previously been acknowledged due to the fact that a further £24 billion in various financial instruments is being accounted for outside the EU budget total.

To make matters worse, the British Treasury has changed the way in which it presents payments to the EU, making it impossible to make direct comparisons between past and future years. Given that The Sunday Times reported a source saying of the EU Budget deal that

"The Treasury is quietly fuming...we have ended up giving away much more than we expected and with precious little to show for it in return ", the changes in the presentation of the figures may be to cover the Government's embarrassment.

I am intrigued to hear the words of the current Minister's predecessor, which my hon. Friend has just revealed to the House. Can my hon. Friend reconcile that statement with what we have heard from the new Minister—or rather, the retread Minister—who described the settlement as disciplined, fit for purpose and truly accountable? Can my hon. Friend explain that?

Like my hon. Friend, I am afraid that I cannot explain it, but I shall be interested to hear whether the Minister can.

The escalation of EU budgets and the continuing expansion of the CAP are an even greater cause for concern, because, as my hon. Friend John Bercow has pointed out, we are approaching the shameful 12th year for which the EU Court of Auditors has been unable to sign off the European Union's accounts as reliable and free of fraud—again a massive opportunity missed by the British presidency when this country could have insisted on proper financial controls before a new budget, let alone a bigger budget, was agreed. Instead of the root and branch reform of accounting practices that is needed, the IIA simply assures us that

"the Budget will be implemented in a context of sound financial management based on the principles of economy, efficiency, effectiveness, proportionality of administrative costs" and so on.

There is no recognition of the scale of concernabout the EU's existing budget. There is no apparent understanding of the profound lack of confidence that people feel as to whether their money is being used as it should be. In the European Parliament a year ago, the Prime Minister struck a visionary note. He said:

"In my time as Prime Minister, I have found that the hard part is not taking the decision, it is spotting when it has to be taken".

He may have said the same to the parliamentary Labour party this evening. He continued:

"It is understanding the difference between the challenges that have to be managed and those that have to be confronted and overcome. This is such a moment of decision for Europe."

The Prime Minister was right: the British presidency was a remarkable opportunity to confront the things that are wrong with the EU—the growing budget, the common agricultural policy, the lack of adequate financial controls—but all those chances were missed, leaving no one very impressed. The German press said that the Prime Minister had

"started the British Presidency as a tiger and finished as a doormat."

President Chirac was reported as telling friends presciently that the presidency could not perform effectively until the Prime Minister and the Chancellor of the Exchequer

"resolve the crisis of leadership and one of them comes out on top".

Even the former Minister for Europe, Mr. MacShane, voiced his disquiet with the way things were going when he told The Daily Telegraph:

"Even out and out pro-Europeans like me could not accept a one-sided deal that only moves on the rebate. That would be very difficult to get through".

Well, a one-sided deal is what we have before us.

The British people want a European Union that does less and costs them less; they want to get rid of an agricultural policy that costs their families £1,000 a year in higher food prices and all their instincts of fairness want rid of a system that puts the interests of wealthy farmers in France ahead of those of poor farmers in the developing world. Last June, the Prime Minister set out to secure a deal that would achieve all that. Instead, he agreed to the opposite, and the papers before the House this evening describe that failure: a deal that leaves the EU's accounts unreformed, that sees the CAP secure for a further six years and that will cost British taxpayers more while giving them nothing in return.

Members have a choice this evening either to endorse failure or to send a signal that they really want to represent the interests of their constituents and that they expect a British Government to work for real reform in Europe and to fight for the interests of British taxpayers. It is a chance for hon. Members to show that we are in touch with the views of our constituents, even if the Prime Minister is not.

It is always a pleasure to follow Mr. Brady. I have heard his speech before. The Minister for Europe has just taken up his position and the last time that he had it, of course, was in 1999, so he has not had the pleasure of hearing the hon. Gentleman speak on European issues. His entire speech consists of describing Britain's contribution to Europe as a failure. Not once did he put forward any proposal on what the Conservative party feels on these issues.

I am afraid that I must correct the hon. Gentleman on that point. I do not regard Britain's contribution to Europe as a failure; I regard the Prime Minister's contribution to the negotiations for a new budget as a abject failure.

The hon. Gentleman says that whatever the Prime Minister does in the EU, so it is not a surprise.

I welcome my right hon. Friend the Minister for Europe back to a job that he did so well. I succeeded him as Minister for Europe. This is not a bid for his job. He was there for three months. I knew that he would come back, so I left his telephone in exactly the same position he left it in, with the same numbers on the speed dial. I know that he will find that his return to that post will enable him to push forward the European agenda.

I pay tribute to my right hon. Friend the Secretary of State for Scotland for the work that he did in that post. I know that my hon. Friend Mr. Davidson believes that my right hon. Friend was responsible for scuppering the European constitution. I do not for one moment believe thathe did so. He conducted himself extraordinarily well during the presidency, as the did my right hon. Friend the former Foreign Secretary, now Leader of the House. It is important that a real heavyweight has the job of Minister for Europe. As I said in my letter to The Times today, I believe that we should go one step further and have a dedicated ministry for European affairs within the Foreign Office, with a Cabinet Minister of the stature of my right hon. Friend, so that we can continue to monitor the EU and hold it accountable for its work.

I am sorry that I missed the hon. Gentleman's letter to The Times today—I must have read The Daily Telegraph for a change—but I wonder whether he agrees that the House should be concerned when Prime Minister Prodi suggests that the European constitutional treaty should be revived.

No, because that has always been Romano Prodi's position. Since he was the President of the Commission when the constitution began, I am not at all surprised that he decided to say that, following his election as the Prime Minister of Italy; but this debate, of course, is not about the European constitution, although it is timely, because the Commission will publish its response on Wednesday to the period of reflection on the constitution. We look forward to reading what it has to say. It is important to reach a conclusion on that very wide issue, which is a concern for hon. Members and, therefore, for members of the public as well.

The hon. Gentleman is both a Europhile and a humanitarian. Will he tell the House whether, in all candour, he thinks it acceptable to approve a budget that continues to allow the EU to spend €64 billion a year on trade-distorting domestic agricultural support, the effect of which is to exacerbate the plight of the most destitute people on the planet?

I am most grateful for the hon. Gentleman's intervention, because I have enormous respect for the way in which he campaigns on third world poverty, and I agree that the issue must be resolved. I do not believe that we could have resolved it during our presidency. It takes longer than six months to resolve such fundamental issues, but we need to ensure as we continue to campaign on European issues that we put matters right, because it is inappropriate in this day and age to spend so much basically propping up French agriculture at the expense of farmers not just over the rest of the EU, but in the third world.

Mark Pritchard mentioned the new document published on 5 May. It does not have to be reprinted, because it does not contain a photograph of the last Minister for Europe, although I made sure, when I was Minister for Europe, that my photograph was included in the documents.I think that it contains a photograph of Mr. Cash on page 30—at least, the back of his head—and he appears to be entering some kind of starship on the way to another planet, although I do not want to be nasty to him, because he will celebrate his birthday, I think, on Wednesday,while Dr. Cable will, incidentally, celebrate his on Tuesday. Todayis Schuman day, when members of the European Commission can have the day off—it is a public holiday. I am not suggesting that we should have a public holiday for the birthday of the hon. Member for Stone, but I am making a serious point. The document is important, because it is absolutely vital that we explain to the British public what happens not only to the money that the Government spend, but to the money that the EU spends.

Several hon. Members:

rose—

An amazing choice is before me; I must first go for the birthday boy.

The former Minister for Europe asks about where the money goes, which provokes an immediate outburst of enthusiasm among Conservative Members. May I point out that, in respect of the European agricultural guidance and guarantee fund, there were irregularities of €82 million in 2004 and that, on structural measures, irregularities for that year totalled €531 million?

That is totally unacceptable. It is absolutely right that the Court of Auditors should be satisfied about how public and European money is spent. I am sure that Ministers and their colleagues—not just in the Treasury, but in other Departments and those who represent the Foreign Office, such as my right hon. Friend the Minister for Europe—will ensure when they go to European meetings that they will continue to do what British Ministers from parties on both sides have done in the past, which is to do their best for Britain.

Does the hon. Gentleman not think the pattern of events extraordinary? Each year, the Court of Auditors refuses to sign off the European Union accounts and, each year, the British Government give more and more money to the European Union. Does he not think it quite extraordinary forany Government or body to give more and moremoney to an organisation where the accounts cannot be signed off?

It sounds a daft thing to do, but we have entered into obligations and need to make sure that we fulfil them. However, that does not derogate from the fact that the Court of Auditors has made it clear that there are problems with the accounts and that British Ministers have to make sure that the European Union is held to account for what has happened.

I must pick up the hon. Gentleman on the pointmade by my hon. Friend John Bercow about the huge subsidies that the European Union uses to block free and fair trade with the rest of the world. My hon. Friend and I attended the World Trade Organisation talks in Hong Kong in December and, as a British delegate, I felt deeply embarrassed by the number of African and Asian delegates who came to see me who were absolutely appalled at the way in which the European Union was behaving. When is the European Union going to address that?

The hon. Gentleman asks me the question as though I speak for the European Union—of course I do not. When British Ministers go to summit meetings or have meetings with their colleagues in the European Union, they do what is in the best interests of this country, as they have done for the past 20 years, whatever their party. That is what our Ministersdo at the moment, as they did under previous Administrations. It is important that we continue to campaign on those points.

The hon. Gentleman reminds me of the importance of the deal entered into during the negotiations under our presidency. He makes a lot of his Polish origins. I have read some of his speeches, but not all of them. He frequently tells the House how important it is that his family came from Poland and that he lives in the United Kingdom, where he was born. That reminds me of the importance that we placed on enlargement. We agreed the deal last December because we are the champions of enlargement. We could not have been left in a position where the new member states that joined on 1 May 2004 could not fund the enlargement process.

The hon. Gentleman will know from the opinion poll that has just been published that support for the European Union has declined among the people of Europe. I think that it is down to 39 per cent. I know that my hon. Friend the Member for Glasgow, South-West will think that that is because of the tenure of a former Minister for Europe, but it is a major problem. In a country such as Latvia, which has just joined, the approval rating is down to 29 per cent. That is a pretty sad state of affairs. It means that we have not effectively communicated with the people of Europe about the benefits of their country being in the European Union. That is why publications such as the one that I mentioned are important and why it is important that we spend money on such publications, even if they include a back-of-the-head photograph of the hon. Member for Stone.

When a nation disapproves of an institution, could it be that there is something wrong with the institution, and not just that we have not sold it very well?

That may be so. My hon. Friend has a very principled position on these issues. He wants to withdraw the United Kingdom from the EU— [ Interruption. ] I am not sure whether that agreement came from the Conservative Front Bench and represents official party policy. My hon. Friend wants to withdraw—

indicated dissent.

I am glad to see that my hon. Friend does not believe that we should withdraw. If he believes that we should remain in the European Union, we should continue to ensure that we use our position to campaign effectively for what is best for the people of this country.

Like my hon. Friend Kelvin Hopkins, I do not believe that Britain should withdraw from the European Union. I accept the point made by my hon. Friend Keith Vaz that we ought to be campaigning for what we want to see, but does he not accept that the way in which Britain conceded, virtually entirely, on the common agricultural policy was a complete abandonment of our responsibility? He almost suggests that we alone were in favour of enlargement and the only way in which we could get anyone else in continental Europe to accept enlargement was to stuff their mouths with gold. Surely that is not the case. Many others were in favour of enlargement, and we capitulated far too easily.

I know that my hon. Friend is speaking in the blunt Glasgow tones that he has always used, but we have stuffed nobody's mouth with gold. The deal was the one that we entered into as the champions of enlargement. [ Interruption. ] I see that my right hon. Friend Mr. MacShane, another former Minister for Europe, has just entered the Chamber—we have a former Ministers for Europe club here. Like me, and all who have occupied the position, he pushed the enlargement agenda forward. Many countries wanted to prevent enlargement, as we know from the fact that, even during the presidency, there was an attempt to prevent the opening of negotiations with Turkey. Various deals were done to ensure that that happened.

We did drive the process forward and should be proud of the new countries that joined the European Union on 1 May 2004, because contrary to what Members on the Conservative Front Bench have said—I do not hold Mrs. Villiers responsible because she was not an MP at the time, but I do hold the hon. Member for Altrincham and Sale, West responsible—there has not been chaos or a shambles. Conservative Front-Bench Members predicted that those who came to this country following 1 May 2004 would clog up our benefits system, but the latest report from Ernst and Young suggests that the arrival of people from the new member states—people similar to the ancestors of Daniel Kawczynski—has benefited the British economy.

The hon. Gentleman is absolutely right to suggest that Britain has benefited from many people from many different European Union countries. However, he refers to the figures. Was is not the case that the Government suggested that there would be 13,000 new entrants to the United Kingdom, when, in fact, the figure is more like 132,000?

So what? Those people have contributed enormously to our economy. According to the Ernst and Young report, those who have come from Poland, Hungary, Lithuania, Latvia and all the other countries have contributed to our economy and kept interest rates down. Some can even be found assisting the refurbishment of the property of the leader of the UK Independence party, Mr. Roger Knapman, who wanted to stop them coming into the United Kingdom.

On a point of order, Madam Deputy Speaker. I seek your guidance. It is obviously important that accurate information should be vouchsafed to the House. It seemed to me, in all innocence, inherently improbable that my hon. Friend Mr. Cash would be depicted favourably, or at all, in a publication from the Foreign Office. I have scoured it, hither and yon, and he ain't there.

I note what the hon. Gentleman says, but he will know that that is not a point of order for the Chair.

I accept your ruling, Madam Deputy Speaker. However, I ask John Bercow to turn to page 30 of the document. The person must be the twin brother of the hon. Member for Stone since no other Member of the House than he would want to go on that star ship to Mars.

Order. Before we get any further confusion about who is, or is not, on page 30, can we please continue with the debate?

I will certainly try to do so, Madam Deputy Speaker.

rose—

I will not give way because I have been generous in giving way to hon. Members on both sides of the House.

Negotiations on budget deals are extraordinarily difficult, and I think that the Prime Minister, the former Foreign Secretary and the former Minister for Europe deserve our thanks for ensuring that there was a deal. Whatever the hon. Member for Altrincham and Sale, West says from the Front Bench, there nearly was not a deal, and that would have left the European Union in crisis. The deal was the best that we could get, based on the information available and what the Prime Minister could get out of other countries, because such things are all a question of negotiation.

The way to ensure that there is more wealth in Europe to be shared among the 25 countries—or27 countries, if Romania and Bulgaria join next year or the year after—is by meeting the criteria set down in Lisbon in 2000. As the Financial Secretary to the Treasury will no doubt tell us when he winds up, we have made enormous progress on the Lisbon agenda. The latest report by the Centre for European Reform, which was published only two weeks ago, showed that we are now the fourth-best performing country in Europe as far as the benchmarks for the Lisbon agenda are concerned. However, we heard no praise from the hon. Member for Altrincham and Sale, West, just criticisms about failure and an ability to push forward the reform agenda. France and Germany are eighth and ninth. We have met our targets on employment and are meeting our targets in other areas. The way in which we can ensure that Europe will be more prosperous is not necessarily by taking more money from the countries of the European Union, but by ensuring that we meet the targets set out at Lisbon. If the whole European Union becomes richer and we ensure that we meet our employment targets and that people have jobs in the European Union, the freedom of movement that is essential to the way in which Europe progresses will enable us to make sure that there is even more money available to spend on areas such as south Wales, where my hon. Friend Mr. David is keen to receive European funds to regenerate his constituency.

Let us be honest, fair and truthful on European finance. The deal was the best that we could negotiate in the circumstances. We made the deal because we are the champions of enlargement. If we had failed to do so, the enlargement process would have halted and those countries that, in good faith, relied on our leadership would have been left with less money than was promised. I commend the Government on the deal and hope very much that we will continue to push forward the reform agenda so that we can address the points mentioned by the hon. Member for Buckingham and the agricultural policy, which is in need of absolute reform—no Labour Member pretends otherwise. The deal was important at that stage. Let us now move forward with the economic agenda in the future.

It is slightly scary to discover that Keith Vaz is monitoring our birthdays. I will be pleasantly surprised if I wake up in the morning and find that my family is as well informed as him.

I slightly regret that the Minister for Europe is not in the Chamber, because I was planning to say something nice about him. It is probably going a little too farto say that he merits our congratulations on his appointment, but we certainly wish him well. As the hon. Member for Leicester, East quite properly said, the Minister for Europe has an important job, so it is important that it is held by a senior Minister and, moreover, someone with a long and commendable pedigree on European affairs. To that extent, I welcome the Minister to his role.

Speaking as a former member of the diplomatic service, however, there is one thing about the Minister's appointment that has saddened me. The diplomatic service is one of the few Government departments that is not seriously dysfunctional, yet it has suffered the fate, a bit like Caesar's Gaul, of being divided into three parts. Development was taken out, and now the department has been split into Europe and non-Europe. A perfectly efficient department has been split, while the Home Office and the Department for Work and Pensions continue on their merry way. That is a strange way of managing government.

I approach the European Union and its finances from a very different perspective from that of Mr. Brady. I basically believe that the European Union is good for the UK, but I agree with his conclusions on the subject of our debate. The deal was very bad, and that came about because the Government utterly failed to secure their negotiating objectives. As I understood it, and as was clearly stated on many occasions, the objective was to make concessions on the budget rebate to secure fundamental reform of the way in which the European Union's funding was run, especially on agriculture. That was not achieved—indeed, it was not even begun to be achieved. None the less, the objective was right.

It was equally right for the Government to say that to support the process of enlargement, we needed to make concessions on the rebate. The enlargementhas so far been a success. It is now difficult to believe that 15 years ago, the enlargement countries were communist countries. Enlargement is a success story, with rapid growth and liberalisation in stable democracies. It has been successful in much the same way as the expansion of Europe to absorb the former fascist countries of southern Europe was successful. We need to reinforce that success, and we could have done so through the budget process. It would be utterly wrong to continue to defend an arrangement under which we were net recipients from eastern Europe. The Government were therefore right to set themselves the negotiating objective of trading off the rebate against fundamental reform.

There were, however, two failures. Saying that the rebate was non-negotiable throughout most of last year was a presentational failure, as it was clearly negotiable and was, in fact, being negotiated. That position therefore did not make sense, and the Government made themselves look foolish. There was a substantive failure to achieve anything concrete or measurable in agricultural reform. The reason for that goes back three years to the agreement between France and Germany, which Britain apparently endorsed, to settle the European agricultural budget and agricultural policy until 2013.

Historians will be taxed by the question of why the Government accepted that arrangement because, as John Bercow and colleagues with different points of view have argued, the common agricultural policy is utterly indefensible. It is economic nonsense, it is environmentally damaging, and it does enormous damage to world trade and to developing countries. However, in 2002 the British Government, for whatever reason—perhaps they took their eye off the ball because they were preoccupied with Iraq—accepted an arrangement that cemented the CAP in place.

The hon. Gentleman stated that the Government failed to make the European Union see their perspective on EU finances—but why, despite the fact that Britain did so much to help Poland and the other eastern European states, did those countries not support our hopes of securing the rebate?

Some of them did. There was a mixed pattern of opinion in the EU, but eastern European countries wanted to secure the best deal possible. It is difficult to understand why, having failed to securea renegotiation of the CAP in 2002, the British Government sailed into negotiations in the belief that they could unpick the whole package. It was clear, however, that the French and the Germans—the French, in particular, were the villains of the piece—would not agree to it.

This is not just an argument about recent history,as it has contemporary relevance. We understandfrom Mr. Mandelson and others that World Trade Organisation negotiations are in serious trouble because of the rigidity of the EU view on agriculture and its unreformability. The British Government's position is not only damaging but ridiculous, because they have absolutely no negotiating power whatever. Because they signed the agreement in December, and because they did not leave it open, they must accept the lowest possible negotiating position that other European countries adopt on trade policy.

I understand the point that the hon. Gentleman is making, but would he prefer not to have had a deal in December, leaving the EU without a budget? Would that be a credible position at the end of the presidency?

Yes, it would be absolutely credible. It would be embarrassing for the UK to complete the presidency without an agreement, but it was a perfectly tenable position. The EU would not have collapsed. It is important to get it right; instead, we got it wrong.

I agree with the hon. Gentleman. He suggests that the Government are inconsistent, but is his own party not in danger of being inconsistent on this issue? I agree with all the points that he has made, but in their 2005 manifesto the Liberal Democrats wanted to give more powers away to Europe, particularly in relation to institutions that would mean that, if that party ever came to power, the UK would have less negotiating power.

The hon. Gentleman did not read the manifesto carefully enough. We support British membership of the European Union; we always have. We think that it is very good for Britain, but we believe that it needs radical reform. One of the key elements of radical reform is subsidiarity—the devolution of power to member states.

I, too, am puzzled by what the hon. Gentleman is saying. It was only a short time agothat his party strongly supported the European constitutional treaty. That is not yet disposed of. Everything that we are discussing now is embedded in the existing treaties, which are rolled into the new constitutional treaty, which the Liberal Democrat party strongly supported. It is inconsistent—to be blunt, absurd—for the hon. Gentleman to continue his argument on that basis.

The hon. Gentleman misrepresents the position that we took over the treaty. We accepted that there was value in a treaty unifying the various components of the European Union, but we fully accepted the principle of the maximum degree of subsidiarity, and we continue to do so.

Does the hon. Gentleman accept my view that Mr. Cash and some of his colleagues were being a trifle harsh in speaking to him in that way? Surely they should welcome the sinner that repents. Any indication from the Liberals that they are prepared to speak up for Britain against the grab by the EU is greatly to be welcomed. Will Dr. Cable give us a commitment that he and his party will vote against the budget, which he described as a bad deal—a very, very bad deal?

We certainly intend to vote against the motion this evening; I have no problem with that. There is no question of the sinner that repenteth. We are the only party that has consistently supported British membership of the European Union and consistently supported constructive negotiations to improve its working—unlike colleagues on both sides. Conservative Members were fervent supporters of the EU under an earlier Prime Minister, and then revolted against it. Labour Members were passionately anti-Europeanand have now, with a few exceptions, such as Mr. Davidson, become largely sympathetic to it. We have been consistent throughout.

The concept of subsidiarity offers us no succour in relation to EU finance or own resources. Does the hon. Gentleman recall, in that context, that the relevant protocol first of the Amsterdam treaty and then of the Nice treaty clearly states:

"The application of the principles of subsidiarity and proportionality shall respect the general provisions and the objectives of the Treaty, particularly as regards the maintaining in full of the acquis communautaire and the institutional balance"?

That is game, set and match, is it not?

I do not recall that protocol, and the hon. Gentleman has an advantage over me on the detail. The central issue is that there was an opportunity to reform the Common Market agricultural policy and the Government missed it, but there are other elements in the budget package on which I wish to comment.

I thank the hon. Gentleman. It is kind of him to give way yet again. Before he moves on from his statement that he would have preferred no agreement to have been made by the British Government, rather than the agreement that was made, does he accept that that would have caused great problems for British farmers, and perhaps more importantly, huge problems for local authorities the length and breadth of Britain, particularly in my area? Is he prepared to tell those local authorities that the Liberal Democrats would rather have seen that money dry up completely than support being given?

I did not say that that was a desirable outcome. We are dealing with second best. If a postponement was necessary to achieve a better overall negotiation, that would surely have been right—but we wanted to see a resolution. We want to see the European Union move forward, support for the east European countries and reform of the CAP. That is common ground. Members on both sides are enjoying scoring points, but there is a high degree of consensus on that matter.

On the forward-looking items, I agree with the Minister that it is important to have tougher audit constraints in place, and that it is a disgrace that the European Commission has been able to get away with unaudited accounts for many years. Nobody would try to defend that. By way of mitigation, I point out that some UK Departments, such as the Department for Work and Pensions, have an audit trail that makesthe European Commission look positively efficient. Nevertheless, there is a legitimate criticism to bemade, and it is right that tighter procedures should be put in place.

Given his consistent pro-European stance, does the hon. Gentleman think that it makes sense to give more and more money to the European Union for every year when the auditors fail to sign off the accounts?

I do not know what the hon. Gentleman means by "more and more money". Spending has slightly exceeded the 1 per cent. formula, but not by very much, so we are discussing a consistent pattern of spending. Of course, there needs to be audit controlat the level of both national Governments and the Commission.

The second item that will repay more attention than hon. Members have so far given it is one of the new innovations in the European budget—the globalisation fund. At first sight it is an attractive idea, and it may prove to be a useful innovation, if it heads off some of the European countries that are moving in the direction of economic nationalism. If the measure persuades those countries to be less protectionist by providing funding for worker retraining, it is surely desirable, but we must be a little bit cautious.

There have been attempts to set up trade adjustment funds in different countries over the past 30 years. I conducted some work on that point in the late 1970s and early 1980s, with particular regard to the United States, where a similar fund was set up in the mid-1970s. That fund ran into all kinds of problems, not least because some workers asked, "Why should people be compensated because of trade competition, whereas other workers who have suffered from technological change or a collapse in markets should not be compensated?" The political problems and problems of equity that arose were serious. There was some extremely unhelpful gaming behaviour, whereby industrial pressure groups secured trade protection in order to negotiate it off against money from the trade adjustment fund, and it is possible to envisage that kind of behaviour creeping into the European Union. The globalisation fund needs to be watched careful, although on balance it should be given an opportunity to prove itself.

How is the globalisation fund consistent with the general prohibition on the use of state aid? I know that that prohibition is honoured more often in the breach than in the observance, but it is nevertheless part of existing practice.

If the fund were part of state aid, I would agree with the hon. Gentleman. However, I understand that the new fund is specifically to help the labour force, rather than to help companies reinvest or otherwise protect themselves against competition. If that is the case, it is difficult to see how it could have the negative effects implied by the hon. Gentleman—but it remains to be seen whether it works as a support for adjustment or against adjustment.

There is one more element of spending about which some questions need to be asked. There is a lot of enthusiasm in the Commission, particularly from the President and others—again, the enthusiasm has been generated for the best of reasons—to set up a European science university as part of the move towards support for integration in the world economy. I support that principle, but last week I participated in an Adjournment debate on science in British universities, and it is clear that British universities are at best sceptical about the concept, because although they have funding problems of their own, they are looking to collaborate across the world, in particular with the United States. They are also interested in securing a better funding formula in the UK, and see little advantage in having a specifically European project concerned with science. At some stage, we need to hear a fuller justification of how the new initiative will add value.

We shall oppose the motion, because we feel thatthe fundamental negotiating objectives were not achieved—although, as I have stressed throughout, we are and always have been a pro-European party. We want the European Union project to succeed, and the best way to make it succeed is to ensure that agriculture and the other defective features of the European Union are fundamentally reformed.

I welcome an opportunity yet again to debate European Union finances. Before doing so, I want to comment on my right hon. Friend the Minister for Europe, who is not in his place at the moment, but whom I have already welcomed. I hope that he is going to prove to be more of a pragmatist than a zealot in these matters. We will probably never agree on European matters, at least publicly, but I hope that he will look at the European Union in a practical way and will not be blinded by the dream of a European federal state, which some people say that they are against although they are really in favour, while some of us are genuinely opposed to it.

The budget remains a running sore in the EU. In December, we lost a serious opportunity to do something about it at a time when we had the leverage to stop a deal and get some fundamental change. It is nonsense to suggest that we are doing well on the common agricultural policy. I have been looking at the figures in the documents before us today. The table under "Heading 2" shows the billions that are spent on agriculture, direct aid and market support. Over the next seven years, that is going to reduce by just under 1 per cent. a year. That means that we will extinguish the CAP over the next 100 years, or slightly more. I suspect that even then the European Court of Auditors will still be failing to sign off the accounts, but I probably will not be there to see it. We are still in the mire as regards the European budget.

My hon. Friend Keith Vaz said that this is nothing to do with the constitution. I am afraid that that is wrong. In fact, what happened in December arose because of the splendid decision and success of the French people in defeating the proposal for a constitution. That did not please President Chirac, who, to deflect attention from his own apparent failure, lashed out at the British rebate in the European budget. I modestly suggested in a previous debate that if he wants to question our rebate, let us throw the CAP into the melting pot. If there is no CAP, there is no need for a rebate. Interestingly, the Prime Minister took precisely that case to Europe and debated it with colleagues. One would have hoped that we would say, "You want to change our rebate—fine, but only the basis of the abolition or very serious and fundamental reform of the CAP." That did not happen, we lost that opportunity, and now we are going to trundle on for 100 years, with perhaps a 1 per cent. cut a year. That is not acceptable, certainly not to the third world, which suffers terribly from the effects of heavy subsidies in the developed world, particularly in Europe.

Agriculture policies should be repatriated in the first instance so that each country determines its own approach, because every country's agriculture is different. We can have international agreements about reducing subsidies—that is fine—but in the end it should be down to the decisions of democratically elected member states' Governments.

Does the hon. Gentleman agree that to take forward the negotiations over CAP, it is vital that every country, including us, should have its own Secretary of State for agriculture? With the Department for Environment, Food and Rural Affairs as it is, the Secretary of State does not have enough time to focus solely on agricultural issues.

That sounds like a sensible suggestion. I may say that my constituency is the only one in the eastern region of England that has no agriculture at all—it is purely urban, with not a single field.

So is mine.

I am surprised that there is another. Nevertheless, I take an interest in agricultural policy because it affects us all. I believe that every country should decide its own agriculture policy in a democratic way.

I welcome the hon. Gentleman's lamentation on the iniquities of the CAP. Will he take this opportunity to underline the crucial point that this is not a question simply of an accidentally damaging by-product of EU agriculture policy, but of the knowing, deliberate and calculated policy of the European Union to subsidise in a way that damages even more the most destitute people on the planet? That is the reality.

The hon. Gentleman is right—that is the only conclusion that one can draw. It is utterly cynical to continue to subsidise agriculture, especially exports. Until recently, one could buy European-produced sugar in Malawi at a lower price than that at which the Malawians could produce it simply because it is dumped.

Given that the hon. Gentleman is considering agriculture, will hetake the opportunity briefly to mention fisheries? The fleets of Norway or the Faroe islands manage tofish the same waters and sustain fisheries but UK policy, supported by the Labour party and the Liberal Democrats, of remaining in the common fisheries policy will mean a disaster for our coastal communities.

The hon. Gentleman was just ahead of me. I was coming to that point but perhaps he makes it more eloquently than me. I fear that there is nosea fishing in Luton, but I have a view about the common fisheries policy and the hon. Gentleman is right. I am a member of the Norway group and I recently visited that country. I asked whether the Norwegians genuinely wanted to include their fishing waters in the EU CFP because they would have few fish left after a few years. We must restore fisheries to member states and get rid of the nonsensical CFP. Having landlocked countries voting on the CFP is to our disadvantage because we have the largest coast line.

Does my hon. Friend agree thatthe road towards repatriating fishing and, indeed, agriculture, is taken by rejecting the budget so that we can place road blocks in the way of further accretion of power to the centre as a prelude to rolling powers back to individual countries?

As always, I agree with my hon. Friend. I want the EU as it should be—a voluntary association of independent democratic member states, co-operating for mutual benefit and that of the world.

Keith Vaz mentioned my birthday earlier. I was born on the day when Winston Churchill took over as Prime Minister and rejected the appeasement that had characterised the conduct of British foreign policy for a long time. He said, in line with the words of Kelvin Hopkins, that we should be associated but not absorbed.

Indeed. I would have thought that other member states felt that. In fact, they are becoming more aware of it. As enthusiasm for the EU declines, people want to assert their independent democratic rights without being nationalistic. The problem with the current arrangement is that it is likely to increase the unpleasant sort of nationalism because people feel that their democracy is somehow being weakened. To decide as free member states, confident in their democracy, to work voluntarily with other member states, is a recipe for genuine co-operation and internationalism. That would remove or at least reduce the amount of unpleasant nationalism that exists in member states, including Britain to some extent. There are dangers in such nationalism, as we know from European history.

Let us consider what happened in December. Britain was guilt-tripped into doing a deal because, without it, the poorer, newer member states would be disadvantaged. They are disadvantaged because the budget is overwhelmingly dominated by agriculture spending in richer member states. We should simply have a budget arrangement without the CAP and the CFP.

Aid policy, too, should be repatriated because it is inefficiently managed in Europe and goes to the wrong places. We do well on aid and have a good reputation and we could even operate on an agency basis forthe EU through the Department for International Development. That would be much better than operating through the EU. Nevertheless, we could have an agreement to spend a proportion of our gross domestic product on aid but to administer it ourselves or on an agency basis, without going through the European Commission, which is notoriously inefficient in administering it.

We were guilt-tripped into the decision about the newer member states. However, if all the other aspects of the budget were reduced or eliminated, we could have a budget that could be administered in an absolutely fair way. Contributions and receipts could be exactly proportional to the levels of prosperity in the different member states. The rich states could pay in according to their prosperity, and the poorer ones would derive benefit from the budget according to their relative poverty. That would be a fair and moral way of implementing a redistributive budget. The fiscal transfers would be precisely fair. I might even suggest that it would be a socialist approach, involving redistribution from the rich to the poor. I would be very happy indeed with such an arrangement.

The hon. Gentleman talks about the state aid that we have given through the budget to poorer eastern European countries such as Poland. Does he agree, however, that the British private sector has also invested a great deal in those countriesover the past decade? I only have to travel through downtown Warsaw to see that many of the new business set-ups have been funded by British capital investment.

I am sure that that is true, but the hon. Gentleman has the advantage of me in that area, in which I do not specialise, and I do not have any figures to hand on investment in eastern Europe.

The way in which the budget operates is said to be beneficial to Britain because we have a trading advantage, but in fact we do not have such an advantage with the European Union at the moment. The great majority of our exports go outside the European Union. We are very different from Germany in that regard, in that the proportion of trade that goes to the European Union from Germany is about seven times greater than the proportion that goes to the EU from Britain. Germany has a massive export surplus with the rest of the European Union; it is very much greater than the relatively small amount that we export to the EU. We import a lot from the EU, but we do not export a great deal to it.

Statistically, the hon. Gentleman is absolutely right to say that the preponderance of our exports goes outside the European Union. In reflecting on the EU budget, would he agree that it is unsatisfactory that, in presenting their arguments about trade, Ministers consistently get it wrong—they must know that they are doing so—through the ancient and discredited practice of double counting that which goes through Rotterdam? It really is not good enough.

I thank the hon. Gentleman for his helpful intervention. Governments of both colours talk about exports rather than about the balance of trade. The concept of exports net of imports is very different from that of exports alone. Exports increasing by 1 or2 per cent. a year might sound splendid, but if imports are increasing by 5 per cent. a year at the same time, it would create a big deficit, which would not be particularly advantageous. We should look at trade balances, rather than simply at exports.

That also says something about the level of a country's currency, relative to other currencies. One of the reasons why I believe that we should retain our own currency is that it enables us to have a sensible macro-economic policy and to adjust our currency to an appropriate level. That is necessary for trade.

As I was saying, we were guilt-tripped into the decision to go for this budget. It was suggested that, without agreement on it, we would somehow deprive the less fortunate newer member states of the European Union, but in fact the people who went laughing all the way to the bank afterwards were the rich countries that benefit most from the common agricultural policy. The full CAP benefits do not accrue to the newer member states, because they are being tapered in over several years. So the CAP budget is still going to the richer member states that have larger agricultural sectors, such as Denmark, Ireland and France. Those countries arguably have higher living standards than ours; they are certainly very prosperous. And good luck to them—I am very pleased that they are, but we should not subsidise them to the disbenefit of the poorer member states of the European Union.

My final point about net contributions has perhaps already been made. Our net contributions have multiplied substantially in the deal and, according to calculations from Global Britain, we will contribute net more than £10 billion a year for the next seven years. If that money was simply going to the poorer nations of Europe, there might be an arguable case for providing it. However, it is not, and £10 billion is a significant sum. It is roughly 12 times the deficit in the NHS this year and 10 times more than we would have to pay for free long-term care, in which I passionately believe. Such a sum would enable every pensioner in Britain to have a £20 a week increase in the basic state pension. Although £10 billion as a proportion of GDP may not be that much, it is a lot of money if one considers it in terms of what it could provide.

If we reduced our net contribution to a level that was appropriate to help the poorer member states of Europe on a moral and socialist basis, that would be fine. However, our net contribution is too big and there are other things in our country that we should spend the money on, such as redistribution to the poor. We still have significant poverty in Britain, particularly among the elderly, and I would like to see an increase in the basic state pension that could be paid for by cutting our contribution. There are better things that we could do with our money.

In short, we still have to campaign for the abandonment of the CAP and the common fisheries policy and for structural fund spending to be used to redistribute income to the poorer member states, and we should let them decide what to spend the money on rather than having that determined in Brussels. The aid budget should be repatriated and, in future, we should focus on redistributing simply according to the relative degrees of poverty and prosperity in the European Union. That is the way forward for a friendly, co-operative and truly internationalist Europe.

It is always a pleasure to follow Kelvin Hopkins.

I am sorry that the Minister for Europe is no longer present, and has not been present for some time. When he opened the debate, we recalled that we were the main protagonists in the debates on the Maastricht treaty back in the early 1990s. He was a new Member of Parliament and the late John Smith gave him the job for the Labour party of dealing with the nuts and bolts of the treaty. I tabled about 150 amendments and, because in those days we did not have extravagant parliamentary devices, at least on the scale that we have now, we were able to force debates, and we did so resolutely. I pick out my hon. Friend Mr. Shepherd as a veteran of those days, and many would say that we set out a series of arguments that have proved to be correct.

By all accounts, the Chancellor of the Exchequer was not consulted when the deal went through in December. I said that he had been passed a poisoned chalice, because the money has to be found from somewhere and I have already given the details of the considerable increase that has occurred since December. The European commissioner has made that increase public and, as the European Scrutiny Committee report demonstrates, it far exceeds the amount that the Prime Minister said that the United Kingdom and other member states would contribute. The sum is so significant that one might say that it smacked of massive incompetence and that he did not want the Chancellor of the Exchequer to know the full details.

Let us consider the appointment of Ed Balls—he was here at the beginning of the debate, and I am missing him now—to the position of Economic Secretary. He is an alleged Eurosceptic who has continuously put arguments in various publications and given indications to suggest that he is dissatisfied with the way in which the European Union is functioning, but he has been given a job of great responsibility. I say with respect to the Paymaster General that it is a great pity that the Economic Secretary is not replying to the debate. Just as in those days of the Maastricht treaty when I found myself in a considerable alliance with the late Peter Shore, who performed a noble service tothe House over many decades, I wondered whether the disagreements between the Prime Minister and the Chancellor of the Exchequer may not, on close inquiry, turn out to be based on a difference of opinionwith regard to the European Union and its financial management. After all, it is the five economic tests imposed by the Chancellor, which reputedly came from some of the ideas of the new Economic Secretary, that laid down the basis on which we were not, to all intents and purposes, to go into the euro.

I think that a deeper question lies at the heart of the debate: which way are the Government going to go in respect of the future financial management of the EU as seen through the eyes of the British Treasury? It has been badly burned and cannot afford to pay for the public services or to perform the functions that the EU has been given without massive taxation. There is, therefore, a deeper problem.

It is a failed system—an undemocratic and unaccountable system—that we are debating. It is a system that has been rejected by some of the other countries. The financial management and economic management implicit in the Maastricht treaty is the basis on which the European constitution was defeated. Contrary to what was stated at the time, it was not simply because President Chirac had become unpopular; it was actually because the policies that were being pursued in respect of European Union treaties had made President Chirac so unpopular. That is why there were riots in the streets and why the French people turned on their own Government. They did so because of a sense of disillusionment. They were told that they were going to get a good deal and then discovered that they were getting an extremely bad one because of the massive unemployment that followed in the wake of the pursuit of European economic management and European directives, in particular with respect to the contract, which had to be abandoned. The Government wanted to make economic reforms and they could not. Angela Merkel is attempting to make economic reforms in Germany, but she cannot. The bottom line is that the whole of the EU is not merely creaking, but collapsing and imploding. The consequences are severe.

The beneficiary of those policies is the far right. The Eurobarometer poll shows that the EU is even more unpopular in Austria than it is in the UK. There is a reason for that.

The hon. Gentleman is right to point out the dangers of the political far right throughout the European Union. Does not it therefore concern him that his party is prepared to leave the European People's party and join the lunatic, right-wing, fringe elements to be found in the European Parliament?

First, the hon. Gentleman, who is a colleague of mine on the European Scrutiny Committee, knows perfectly well that that is not the case. We are not going in with any fringe, semi-fascist type of party; I dismiss that completely. There are serious discussions about the fact that what I, my hon. Friend the Member for Aldridge-Brownhills and others said abut the Maastricht treaty has proved to be the case. We have been right on Nice, Amsterdam and the European constitution. In point of fact, there has been a rejection of integration, financial management and fraud and a repudiation of the system that has been put in place. That must be complemented by sensible, practical policies from the centre right, which is basically where we stand. My party must be more explicit in setting out the case and must look carefully at the local government results, which show the British National party, for example, picking up the sentiment that can be created by leaving a vacuum in the centre right. It is essential that we—

Order. Could we return to discussing EU finances in more detail?

I am grateful to you, Madam Deputy Speaker, but I see a strong connection between the operation of EU finances and the development of such undesirable political parties.

Will the hon. Gentleman indicate why his party is not making the explicit case that he would like?

We need to be blunt and clear with the British electorate about such matters In particular, we must adopt a policy, as I have said on a number of occasions—too often to repeat—of an association of nation states. We must get away from the failed policy of European integration. It is not enough to say in the House or elsewhere that we do not like what we see. The only way to deal with the treaties, which some allege wrongly are set in concrete, is to take the appropriate steps to repatriate powers, by unilateral decision of this House, where negotiations fail and it is in our national interest, and to ensure that the judiciary abide by the legislation that we pass, which would be inconsistent with the European Union's. That also applies to the provisions under discussion.

rose—

Order. Before any further interventions are made, I remind hon. Members once again that, interesting though the wider debate might be, we are now discussing EU finances.

Does my hon. Friend agree that the£100 billion plus in today's money that this Government have given to the European Union is one of the reasons we are seeing the rise of the extreme right?

I am bound to agree. It is a tragedy, because we need a balance. Co-operation is one thing, but appeasement is another.

I was disturbed to discover that the motion, despite being merely a "take note" motion,

"supports the Government's objective of securing agreement...in line with the agreement reached by Heads of Government at the December European Council."

I do not know who drafted that, but whoever it was must know—definitely knows—that the European Scrutiny Committee insisted as far as we could, in this case successfully, that today's debate should take place on the Floor of the House, not least because the December deal was not, and is not, the deal that we are now debating.

I made that point in an intervention on the Minister, who has still not returned to the Chamber. I do not know why. I suppose that he must be embarrassed by the fact that he cannot answer the questions that weare asking. In that intervention I said thatMrs. Grybauskaite, the European Commissioner who I am told is a Lithuanian with a black belt in karate—I do not know whether the Paymaster General is up to a black belt in karate—was more than keen to get the matter out into the open. According to her, the final spending for 2007-13 will exceed £600 billion, which is £24 billion above the budget that the Prime Minister announced in December. That means that the taxpayer will have to find an extra £2 billion, and that Britain will now contribute £44 billion to European coffers over the next budget period. In other words, as I said in my intervention, not only does the new total make a mockery of the Prime Minister's claim to have held the budget to €862 billion at the December summit; it makes nonsense of the motion that we are debating. That is the key point.

No wonder even the Liberal Democrats have been brought shouting and screaming to oppose a piece of European legislation. This is the first time, during my 22 years in the House, that I have heard words uttered by a Liberal Democrat that indicate any opposition to the maniacal system in which we are now involved. I will certainly give way if the expression on the face of Danny Alexander means that he would like me to.

The hon. Gentleman has nothing to say, because there is nothing to say. I am very glad that the Liberal Democrats are picking up the message, in view of the abysmal results that they achieved in the recentlocal government elections. Those of us who have consistently and persistently—I make no apology for it—maintained an argument that is now being proved correct note that they are having to shift their ground on the issue.

It is also true, as one or two Members have pointed out, that on 8 June last year, when asked during Prime Minister's Question Time whether the rebate was negotiable, the Prime Minister said

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

We all know that that was rubbish. I suspect that the Prime Minister knew that it was rubbish at the time, but he was in a very tricky political environment, and the Prime Minister always becomes trickier the trickier the situation becomes.

If the Prime Minister had said "unless and until the common agricultural policy is abolished", that would have worked.

Indeed. It would also have worked if he had said "If we want to achieve economic competitiveness we will have to renegotiate the legislation, or else legislate unilaterally, on our own terms, here at Westminster." He is not going to do that either, although, as I shall explain shortly, this financial settlement includes a vast amount of money that is being poured down the throat of the European Union for the purpose—allegedly—of increasing competitiveness. As Keith Vaz knows extremely well, the Kok report criticised the Lisbon agenda because it does not work. The vast amount—billions of pounds—being spent on that agenda is being completely wasted. It is being frittered away, and it is our taxpayers' money.

The Kok report did not say that. It said that the benchmarks set in Lisbon had not been met, and it set out a path to ensuring that the EU countries met them. It did not say that the Lisbon agenda was a waste of public money.

The hon. Gentleman gave evidence to the European Reform Forum that we set up, and he has the advantage of being able to read the evidence that Will Hutton, the rapporteur to the Kok report, gave to the forum, which is on the transcript and in the public domain. It would be well worth the hon. Gentleman and others reading what Will Hutton had to say about the Lisbon agenda. Despite further such attempts being made since then to deal with this issue, there has been no improvement.

There is another issue about which I am deeply worried. The European Scrutiny Committee was obliged to say the following in its report:

"It is regrettable that it was not possible to have the debate we recommended on this issue before matters had progressed so far on the new Inter-Institutional Agreement. Nevertheless, we still think a debate on the Floor of the House worthwhile."

At the heart of that comment lies the fact that this House is being treated with contempt. We are being invited to debate a matter that, to all intents and purposes, has already been sewn up. I regret to say that it has been sewn up with a degree of misrepresentation, in that the figures have been increased and we were not given the chance to debate the issue in sufficient time.

The own resources decision will have to be debated in the context of a forthcoming European finance Bill. I have asked Ministers when we will have that Bill on a number of occasions, including via a written question. Labour Members—indeed, all straightforward, honest Members of this House—have a decision to make: whether, in the light of the manner in which the House has been treated, they are prepared to vote against their own Government on that Bill. The opportunity to do so will certainly arise, and I strongly urge them to do so.

Our report also pointed out that this debate could examine the increase in the financial perspective ceilings. As my hon. Friend Mr. Brady said, the former Minister for Europe stated in his explanatory memorandum as recently as 21 February that the Government would strongly oppose any proposal to increase the overall expenditure ceiling agreed by the European Council. However, the honest truth is that the Government simply rolled over, and at considerable expense to our own taxpayers.

Our report also suggested that the debate should look at the reasons for any reallocation of spending between different expenditure headings. The then Minister for Europe said in February that the Government,given the "delicate nature" of the European Council compromise—I love the way that they put it, but in fact the compromise involved rolling over in the face of President Chirac and pathetic grovelling to other member states—apparently did not see any scope for re-allocation. It is quite disgusting to read how they tried to weasel their way out of explaining what is, in reality, a complete and total failure to subscribe to the principles set out by the Prime Minister during Prime Minister's Question Time on 5 June last year.

The report continues:

"The Minister asserts that the European Council agreement represents a good deal for the EU and a good deal for the UK."

Well, it will cost a good deal of British taxpayers' money, but it is not a good deal for them.

It is pathetic to have to say so, but the report continues:

"He notes that the proposed total EU expenditure over the period would be €862 billion."

We know that that figure has gone for six. The report continues:

"As a share of EU GNI, this would mean that the total expenditure ceiling would fall from 1.1 per cent. of EU Gross National Income in 2007 to 1 per cent. in 2013, the lowest level"— it is claimed—

"in 20 years. Nevertheless it is an increase in real terms of 13 per cent. compared with the current period."

That is the point. It also states that there will be

"significant increases in EU spending on priority areas, including...a real annual average increase in spending on research and development of 7.5 per cent...a sevenfold increase in regional spending"— that is very important and serious—

"from €24 billion...to €174 billion in the next...period".

That is where the money is going. When we talk about regional spending in relation to the UK and elsewhere, we know what it means. The report also mentions

"the real annual average growth in spending on freedom, security and justice of 15 per cent...and...an increase of 4.5 per cent...in spending on external actions."

The plain fact is that this is a travesty and a disgrace. This is not a take note motion and there is more than enough reason for the Opposition and Labour Members to vote together to reject this ridiculous financial management.

I, too, welcome my right hon. Friend the new Minister for Europe. He has a great knowledge of the European Union and it was my privilege to serve with him in the European Parliament for five years, where he was a distinguished chair of the European Parliament United States delegation. I mention that because he is one of those Labour Members who realises that just because one is pro-European does not mean that one is anti-US. He recognises that one can be both, and the way forward is to match the two together, which I am sure he will do skilfully.

My right hon. Friend is also one of those people who are against the whole concept of the European super state or federal state. He believes that Britain's role is in Europe but as a freestanding, independent, sovereign nation state. He believes that the European Union is about that kind of association, as does the Labour party as a whole.

I wish to focus on one or two areas that have not been mentioned much so far. Much emphasis has been placed on the issue of fraud in the European Union and I am sure that we would be unanimous in condemning fraud in all shapes and forms. However, we should be clear that it has been consistently the case that most of the fraud in the EU has been the responsibility of independent, sovereign member states. It has been their fault for not putting their houses in order in relation to EU finance.

Will the hon. Gentleman name the countries that are guilty of that fraud and does he include the UK?

No, I certainly do not include the UK. The southern Mediterranean countries, by their own admission, have not got financial systems in place that are sufficiently vigorous.

My main point is that we have seen monumental change in the past few years in the shape of the EU, and there has been no greater change than the addition of 10 new member states, nine of them in central and eastern Europe. We should welcome that and be proud of the fact that our Government, more than any other, championed the enlargement process, which has been entirely successful.

Enlargement is significant in a political sense, too. Most of the countries that have entered the EU tend to share the British perspective on EU development. They, too, do not want a centralised European superstate, run from Brussels. Having thrown off the yoke of the Soviet Union, they cherish their sense of identity and purpose and, like us, they will not easily give it up again.

Notwithstanding the views of the new accession states about centralisation, does my hon. Friend accept that ever since those countries joined, there has been a constant pattern of more and more power being accreted to the centre? There has been no balancing delegation of powers from the centre to individual nation states, so irrespective of the views of the new accession states, they have actually gone along with the centralisation process. Their presence has made no difference whatever.

With all respect to my hon. Friend, that is not the case. In some areas, there has been an increased pooling of sovereignty by common consent, which is a positive development. However, over the last few months, not least due to pressure from the British Government, the European Commission has withdrawn a number of draft directives and said that they will not be enforced. In certain key sectors, such as immigration, justice and home affairs, where greater co-ordination is needed, it has taken place, but elsewhere there has been a reduction in the amount of EU red tape and bureaucracy.

Come on.

The facts speak for themselves.

In the context of this debate, my main point is that democracy is fragile and frail in the new countries that are joining the EU, so it must be properly supported by mature democracies such as ours. As a socialist who believes in the redistribution of wealth, I think that Labour Members should be proud of the fact that we are prepared to help countries entering the new European family by giving material support in terms of the budget agreement. We should not be ashamed of that.

On material support, and regional grants in particular, does the hon. Gentleman share my concern that, unfortunately, many of those grants tend to disappear and that there is too much corruption in some quarters, which has a bearing on how British taxpayers' money might be spent in those new EU countries?

I share that concern to some extent, but the important thing is that support from the EU through regional funding is of enormous assistance not only in helping to develop democracies but also in ensuring that they have fully functioning market economies. Such changes do not just happen, so it is laudable that the UK has led the way in the EU negotiations and has said that to make the market work as effectively in central and eastern Europe, as it does, largely, in western Europe, we should be prepared to ensure that there is assistance so that there can be full transition from Soviet-style command economies.

By and large, I agree with the sentiments that the hon. Gentleman is expressing about our duty to support the countries of eastern Europe that have entered the EU. But does he agree that the provision of European regional funding is also of great importance to some of the poorer parts of the UK and does he share the disappointment of people in the highlands and islands because the amount of funding that our area is receiving, as a transition area, is falling dramatically? Would not it have been better for the Government to have negotiated as strongly in favour of the highlands and islands as of the eastern European countries that he described?

The hon. Gentleman pre-empts me, as that would have been the next point in my speech. However, he should realise that earlier the Liberal Democrat spokesman spoke against any kind of agreement because he did not think that the Government's position was fair. The Liberal Democrats should sort out their own line, before they make interventions in the House.

May I add to the hon. Gentleman's background on this subject? Does he not think it odd that, in Scotland, where the Liberal Democrats are in government, they take no responsibility for the failure of Government, but they come down here and blame the Labour party, although they are in bed together in government in relation to that important loss of funding to the highlands and islands?

I am certain that the hon. Gentleman has made a very good point indeed, and I certainly bow to his knowledge on the matter, given his involvement in Scottish politics.

My final point on support for central and eastern Europe is that we have a moral responsibility to ensure that those democracies grow and flourish, but it is not only in the interests of those countries that have recently joined the EU that they are fully functioning market economies, it is in our interests as well. One of the things that I hope that we will see over the next few years is British business taking effective cognisance of the fact that we have developed new market economies in central and eastern Europe and exporting to and engaging with those economies in a way that has so far not happened.

Does the hon. Gentleman not accept that this country's future prosperity depends on developing markets in Africa and with the Commonwealth and China, that the EU is 20 or 30 years out of date in terms of prosperity and that what we are being asked to do is wrong? We are being asked to fund an ever-increasing amount of money for a backward-looking, inward-looking protection racket.

With all due respect, the hon. Gentleman is very good at soundbites, but the important thing to recognise is that, by our active engagement inside the EU, we are not putting all our eggs in one basket. Yes, we can be effective Europeans and help to develop that economy to our own advantage, but that does not stop us trading with the rest of the world. It is not an either/or situation. Let us do both. Let us recognise that we are an international nation. What concerns me about Opposition Members is that, all too often, what they are saying, when we scrape away all the economic veneer is basically a very crude form of xenophobia. [Hon. Members: "Oh, come on.] Yes, it is. When weget down to basics, what they are really saying isthat they do not like Europeans. The economic arguments objectively speaking are for Britain's positive engagement in the EU, and for an EU that embraces the free market and makes ever-deeper the single European market. We should be arguing for its completion, not for some kind of semi-detachment or even withdrawal, as some hon. Members would like. That is the real agenda that we must get to grips with in the future.

The second point that I should like to make in my brief contribution is that I believe that the Government negotiated a good deal for Britain back in December last year. Undoubtedly, some hon. Members who represent certain regions are not particularly happy with the budgetary settlement as negotiated, but let me say quite honestly, as a representative of Caerphilly in south Wales, that we were absolutely delighted that the Government negotiated an effective continuation of objective 1 status for cohesion funding, so that some £1.2 billion will come into our region over the next financial perspective. The first tranche of that money has been put to very good use in tackling economic inactivity and developing economic infrastructure, training and so on, and there is no doubt in my mind that the good situation in south Wales, where more people are in work than ever before in history, will continue and we will be pleased—indeed, we will be singing in the valleys—when the new strand of funding comes through.

I am slightly perplexed by the hon. Gentleman's comment on objective 1 being given to his constituency. Part of the criteria for objective 1 is high unemployment, yet the part-time Secretary of State for Wales tells us from the Dispatch Box that unemployment is decreasing in his area. Is unemployment going up or down?

Unemployment is going down; gross domestic product is going up, but the important thing to recognise is that, in the Government's extremely skilful negotiations, they were able to ensure that the figures used by the European Commission were a little out of date —[ Interruption. ] That is true. They do not show effectively the tremendous improvement in the south Wales economy. I am pleased to say that we are having our cake and eating it. Our Government can be criticised for many things, but they cannot be criticised for not being adept at negotiations. That is a practical, material, down-to-earth example that highlights clearly how effective the Government have been in ensuring the continuing development of areas such as the south Wales valleys.

Will the hon. Gentleman reconsider his answer to my earlier intervention? He said that the UK Government have not been involved in matters relating to fraud; it sounds like what he has just been talking about is fraud.

I do not think that that intervention is worth answering and I can see Members all around me nodding to that effect. As far as the structural funds are concerned, the Government have acted strongly not just in the British interests or the interests of Europe as a whole, but in the interests of areas that have experienced tremendous trauma with the decline of the steel industry and the coal industry.

May I provide an intervention to which the hon. Gentleman might be able to respond? Does he accept that, good as things are in Caerphilly, they could be even better? Every member of the European Free Trade Area has a higher level of GDP than the low average of the EU members, and exports more to European countries than we do. If we were outside the EU, we could be sustaining even more economic growth, even more per capita GDP and even more per capita exports and therefore jobs in Caerphilly.

I hear the true voice of Conservatism being expressed with the utmost clarity: let us get out of the European Union and recreate the European Free Trade Association as it was. If that is not turning the clock back, what on earth is? Let us be honest and frank. I am glad that the hon. Gentleman has been that frank. I hope that Mr. Brady, who is smiling, will take up his lead and articulate that point as clearly and precisely. That goes back to my earlier point. The debate is about whether we turn the clock back and somehow pretend that we can disengage, have associate member status or withdraw—Members can call it what they like. It is about whether we can somehow separate ourselves from mainland Europe and develop mythical new relations with the rest of Europe. That is not the real world and we all know it in our heart of hearts.

Will my hon. Friend give way?

No, I will not.

The real agenda is how on earth we make this effective single market even more effective. How can we expand the European Union and deepen the economic integration that is to our advantage and in the interests of the people I represent. Bob Spink mentioned my constituency of Caerphilly. I speak regularly to industrialists and, unanimously, they say to me, "For goodness sake, let's not go down this crazy road of separating ourselves from the European Union." Both the employers and the employees recognise fully that this country exports more to the European Union than to any other part of the world. To cut ourselves off from that and see the imposition, once again, of all the impediments to trade that used to exist, would be catastrophic to the economy of this country.

rose—

I have given way many times already.

In conclusion, I believe that this country negotiated a good deal all around. Of course, if one looks at the Government's opening negotiating position, they did not achieve everything that they set out—one never does in negotiations. The European Union is all about achieving a progressive consensus. When we look back at the British presidency of the European Union, I am proud that we can say that it was a great success. Two of the great things that stand out are: first, the fact that we have ensured a start date for negotiations with Turkey and that negotiations are continuing for Turkey eventually to join the European Union, and, secondly, that we have had a budget deal that is good for the people of this country and of the continent as a whole. We should be proud of that. It is something that we should be celebrating, and certainly not denigrating.

I am not keen to enter into the very public grief of the Government at the time of the reshuffle, but want to put on the record some sadness that the Minister for Europe is no longer the Leader of the House, albeit not because I do not think that he has many talents that he will offer in his new post. Those of us who are members of the European Scrutiny Committee will remember a discussion that we had with the right hon. Gentleman several months ago in which he had innovative ideas about improving the scrutiny of European business in the House. I hope very much that his successor as Leader of the House will take those suggestions forward. I have no doubt that the Minister for Europe will bring his great experience to European matters, not least as a former Member of the European Parliament, and we in the Scottish National party and Plaid Cymru wish him well.

Speaking as someone who represents a constituency that has benefited greatly from EU funding, I wish to make a point about EU finances that has been sadly lacking from much of tonight's debate. In Moray and the other areas of the highlands and islands, there is tremendous appreciation for the support of the European Union over the past decades. Many of us well remember the cash-starved situation in our communities in the dark 18 years in which the Conservatives were in government. It is ironic to think that throughout that time, Brussels was seen as much more benign whenit came to governance than was—perhaps still is—Westminster. It is with great regret that the highlands and islands has lost objective 1 funding.

We have heard much about fraud, mismanagement and the inappropriate use of statistics, but the loss of objective 1 support for the highlands and islands was home-grown. It did not happen because of Brussels, or other dastardly EU member states. Scotland's national wealth was overstated by £21 billion throughout the 1990s owing to a catalogue of flawed assumptions that were used to compile the UK's accounts. Newspaper coverage in The Scotsman at the time said that the UK

"Office of National Statistics has admitted to an Enron-scale error, which has been artificially inflating Scotland's national income by as much as £3.3 billion a year since at least 1989."

That blunder deprived the highlands and islands of £200 million of EU grants. I hope that hon. Members who have driven through the highlands and islands and are aware how many infrastructure projects were completed only because of the support of the European Union will appreciate that the blunder with which we now have to live, as the recipients of only transitional funding, not objective 1 funding, was severe.

It is important that we all accept that the loss of EU funding is not of itself a bad thing. As economies throughout the European Union grow and countries become wealthier, surely those of us in the wealthier parts of Europe have to bear part of the burden so that we can ensure that other parts of the EU catch upwith us. The argument that I will deploy is thus not motivated by a lack of appreciation for our paying our fair share. We should do that, but it is key that we consider the transitional arrangements betweenthe outgoing funding period and the funding period agreed recently.

Under the budget deal agreed at the December Council under the UK presidency, the global overall total for European social fund spending was reduced substantially, which will have an impact on communities the length and breadth of the land. Some €308 billion has been allocated for EU funding. The Department of Trade and Industry estimates that the UK will receive€9.4 billion, of which €2.6 billion will be allocated to convergence funding for Cornwall, west Wales and the valleys, and the highlands and islands. Approximately €6.2 billion will be allocated to competitiveness funding for other regions.

In December 2004, the Scottish Executive—the devolved Government comprising the Labour party and the Liberal Democrats—estimated that the highlands and islands would get €460 million and the rest of Scotland€721 million. That is a significant amount, and it is important for planning the growth of our economy in the years ahead. Only two short years later, in January 2006, the Executive said that Scotland could receive up to 45 per cent. of the sum we will receive in the current programming period. The highlands and islands would receive £105 million as a so-called statistical effect region under convergence, which is only 60 per cent. of the amount that they currently receive. Basically, the Scottish Executive's estimates have been chopped by two thirds, and the remaining sum is considerably less than they were expecting. Some hon. Members have asked what is being done, but I want to know what the Scottish Executive were doing. What did the Enterprise Minister, Nicol Stephen—a Liberal Democrat—do when he realised that the Scottish economy will lose hundreds of millions of pounds of funding? Why did the Liberal Democrat Transport Minister not bemoan publicly the loss of significant funds to improve road transport, not least throughout the highlands and islands?

Does the hon. Gentleman not agree that it is bizarre that our Ministers go to Brussels and accept the importance of structural funding in peripheral regions such as Spain and Poland but do not recognise its effect in areas such as Scotland and Wales?

That is not the only problem. Devolved Ministers have the right to attend Council of Ministers meetings, and it would be interesting to compare and contrast their attendance records, which can be downloaded from the Council of Ministers website, for those important discussions on key resources, so that we can see how Liberal Democrat Ministers in the Scottish Executive defended the national interest.

Does the hon. Gentleman not agree that while the Scottish Executive have played a part in the problem, Scottish local authorities failed to spend money from the last round, so their budgets were cut? In effect, they were penalised for not coming up with the goods and delivering projects on the ground.

I very much hope that local authorities, devolved Administrations and Governments everywhere make the most of EU funding. I do not believe in moaning about EU funding, because I have seen the positive benefits that it can bring. I encourage Administrations of all political colours to make the most of it. I cannot stand political cant. We hear that things should be done, but people with political responsibility who could do something about them do not even turn up to important meetings to discussthem. [ Interruption. ] The hon. Members for Alyn and Deeside (Mark Tami) and for Glasgow, North-West (John Robertson) say that I should name them. I shall be happy to forward the attendance list for Council of Ministers meetings, so that they can compare and contrast the attendance record of Liberal Democrat Ministers at key EU meetings.

Time is running out, and at least one other Back-Bench Member is keen to speak. The Department of Trade and Industry is consulting on the UK national strategic reference framework, which sets out general principles for governing ESF spending in the UK as a whole. The Scottish Executive, including the Liberal Democrats, have drafted a Scottish chapter, but it does not specify priorities in future Scottish programmes and does not indicate the resources required for each priority or programme. That is not good enough, because we go on about disconnection and a lack of faith or belief in what the EU can offer, but if we are to re-engage with the public we need to talk more positively about the projects that have delivered on the ground. I very much hope that the Minister will not just defend the UK Government's negotiating position in December—we will hear that anyway—but explain what much of the funding can do on the ground. I hope that in the months ahead there is action from the Scottish Executive and Ministers from both parties, who should live up to their rhetoric about what is vital for communities the length and breadth of Scotland.

We should all be grateful to the European Standing Committee for forcing the Government to put this enormously important issue on the agenda this evening.

We have heard a number of thoughtful and informed contributions to the debate. We began with Keith Vaz, who thought the budget was a good deal. As if to prove that he lives in a sunnier and happier world than the rest of us, he also thought that Europe was making progress on the Lisbon agenda. Dr. Cable sounded a note of reality. He criticised the Government's sell-out on the common agricultural policy in 2002. I agree that that concession hobbledthe Government's negotiating position in the 2005 negotiations, to devastating effect.

Kelvin Hopkins told us that he believed the EU budget was a running sore and called for the repatriation of aid policy, agriculture and fisheries from the European Union. My hon. Friend Mr. Cash spoke with huge insight on the issue on which he has spent so many years campaigning. In particular, he challenged Labour Members to vote against the Bill needed to put the new budget into effect. Angus Robertson, as we have just heard, protested at what he saw as flawed assumptions which have overstated Scotland's income, with the resulting impact on its entitlement to regional funding. He launched a devastating attack on the record of the Liberal and Labour coalition in the Scottish Executive and its record on regional funding.

The House heard about the history of the Prime Minister's spectacular sell-out on the British rebate. In 1999, he told The Independent that the rebate was non-negotiable. On 8 June 2005, he reassured the House in the clearest terms:

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

Less than two weeks later, the rebate was merely

"an anomaly that has to go, but it has to go in the context of the other anomaly being changed away".

Hence, it was up for negotiation, but only alongside fundamental reform of the CAP.

Then we had Commission President Barroso saying:

"At the beginning, our British friends said that they would not accept any change"— that is, to the rebate—

"without radical change of the CAP. Now, they're not saying that anymore".

There was complete capitulation when the Prime Minister agreed to surrender £7.1 billion of the British rebate without a single change being made to the common agricultural policy.

I am grateful to my hon. Friend, who is making a strong case. Is there not more fraud than there was British rebate, and should not the Prime Minister have been tackling the fraud, not giving away British money?

I assure my right hon. Friend that I shall come to that in due course. I have great sympathy with his observation.

The Prime Minister's capitulation was not the last cave-in. The European Parliament added another £2.68 billion to the budget in April. More recently, Budget Commissioner Dalia Grybauskaitė said that EU leaders understated the budget and that the true level over seven years is in excess of £600 billion.

The Prime Minister has failed to prevent a huge expansion in the EU budget, failed to ensure that others pay their fair share—France will still pay 20 per cent. less than Britain—and failed to defend the rebate negotiated with such stalwart courage and determination by Margaret Thatcher over 20 years ago.

Remember that we are not talking about small numbers. The £7.1 billion extra that we will be paying as a result of the rebate sell-out could have wiped out NHS deficits for a start, with several billion left over. It could have paid for thousands of new nurses in our hospitals, teachers in our schools or police officers on our crime-ridden streets. Giving up that money is a betrayal of hard-working families already struggling with the heavy burden of the Chancellor's stealth taxes. Giving it up without reform of the common agricultural policy is a tragic lost opportunity—a lost opportunity to remedy an injustice that keeps thousands in Africa struggling with abject and unnecessary poverty.

The CAP, as we heard this evening, is bad for consumers, bad for the environment and bad for the developing world. The 2004 Red Book states:

"The poorest, who spend the greatest proportion of their income on food, are hit hardest by an implicit tax on food of around 26 per cent. Even after the benefits for farmers are taken into account, the cost to the UK economy has been estimated at some 0.5 per cent. of GDP".

The consumer association, Which?, has calculated that the CAP inflicts throughout the EU some of the highest costs for food in the world, adding £1,000 to the average family's annual food bill. And the opportunity cost could be even higher: a report by Oxford Economic Forecasting concluded that redeploying CAP funds to better uses, such as research and development, could boost growth by around 1 per cent. of GDP.

The CAP is a pernicious tax on food that hits the poorest hardest. It hits the poor in Britain and the poor in the developing world, more than half of whom depend on farming to survive. The Institute of Economic Affairs estimates that EU agriculture policies reduce food exports from Africa by roughly 50 per cent. The World Bank has concluded that removing barriers to agricultural trade would benefit developing countries by $54 billion.

I am sure we all remember the day last year when thousands of our constituents came to see us to seek our help in making poverty history, including campaigners such as Sheila Gallagher, James Catterson and Marie Pearce from my constituency. On that day, it was no surprise that many carried banners stating "Axe the CAP", because the unreformed CAP is the single biggest obstacle to trade justice. I think that we were all stunned by the sheer volume of commitment, passion and energy that we witnessed that day, but it was to no avail when the Prime Minister actually came to make the decisions that really mattered at the EU summit in December.

Despite their warm words, the Prime Minister and the Chancellor have manifestly failed to deliver CAP reform trade justice. As Neil O'Brien, director of the think tank Open Europe, put it:

"Over the summer, at Live8 and Gleneagles, there were huge demonstrations of public opposition to unfair trade barriers against developing countries. But for all the difference this has made in Brussels, it might as well never have happened. Trade policy is a good example of how the EU gets away with murder...But gradually people are waking up to what the EU is doing in our name. And they should be angry."

It should make people even angrier that neither the Prime Minister nor his Chancellor has done anything to ensure that the extra billions that we will be paying to Brussels are spent wisely. As my hon. Friend Philip Davies has pointed out repeatedly, why should we give yet more money to an institution whose accounts have not been signed off by its auditors for 11 years? If the Commission cannot manage its existing multi-billion pound budget, why should we trust it with yet more of the British people's hard-earned money?

It has become something of an annual ritual for the Court of Auditors to refuse to give a positive statement of assurance about the European Commission's accounts, but we should not let familiarity desensitise us to the seriousness of the problem. If the treasurer of a Barnet gardening club turned up at its annual general meeting to say, "I can account for maybe a third of last year's budget, but as for the rest of the money, it could have been lost or stolen—I'm not really sure which", it would rightly cause outrage, yet that happens every year in Brussels. If accounts are qualified in the business sector, confidence in a company collapses overnight, in which case the management finds itself out on its ear in double quick time. Furthermore, failure to get one's accounts right in the private sector can see directors facing jail terms, yet that happens every year in Brussels. However, the Prime Minister does not seem to have mentioned that unacceptable state of affairs as he blithely handed over billions of pounds more of our money to the European Union.

Back in 1999, when the Santer Commission resigned in disgrace, the Prime Minister promised this House "root and branch reform". His promises on tackling EU fraud and waste have proved as hollow as his promises on the rebate and on CAP reform. Nearly a decade later, it is still business as usual in Brussels. Nothing has changed since the investigating committee that brought down Mr. Santer's Commission reported:

"It is becoming particularly difficult to find anyone who has even the slightest sense of responsibility".

Year in, year out, the Chancellor votes in ECOFIN to discharge the Commission's accounts without protest, and Labour MEPs vote those accounts through in the European Parliament.

Every effort is made to silence those who are brave enough to speak out against that complacency. When Marta Andreasen arrived as the Commission's chief accountant, she was horrified by what she found. The Commission's computer systems meant that the large amounts of money could be transferred without leaving any electronic fingerprint. In her words, the accounting systems left

"an open till waiting to be robbed".

The Commission was not even using double entry bookkeeping, which has been in widespread use throughout Europe since the Venetians invented it more than seven centuries ago. It is a basic tool used by businesses ranging from the largest multinational to the smallest corner shop.

When Marta Andreasen expressed her concerns to her boss, she was ignored by the person whom the Prime Minister put in charge of achieving the root and branch reform that he had promised. That person was, of course, Neil Kinnock. And when she spoke out publicly, it was Neil Kinnock, who once famously castigated Militant for scuttling round delivering redundancy notices by taxi, who had Andreasen stopped by security officials at Brussels airport and served with a fax threatening her with the sack if she did not keep quiet.

Let me take the hon. Lady away fromNeil Kinnock to the subject of the debate, which is the budget. I thought that she supported the enlargement of the European Union. If she listened to the opening speech by my right hon. Friend the Minister for Europe and to the rest of the debate, she will know that the deal was agreed to fulfil our responsibilities on enlargement. Why does not she deal with that point?

I can do so by saying that enlargement should have been funded by radical reform of the common agricultural policy.

Other whistleblowers have received the same shabby treatment as Marta Andreasen. When her colleague, Mr. Jules Muis, spoke our about the "chronically sordid" state of the EU's accounts, he was told by a Commission official: "We have ways of breaking people like you." By contrast, no action whatever was taken against the people in charge of Eurostat, where more than £3 million went missing, squandered on staff perks including a riding club and a volleyball team and siphoned off into front companies producing bogus research. They were simply shuffled sideways and continue to this day to collect big salaries or fat pensions. Despite a report from the Commission that admitted that there was a "vast enterprise of looting" at the EU's statistics agency, the only person who was raided by the police over Eurostat was the journalist investigating the scandal.

I urge the House to vote against the motion, because when the Prime Minister agreed the new EU budget in the early hours of Saturday 17 December last year, he betrayed the British taxpayer, betrayed the British consumer, and betrayed millions of the poorest people on the planet.

This has been a wide-ranging debate—in some cases rather wider than the motion. I pay tribute to the European Scrutiny Committee and the work that it does to help both Houses to follow more closely proceedings, operations and arrangements in the European Union. It has played an important part in providing the background to this debate and will play an important role as we seek to put in place the arrangements for the future.

Today's debate is an important step in the process of agreeing the new EU budget. Following it, the Government will complete negotiations with other member states on the inter-institutional agreement and the own resources decision. The House will have scope for a further full debate when the Government introduce primary legislation to ratify the own resources decision.

When?

The hon. Gentleman asked that question in his speech, and I will deal with it right now. Ratification of the own resources decision is required by December 2008, and we expect to be able to introduce primary legislation in this House at the beginning of the 2007 Session.

Let me turn to several of the matters that hon. Members raised. Mr. Brady and I served together on the Education and Employment Committee when we were both first elected to this House. I recall that he was then rather careful in the arguments that he made and the facts that he used, but his speech today was littered with mistakes, wrong assertions and wrong figures. He is wrong to say that we surrendered the rebate, wrong to say that we gained nothing in returnin the agreement, and wrong about the agreementitself. Far from our showing—in his words—utter incompetence, that agreement was believed by many to be difficult, if not impossible, to achieve. Under the UK presidency we brokered that agreement, which gives the European Union its budget for the future seven-year financial perspective period.

Will the Financial Secretary simply and straightforwardly admit that the Government have given up more than £7 billion of British taxpayers' money by conceding part of the rebate?

No. I am about to deal with some of the wrong figures that the hon. Gentleman used. He made a dodgy start by using a briefing from the Open Europe group. The CAP will not, as he asserted, be between 40 and 44 per cent., but 34 per cent. of the total. He included the 9 to 10 per cent. of the budget that is spent on rural development and used for environmental and other benefits in rural areas, not farmers' subsidies.

The hon. Gentleman is wrong to say that the Treasury has changed the way in which we calculate payments. In the Budget and the Treasury White Paper on EU finances, we calculate EU payments in exactly the same way as has always been done. He said that the budget was increasing—but it is now for an EU of 25 not 15 countries. In the next financial perspective to 2013, the EU budget will fall to less than 1 per cent. of gross national income in the EU—the lowest level for 20 years.

Mrs. Villiers spent most of her contribution conflating and inflating the popular myths about fraud in the EU. In 2004, fraud in the EU budget was €130 million. That is 0.1 per cent. Fraud accounts for 0.02 per cent. of the CAP budget and 0.4 per cent. of the budget for structural funds. The UK has been determined that EU funds should be properly and efficiently spent. The EU anti-fraud office has been heavily promoted and the UK was instrumental in setting it up. The UK strongly supported setting up the Commission's internal audit unit on an independent basis. The hon. Lady speaks with experience, so I am sure that she agrees that few countries in the EU have championed the cause of bearing down on fraud more strongly than the UK.

Will the Financial Secretary guarantee that next time the Commission's accounts appear before ECOFIN for discharge, the British Government will vote against them?

The hon. Lady confuses questions about fraud with those about reliability. Our consideration of accounts at ECOFIN will depend on those in the future.

Dr. Cable, who spoke for the Liberal Democrats but is no longer present, conceded that enlargement had been successful in southern Europe and was increasingly perceived as a success in eastern European. He and the hon. Member for Chipping Barnet were critical of the CAP. However, let me stress to them both that the CAP is being reformed. Under the UK presidency, we were able to put in place the historic liberalising reform of the UK sugar regime. The total value of the CAP will decrease over the new financial perspective, falling to €51 billion a year by 2013. The fundamental review—part of the December agreement and the inter-institutional agreement—will give us the chance to press further towards long-term reform and a vision for the CAP, which sees European farming as capable of being competitive without the need for subsidy or protectionism.

My hon. Friend Keith Vaz was in something of a minority. However, he put the case clearly and cogently for a forward-looking Europe. He reminded hon. Members that commitment to enlargement has been fundamental to the UK Government's approach, not only under the current Administration but under the previous one. He also reminded hon. Members that the UK Government have been one of the strongest supporters of EU enlargement and one of its most forceful advocates. He also stressed the importance of the EU's responsibility in helping the new member states undertake the economic development that they require.

My hon. Friend Mr. David spoke about the responsibility of our mature democracies to help what he called the fragile democracies in eastern Europe. He is right to say that the Government should do that, and we are doing it. We are proud of that commitment.

Will the Minister give way?

I will not give way to the right hon. Gentleman. He has not been here during the debate, and I am not prepared to take as absurd an intervention from him as the one he made on the hon. Member for Chipping Barnet.

Angus Robertson said that the UK should pay its fair share for the enlargement of the EU, but he was concerned about the transitional arrangements. The Scottish Highlands and Islands have done very well out of the agreement that was made in 1999, and out of the present financial perspective, and they will continue to benefit from the convergence funding agreed for the next financial perspective. Furthermore, the regional development funding in the UK will largely continue to be sourced directly from the UK Government, not from the European Union.

My hon. Friend Kelvin Hopkins and Mr. Cash made speeches rather different from those of my hon. Friends the Members for Leicester, East and for Caerphilly. They both made rather wide-ranging speeches—indeed, they sometimes ranged rather wide of the motion that we are debating—and there was a degree of common ground between them.

The hon. Member for Stone repeatedly accused the Government of misrepresenting the budget figures. He did so in an intervention on my right hon. Friend the Minister for Europe, and again in his speech. In each case, he cited the Budget Commissioner. My right hon. Friend the Minister made it very clear that the Commissioner's figures on the total budget included counting programmes that are not part of the way in which the European Union calculates its budget. Although she is the Budget Commissioner, Mrs. Grybauskaite's figures are, sadly, incorrect. No other member state, or the Commission, at any time during the financial negotiations assessed the budget in the way that she now pretends to do.

The Minister has just been praising the financial investigation team known as OLAF, but will he note that although 9,400 cases of fraud were reported in 2004 there has been not one successful conviction of any major wrongdoer, and that no funds have been recovered in the seven years of OLAF's existence? Is that a success, in the Minister's terms?

The questions that the hon. Gentleman raises are questions for OLAF. Surely he would not contest that we need such a body at the heart of the European Union. We also need the independent internal audit unit that the Commissioner has set up.

The inter-institutional agreement and the own resources decisions are the final parts of what has been a long difficult negotiation on the financial perspective. As the first negotiation of a union of 25 member states, it was bound to be complex. It is, however, a unique opportunity to modernise the budget and set out a process that will lead to a budget more fit for purpose for the European Union of the 21st century.

In the first place, the agreement ensures budget discipline. Rejecting the Commission's proposal for a budget of €1,025 billion, member states have instead agreed a budget of €864 billion, or 1.048 per cent. of EU gross national income. By 2013, the starting point for future negotiations, the budget will be about 1 per cent. of EU gross national income—its lowest level for 20 years.

The budget also allows for an historic shift in spending from the old member states of the Union to the new central and eastern European member states. It supports our long-argued UK commitment to EU enlargement. Over the coming years, the funds forthe new member states will increase from less than€30 billion to more than €170 billion—a sevenfold increase. These funds aid their economic development, and they will not only make them more prosperous and more stable, but bring significant benefits to the UK too. UK exports to the eight eastern European new member states totalled in 2004 £5.3 billion—up by around 230 per cent. over those of the previous decade. Access to these new and growing markets will benefit UK consumers and UK business.

The historic enlargement of the EU, combined with the intensifying global challenges on the economy, poverty, the environment and security, meant that the financing of the EU could no longer be viewed in the manner that it had been prior to 2004. As the Prime Minister said, as the EU's strongest supporter of enlargement, it was fair and right that the UK contributed properly to the costs of enlargement.

We have consistently argued, however, and carried out the argument in the negotiations, that the UK abatement remains justified because of the inequalities and inefficiencies on the expenditure side of the budget. The December Council conclusions that were agreed say:

"The UK budgetary correction mechanism (the 'UK abatement') shall remain".

The UK abatement remains, the abatement mechanism remains unchanged and the deal in December means that the UK will continue to receive the abatement in full on all EU spending in the old member states and on agricultural spending in the new member states, but we will forgo the increase in the abatement resulting from the economic development spending in the new member states and therefore will no longer receive an abatement on spending that contributes to the growth and the prosperity of Europe's poorest countries. As a result of those changes, the UK's net contribution will, for the first time, be similar to that of France and that of Italy—member states that are comparable to the UK in size and prosperity.

Will the Financial Secretary give way?

I think that I have made my position clear to the right hon. Gentleman.

As a result of these changes, the total UK rebate will still be larger over the next financial perspective than the current one—an estimated €41 billion in 2004 prices between 2007 and 2013 compared with€36 billion in the current financial perspective.

Finally, there will be the review of the budget. The review was agreed as part of the December package and confirmed in the inter-institutional agreement. The review will be led by the Commission and will report in 2008-09. It will allow the Council then to assess the value of all areas of EU expenditure, including the common agricultural policy. This is a process through which we can move to further reform of the CAP and further reform of the European budget as a whole to put it on a more rational and logical basis, so that it can concentrate on the things that are essential to Europe's future.

Throughout this process of negotiation, the UK's objectives have been consistent. We wanted tight budgetary discipline; we wanted more spending on policy reform, especially more reform to the CAP and the structural funds; we wanted successful enlargement; and we also wanted to protect the UK's financial position. We secured budget growth limited to 13 per cent., when the Commission had proposed 25 per cent. We secured an EU budget that will be less than 1 per cent. of gross national income by 2013—its lowest level for 20 years. We secured a massive uplift in social and cohesion fund allocations for the new member states, and secured more flexibility to ensure that those countries can effectively absorb the structural funds and improve their growth and productivity. We secured a doubling in research and development spending, and secured and retained the UK abatement, which will increase in value during the next financial perspective. We secured the political commitment of all member states and the Commission to a fundamental review of all aspects of expenditure and revenue.

This is good deal for Europe, and it is a good deal for the UK. I commend it to the House.

Question put:—

The House divided: Ayes 245, Noes 194.

Question accordingly agreed to.

Resolved,

That this House takes note of European Union Documents No. 5973/06, the Commission's revised Proposal for renewal of the Inter-institutional Agreement on budgetary discipline and improvement of the budgetary procedure, No. 6426/06, the Commission Contribution to the Inter-institutional Negotiations on the Proposal for renewal of the Inter-institutional Agreement on budgetary discipline and improvement of the budgetary procedure, and No. 7421/1/06, Draft Decision on the system of the European Communities' own resources (//EC, Euratom); and supports the Government's objective of securing agreement on the Inter-institutional Agreement for the 2007-13 Financial Perspective and the Own Resources Decision in line with the agreement reached by Heads of Government at the December European Council.