EU Budget

– in the House of Lords at 2:53 pm on 4th July 2005.

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Photo of Lord Campbell of Alloway Lord Campbell of Alloway Conservative 2:53 pm, 4th July 2005

asked Her Majesty's Government:

What steps are now to be taken on future financing of the European Union to sustain a viable value for the euro which favours the economy and employment, and to control proportionate re-allocation of budget resources.

Photo of Lord McKenzie of Luton Lord McKenzie of Luton Government Whip, Government Whip

My Lords, as the Prime Minister said in his Statement to the House of Commons on 20 June, the UK believes that there needs to be a responsible and prudent approach to EU spending at a time when national budgets across Europe are under strain. There also needs to be a debate on the structure of the European Union budget to respond to the challenges of globalisation, which the UK plans to take forward under its presidency.

Photo of Lord Campbell of Alloway Lord Campbell of Alloway Conservative

My Lords, I thank the Minister for his generalised response. I ask him, however, whether the steps to be taken to revive a stagnant economy and to stabilise the euro are not first of all to reform the ECB, as advised by your Lordships' Select Committee; to reduce the interest rate to 1 per cent; to introduce enforceable limits to budgetary expenditure; and to introduce parliamentary control of commission regulations and abolish the acquis communitaire?

Photo of Lord McKenzie of Luton Lord McKenzie of Luton Government Whip, Government Whip

My Lords, that is a long list. We should recognise that the European Central Bank is a relatively new institution. It will need time to develop and the financial markets will need time to respond to its approach. However, it is important that the ECB is independent. That is how it is set up and therefore it is not for individual governments to instruct it or to interfere with its judgments. Indeed, an important part of the stability that we are trying to create is that the bank is independent and is seen as being so.

On interest rate policy, it is a matter for the ECB and not for individual member states. On enforceable limits on budgets, one of the reasons why the UK could not sign up to the current financial perspective is that there was not sufficient agreement on capping the budget, which is an important plank of the Government's policy.

Photo of Lord Barnett Lord Barnett Labour

My Lords, the new budget does not start until 2007. What percentage of our GDP will our rebate be? Is it the Government's policy that, subject to the common agricultural policy being phased out over the period of the new budget, we would be willing to phase out our rebate?

Photo of Lord McKenzie of Luton Lord McKenzie of Luton Government Whip, Government Whip

My Lords, on the CAP, the Government's position is clear; that we need to see a fundamental revamping of the budget. Indeed, if it were reduced, as a matter of arithmetic rather than negotiation, the abatement would decline.

On the current value of the abatement as a percentage of GDP, I do not have that figure but it must be less than 1 per cent. I will write to the noble Lord on that.

Photo of Lord Dykes Lord Dykes Spokesperson in the Lords (Europe), Foreign & Commonwealth Affairs

My Lords, the Question includes some complex business but I return to the common agricultural policy. Has the Prime Minister definitely dropped the startling suggestion to abolish the CAP—"to get rid of it", in his immortal phrase last week; or will he revive the idea of keeping some part of the CAP, pending getting rid of it eventually, when he responds to President Bush's even more startling suggestion?

Photo of Lord McKenzie of Luton Lord McKenzie of Luton Government Whip, Government Whip

My Lords, the Prime Minister has consistently said that the budget review is part of a wider debate about EU response to globalisation challenges. It is not expected to end the CAP now or to renegotiate it overnight. Any change must take account of the legitimate needs of farming communities and happen over time. However, there needs to be a clear process for the reform of the CAP which we would want to see in place during the course of the upcoming financial perspective.

Photo of Lord Pearson of Rannoch Lord Pearson of Rannoch Conservative

My Lords, can the Minister tell your Lordships of any currency union in history which has survived without a federal budget and a government to run it? If the proposed constitution is not revived and enacted, what hope can there be for the survival of the euro, let alone for the niceties contained in the Question?

Photo of Lord McKenzie of Luton Lord McKenzie of Luton Government Whip, Government Whip

My Lords, I am not sure that I can give the noble Lord, Lord Pearson, a lesson on history. In relation to current monetary union, we do not take the position that it depends on a single political structure and a single government for Europe. That is why there is in place the ECB and an independent approach to monetary policy. It is also why the stability and growth pact, notwithstanding recent changes, is in place to ensure that there is fiscal responsibility. Those two key planks enable monetary union to be sustained without a single government.

Photo of Lord Tebbit Lord Tebbit Conservative

My Lords, will the noble Lord have another attempt to answer the question asked by the noble Lord, Lord Dykes? Last week he put the same question to the noble Lord, Lord Davies, who could not answer it. When the Prime Minister says that he wants to get rid of the CAP, are we to assume that the Prime Minister wants to get rid of the CAP or not?

Photo of Lord McKenzie of Luton Lord McKenzie of Luton Government Whip, Government Whip

My Lords, I thought that I had dealt with that matter in answering the noble Lord, Lord Dykes, but I will try again. The Government's position is that we do not expect the CAP to be abrogated overnight, but there needs to be an approach for reform of the CAP, which has to be a process of negotiation with our partners taking account of farming interests. We need to see progress. That is a clear position.

Photo of Lord Mackie of Benshie Lord Mackie of Benshie Liberal Democrat

My Lords, will the Government inform the House, and indeed the farming community, how long they propose to take in abolishing the CAP?

Photo of Lord McKenzie of Luton Lord McKenzie of Luton Government Whip, Government Whip

My Lords, the noble Lord is trying to put words into my mouth. We are talking about reform and renegotiation of the CAP. The objective is to see any redirected European budget in place during the course of the current financial perspective, so at least the latter half of the perspective can have a budget that is fit for purpose and fit for the 21st century.

Photo of Lord Davies of Coity Lord Davies of Coity Labour

My Lords, in view of the constant questions that have been asked regarding the Prime Minister's Statement, will my noble friend confirm that what the Prime Minister meant was that we will get rid of the common agricultural policy in its present form?

Photo of Lord McKenzie of Luton Lord McKenzie of Luton Government Whip, Government Whip

My Lords, I would urge all noble Lords to listen to and read what the Prime Minister said. It is very clear.

Photo of Lord Howell of Guildford Lord Howell of Guildford Spokespersons In the Lords, Foreign Affairs, Deputy Leader, House of Lords, Shadow Minister (Foreign and Commonwealth Affairs), Shadow Deputy Leader of the House of Lords

My Lords, interpreting the Prime Minister's words on many subjects is an art form and we are not going to reach clear conclusions now. I return to the original Question rightly raised by my noble friend Lord Campbell of Alloway. He mentioned the budgetary underpinnings of the euro—which was also raised by my noble friend Lord Pearson—and the future of the stability and growth pact.

Does the Minister recall the Treasury producing a paper a year ago saying that the stability and growth pact had to be strong and effective and that it was a step forward in recognising the importance of long-term budgetary discipline? Now it has become weak and ineffective and a meaningless voluntary affair. So what does the Treasury say now? Have we achieved these goals, and if not, should we be putting forward some firm and clear reforms?

Photo of Lord McKenzie of Luton Lord McKenzie of Luton Government Whip, Government Whip

My Lords, the position on the stability and growth pact is that we support a prudent interpretation of that pact but recognise that it needs to be flexible to deal with economic cycles in member states and to take account of debt levels and the need for public investment in member states. To suggest, as some do, that somehow it has all fallen apart is simply not right.

A number of member states are going through some stages of the excess deficit proposals. That shows that the 3 per cent and 60 per cent limits are still in place, but they need to be interpreted with flexibility to take account of economic circumstances in particular member states.

Photo of Baroness O'Cathain Baroness O'Cathain Conservative

My Lords, how flexible is flexible? Does it mean plus or minus 100 per cent for the 3 per cent and the 60 per cent? It looks as though we are allowing those countries that signed up to an agreement to be within two rigid parameters to have a huge amount of flexibility.

Photo of Lord McKenzie of Luton Lord McKenzie of Luton Government Whip, Government Whip

My Lords, it is important that whatever flexibility there is is limited. I could happily go through a list of member states that are subject to processes at the moment to indicate where they are and where it is proposed that they will get to. The excess deficit proposals for Germany and France are currently in abeyance following the Council's conclusions of November 2003, but that is because the judgment in their case was that the actions they have taken are broadly consistent with the correction of the excess deficit by 2005, so these things, as ever, need to be seen in context.