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Mr. Wayne David (Caerphilly) (Lab): Does my right hon. Friend agree that part of our current difficulty is caused by the fact that the European Commission, which is strongly opposed to the Government's proposals, is trying to promise UK regions larger sums which have not been agreed and will not decide where those sums will come from?

Dawn Primarolo: I entirely agree. My hon. Friend puts the case rather more succinctly than I did.

As I have said, the Government are strongly committed to regional development. We are guaranteeing that if our proposals for reform of the structural fund are agreed, domestic spending on regional policy will increase so that the UK nations and the English nations receive an amount that will ensure that they do not lose out. I do not think I could be any clearer at this stage.

Mr. Bill Tynan (Hamilton, South) (Lab) rose—

Mr. Mark Hendrick (Preston) (Lab/Co-op) rose—

Dawn Primarolo: May I ask my hon. Friend the Member for Preston (Mr. Hendrick) to wait for a moment? I shall return to him after giving way to my hon. Friend the Member for Hamilton, South.
 
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Mr. Tynan: Obviously there is concern about the structural and cohesion funds. The assurances about the Government's position and the protection that will be given to areas that are currently beneficiaries are important, but the real issue is this: if we are sticking to a budget of 1 per cent. of EU gross national income, the poorest nations will qualify under a 75 per cent. formula. Does my right hon. Friend support that?

Dawn Primarolo: I dealt with that earlier. According to the Commission's proposals, funds will be distributed among all 25 current member states. There will be a 50:50 weighting arrangement for the nations at the heart of the European Union, which are the richest. That too must be dealt with. Aid should be directed towards those in greatest need. If we arrange spending at the EU level we must do so on the basis of added value, in a way that is appropriate and supports subsidiarity. That will not prevent other member states from agreeing, with a common purpose, to pursue their own regional policies.

Mr. Peter Atkinson (Hexham) (Con) rose—

Dawn Primarolo: I must give way first to my hon. Friend the Member for Preston, who has been waiting patiently.

Mr. Hendrick: I am sure that no Member on either side of the House would object to the continuance of greater assistance for regions that need it, but can my right hon. Friend explain the logic of reducing the size of the EU budget to the extent that is proposed when 10 new states, mostly very poor, are entering the EU with worse economic situations than ours?

Dawn Primarolo: One per cent. growth in the budget is substantial. At a time when other member states are following a tight fiscal discipline, the Government think it reasonable to require the Commission to do the same, and to pursue the policy that we pursue domestically. That is why the Government are advocating, as I said, that there should be, at the beginning of the debate on financial perspectives, a thorough appraisal of where the Commission is spending its money, the efficiency and effectiveness of that, and whether that is the most appropriate way of spending.

When spending at a European level, it is right that we ensure that we are getting added value. We are talking about a substantial budget, and I am sure that my hon. Friend the Member for Preston will agree that it is right for the principles of budgeting to include: first, defining what sort of items merit public spending; secondly, determining the available resources; and thirdly, determining spending priorities based on evidence and political judgment. That is what the Government are advocating in pursuing this matter.

A budget of 1 per cent. of EU GNI is ample to meet the needs of the enlarged Union, but reprioritisation to ensure that EC fund spending adds value at EC level is key, and it is on that that the Government and other member states are pressing the Commission. It would be absolutely irresponsible to European Union taxpayers simply to lump new spending proposals on top of existing ones. We would expect neither our domestic Administrations nor the international community to do that, and the Commission should not do so either. So, as
 
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I have said, a thorough appraisal of spending and where it goes has to be part of the financial perspective in order for us to come to reasonable judgments on future financing.

Mr. Peter Atkinson: I find myself in the somewhat unusual position of agreeing with much of what the Paymaster General says. Can she give us some idea of the Government's thoughts on state aid if she succeeds in repatriating regional development money? That is a key issue in the north-east of England. Who would adjudicate on the issue of state aid if it had been repatriated to the individual nation states, and who would decide whether that state aid was being given in a justifiable way or being used by another country in a backdoor way to subsidise a particular industry?

Dawn Primarolo: The hon. Gentleman raises an important point on regional state aid guidelines. In case he was not able to look at this, I must tell him that the Government explained yesterday in a written statement to Parliament how we plan to consult shortly on the Commission's proposals. The Commission has set quite a tight deadline for the UK Government to respond. The Minister for Industry and the Regions, my right hon. Friend the Member for Redditch (Jacqui Smith), will tell me if I get the date wrong, but I understand that the statement says that the UK Government will consult on the matter and receive responses by September.

We agree with the Commission that state aid should be limited, and we agree on the need to create a level playing field for businesses across the European Union, but state aid can also distort competition—perhaps that is the point that the hon. Gentleman was touching on—and limit business performance, prosperity and quality for consumers. Through the consultation and discussions with the Commission, the Government are seeking to explore alternative approaches to address that point. It is absolutely right that consultation should be a part of that, and I commend to the hon. Member for Hexham (Mr. Atkinson) the written statement to Parliament that my right hon. Friend the Minister for Industry and the Regions made yesterday. He might well find, uncomfortably, that he agrees with even more of what the Government are currently saying.

I turn to the financing of the budget. The Government are against any proposal for an EU tax. We believe that taxation is a matter for member states to determine on a national basis. The United Kingdom's abatement remains justified and necessary to correct for its disproportionate budgetary imbalance.

It is clear that we are just at the start of what is likely to be a long negotiation. It is the Government's strongly held view that the Commission's current proposals are not a basis for such a negotiation. The Government are working with other member states that share many of our principles and areas of common interest, in order to question and to challenge the Commission's ideas, and to develop an approach consistent with our objectives.

I have taken note of the Opposition's amendment—which requires the Government to lay out the principles underpinning our negotiations, the objectives that we will use in conducting them and the negotiation process—and I hope that they agree that these issues have been discussed thoroughly in the House. The
 
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Government have no difficulty at all with the Opposition's amendment; indeed, it might be slightly uncomfortable for them to discover how vigorously we are pursuing these issues. I commend these documents to the House.

5.1 pm

Mr. Mark Prisk (Hertford and Stortford) (Con): I beg to move, as an amendment to the motion, at end add:

"and calls on the Government to set out its principles and plans for those objectives and how it will achieve them."

I thank the Paymaster General for her generally patient and apparently helpful opening remarks. I shall, if I may, begin by commending the European Scrutiny Committee's recommendation that this debate be held. I suspect that, on looking at the title of the two documents involved—the "Third report on economic and social cohesion", and "Building our common future: Policy challenges and Budgetary means of the Enlarged Union"—some of us thought that this would be a rather technical and dull debate. In fact, the two documents consider how much taxpayers' money the Commission should spend and what it should spend it on. Indeed, the Commission's proposal ranges even further. As the Committee states,

"It will also largely determine the net contribution to the EU of each member state, and the future of the UK's budget rebates. It will, in practice, be binding on the parties to it for those seven years. It is, therefore, one of the most crucial forthcoming EU decisions, with important consequences for enlargement and the draft constitutional treaty."

For all those reasons, we believe that this debate provides an important opportunity, and we are grateful to the European Scrutiny Committee for recommending that this debate proceed.

The EU's recent enlargement provides the backdrop to these documents. We argued in favour of the accession of the 10 new member states for many years, so we are delighted to see their arrival in the European Union. Obviously, the arrival of 10 more nations means that the EU will need to adapt if it is to cope with this fundamental change. It needs to be far more flexible and to be able to accommodate wide diversity within its borders. Above all, it needs to become a Union for its people, not for its leaders.

On the financial perspective, the Commission is seeking a significant change in its expenditure, as the Paymaster General alluded to, with a proposed increase above 1 per cent. of the Union's gross national income. There have indeed been a number of proposed new spending totals from various member states, but as things stand the Commission has sought an increase to 1.24 per cent. of gross national income. In monetary terms, that equates to more than €336 billion over the seven-year period in question, compared with a figure of €257 billion in the past seven years. Yet, to date, that same Commission has failed to manage its existing budget properly.

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