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Mr. David Stewart: Does my hon. Friend share my concerns about a possible double whammy for areas that lose objective 1 funding? First, they will lose the maximum amount of European funding, and secondly, they will lose the highest amount of dedicated state aid.

Mr. David: There must be a response to cases of need, and people must choose whether they want the British Government or the European Commission to make that response. I am a committed European, but I have more confidence in the ability of our Government than in that of the European Commission to recognise what is needed here. That was not always the case, however, with previous Governments.

Ms Atherton: Does my hon. Friend agree that objective 1 created a stand-alone pot of money that enabled communities such as mine to develop new projects that might have taken longer with Government structures? I hope that the Government will address that in their proposals after 2006.

Mr. David: My hon. Friend makes a fair point. There is much to be commended in various European programmes and we can all cite examples of good practice and innovation. However, that is balanced by the drawbacks. I have cited the lack of complementarity, but there is also an emphasis on convoluted forms of partnership. In my own area, for example, there has been partnership after partnership, and excessive red tape and bureaucracy. We could all think of ways in which we could streamline the system in our area to make it more effective and ensure that resources get through quickly to the projects and people who need them. I hope that such an initiative will be realised.

In conclusion, we have some way to go in discussions on the financial perspective and the future of EU regional policy, and I am sure that detailed negotiations will take place in the coming months. The Government are certainly correct to argue for a ceiling of 1 per cent. of gross national income in the EU budget, not 1.26 per cent. as proposed by the European Commission. I hope that they will not just be tough in the negotiations—it is all too easy to take such a stance—but persuasive.

It is no longer enough for us to stand in splendid isolation and be self-righteous about our proposals. We must engage effectively with our partners in Europe so that we win the argument and make sure that our interests, along with other interests, are to the fore. The European Union and the budget used to finance it should be responsive to its citizens and reflect concerns about their priorities. Europe should not centralise for the sake of it, and should genuinely serve the people, having recognised their needs. I therefore look forward to the Government arguing their case strongly, passionately and persuasively in the EU, and to their success.
 
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5.43 pm

Dr. Vincent Cable (Twickenham) (LD): Last week, a vigorous national debate raged about Europe, but it seems to have passed us by this afternoon, as there is a substantial and, indeed, alarming consensus, to which I propose to add. I largely agree with the essential points in the Government motion, including the fact that the budget should not exceed 1 per cent. of gross national income, the fact that the Commission's proposals are unrealistic and unacceptable, and the need to refocus and reprioritise. If anything, the Conservative amendment strengthens the motion, so I support it as well.

Our debate this afternoon has not been about the EU at all but about British regional policy, and what exactly happens when we nationalise or repatriate—I am not sure whether my terminology is correct—the regional budget. There has been insistent questioning from Members representing the north-west, Cornwall, the borders, the Scottish highlands and Wales about the meaning of the Government's guarantee that the regional flow of funds will continue. The more subtle question is how areas whose needs are met by European budget allocations will be sustained under a national regime with different priorities. There is a series of questions there that have been only partially answered so far.

Returning to the essence of the budget, on the 1 per cent., a pertinent question was posed earlier by the hon. Member for Preston (Mr. Hendrick), who asked why only 1 per cent.—after all, there are more countries coming into the EU, so should not the budget be enlarged? The answer to that is partly a national interest point that the hon. Member for Inverness, East, Nairn and Lochaber (Mr. Stewart) made in an intervention—a larger budget would mean a larger net contribution from the UK. Apart from the national interest point, there is a wider point that is summarised in the letter from the six net contributors, of which we are one, that makes the case that until the European budget in general is tightened up and reformed, there is no case for its substantial enlargement. The formula must therefore remain at 1 per cent.

Some balance is needed, however. The right hon. Member for Wokingham (Mr. Redwood) spoke about waste and corruption, as did the Conservative spokesman, the hon. Member for Hertford and Stortford (Mr. Prisk). We know that there has been waste and corruption in the European Union budget. It is evidenced, the audit trail exists and there are many anecdotes illustrating the point, but not everything that the EU does through its budget is wasteful and corrupt. We have heard examples today of good European budget allocations, such as the descriptions from the highlands of Scotland.

I can quote an example from my constituency, which does not involve European regional funding but none the less shows that, when the EU gets things right, it can make a useful contribution at the margin. I have in my constituency the Twining centre, an institution that specialises in retraining the mentally ill—people who, for the most part, are permanently unemployed. The centre was established to retrain them for the labour force. There was no other source of funding. The council cannot afford to fund the centre. The Government do not regard Twickenham as a particularly high priority
 
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area in urban deprivation, so there was no funding from the Government. The private sector is sympathetic and will use the graduates of the centre, but will not fund its running costs, so the European social fund did. Hundreds of local mentally ill people now owe their employability to that well-focused and well-managed centre, which has Spanish management drawing on best practice from the EU.

There are similar examples all around the country and we should not disregard them by painting a wholly negative picture of waste and corruption. Moreover, there is a paradox associated with the arguments about waste and corruption: the greater the concern, the greater the need for detailed documentation of application and monitoring. As a result, some European applications and monitoring are extraordinarily complex. Of course, that is not unique to Europe. Anyone who deals with local area-based initiatives or with the Department for Environment, Food and Rural Affairs will know that bureaucracy was not invented in Brussels.

Mr. Prisk: One of our concerns is that, in the absence of properly audited accounts, we do not know how much is wasted or lost in fraud, so the accuracy of information is fundamental. Without that, all the funds and the priorities on which we may or may not agree are undermined by that lack of confidence. Does the hon. Gentleman agree?

Dr. Cable: Of course. The hon. Gentleman makes the point moderately and sensibly. Of course there must be audit. Much of the discussion over the past few weeks has been at a populist level, which is not the substantive point he makes, and much of the waste and corruption, as we well know, comes out of the agricultural budget. Because I regularly attend DEFRA questions, I know that many of the hon. Gentleman's colleagues are assiduous supporters of the common agricultural policy when it comes to their own constituencies.

That is my next point. One of the key problems associated with the European budget is a disastrous decision a few years ago, which was heavily discussed in this place and over which the Government appear to have had very little control: the so-called Berlin agreement between France and Germany, which has maintained the share of agricultural spending in the budget for the next decade, effectively paralysing any real innovation in budget initiatives. That utterly disastrous decision reminds us of the many iniquities of the CAP. It paralyses the budget, is enormously detrimental to the consumer, harms the environment and damages international trade and international trade policy.

Although this argument is about the budget, not agricultural policy in general, I hope that the Government will continue to reassert in Europe the fundamental belief that we should be aiming not only for reform at the edges, but for a world in which agricultural products are traded as freely as cars and televisions because there is no reason why they should not be. That is the open market destination to which we should all commit ourselves.

I have a specific question about agriculture in the budget. Given that the Paymaster General said that sugar is next on the agenda for reform, what does that
 
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mean for the sugar tariff? As sugar is one of the EU's own resources, the EU has an interest in increased tariff revenue and therefore in resisting the liberalisation of the sugar regime. What is the Government's view, and how do they see the future of the sugar tariff in relation to their reform proposals?

The hon. Member for Hertford and Stortford asked about the UK budget rebate. I joined the consensus on the rebate—I support it, as does my party. It was an achievement of the Conservative Government to have negotiated it and an achievement of this Government to have maintained it. Nevertheless, we could do better. Even after the rebate, we are still substantial net contributors. Over the past three years, we contributed an average of €4 billion a year, which, in comparison with France and Italy, would not be merited on any equitable basis. Although the rebate has secured enormous gains relative to what they could have been, the formula is still not entirely satisfactory.

Moreover, in every negotiation with the European Union, we are hamstrung by the fact that, if the British Government make major demands, the other European countries—particularly the French—will pop up and say, "In that case, let's reopen the whole question of the British rebate." Instead of a special dispensation for the British, it would be better to have an automatic compensation mechanism for all net contributors similar to the system of floors and ceilings that has been developed in local government finance. Of course, that cannot be achieved in the short term—there is no proposal on the table and no political will to achieve it—but we cannot argue for the next 20, 30 or 50 years that the funding of the European Union must be built around the British rebate. There must be a better mechanism and we should keep that as our long-term strategic objective.

My final point relates to the refocusing of priorities. It is a simple matter of logic that, if there is a limited budget pot of 1 per cent. of GDP, an expanded membership of predominantly poor countries and redistribution based on income, the existing recipients will lose revenue. The UK regions and regions of the other relatively high-income member states will have to accept that European regional aid will be phased out, albeit with transitional relief, because that is an inevitable consequence of the way in which the budget is evolving. There is a whole set of practical questions about how transitional relief is managed and how the Government's guarantee to honour regional payments will be met.


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