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Mr. Kelvin Hopkins (Luton, North) (Lab): It is a great pleasure to participate in this debate, which is almost a love-in involving Members of all three main parties. Although I do not want to upset Members too much, I want to go slightly further than those who hinted at certain things but perhaps dared not say them. To a lesser extent, this debate has taken place in European Standing Committee B, of which I am a member, over the past seven years, so I have spoken on such matters a few times before. I therefore apologise if I repeat comments that others have already heard.

The Government talk about rigorously reassessing the EU budgetary arrangements and I entirely agree. Indeed, rigorous assessment is perhaps an understatement, in that fundamental reform would be more appropriate. I have always supported enlargement because I believed that it would promote and provoke a proper reassessment of what the European Union is about and should be about, and that it would make for sensible reforms. That is indeed what is happening now.

In my view, the budget has always been deeply flawed, primarily because of the common agricultural policy and its effects. The CAP has a perverse effect on fiscal transfers between member states, with richer nations benefiting and poorer nations being net contributors. Denmark, for example, which is one of the richest countries, has been a big net beneficiary of the CAP. That was really unnecessary. Ireland, at one time a less prosperous nation—now much more prosperous, I am glad to say—has sometimes benefitted to the tune of 5 per cent. of its gross domestic product because of fiscal transfers from the EU. That is the equivalent of more than £50 billion in Britain. Imagine the EU giving us a net £50 billion every year—it would certainly make our economy fly along. I am pleased that Ireland has benefited. The CAP and related budget arrangements are perverse, and it is time we had some fundamental reform. I think that that really means the abolition of the CAP.

There seems to be a consensus that we should repatriate or renationalise structural or regional funding to the member states. I agree, but in doing so, no region in Britain should lose out in any way. Every penny should be replaced by national funding. Replacing European funding with national funding, however, amounts to a net increase in Government spending and the only way of overcoming that would be to get rid of the perverse effects of the CAP, as I mentioned. If, in future, there are to be transfers between member states through EU arrangements, they should be based on the relative prosperity of the different nations so that richer nations contribute and the poorer nations receive net gains. That could be done on the simple basis of prosperity by standard amounts being paid in and paid out accordingly in a planned and calculated way.

That will not happen if we have the CAP, which I understand is to be gradually introduced for the new member states. I believe that the CAP should be
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abolished and repatriated, as I said, and that we should look again into how we subsidise agriculture—if we subsidise it at all. I think that there is a case for some selective subsidies, but they should be chosen at member state level. I am sure that we would want Welsh hill farmers, for example, to be protected. [Interruption.] I see that the hon. Member for East Carmarthen and Dinefwr (Adam Price) agrees with that. Livestock farming is very beneficial for the environment, even in prosperous rural areas, but I do not believe that big subsidies should be made for agribusiness producers of wheat and sugar beet. We need to think very carefully before we subsidise those producers. I believe that we should reduce their level of subsidy, but it should be done at the national level.

In dealing with trade in agricultural products, we should resort more to negotiation with fellow member states and, indeed, across the world through the World Trade Organisation. Again, that can be done only if we abolish the CAP, which is outdated and was always a mistake. I was writing papers about how wrong the CAP was 30 years ago, and everything that has happened since has confirmed my view. We are now reaching a point where the whole world agrees that the CAP is nonsense and should be got rid of.

I was going to mention the EU aid budget, but I intervened on that point earlier. If we abolish the CAP, repatriate structural and regional spending, and repatriate the aid budget, what is left? Not very much, I would suggest. If that happens, the whole EU would become a very different animal. If we want an EU that is going to work and be agreeable and acceptable to all, it should be based on international social justice. That is what I suggested earlier in my speech, when I said that the budget should be geared more towards helping the poorer nations by the relatively greater contributions of the richer nations.

That would be a beneficial result of enlargement. It would bring Europe together and help the poorer nations to reach our living standards. Internally, of course, every nation would have its own regional policy spending and budgets in accordance with its own needs and political decisions. I entirely agree with hon. Members who have spoken about areas in receipt of some sort of regional aid that our Government should compensate them for every penny—indeed, every euro—that they might lose from the reform of the European budget.

I have not said very much, because other hon. Members have already said what needs saying. However, I am very pleased that the Government are challenging what the Commission says, which is profoundly wrong. If the Government follow the suggestions made by me and other hon. Members we will have a much more sensible Europe, and one that is much more popular with all its citizens.

6.30 pm

Adam Price (East Carmarthen and Dinefwr) (PC): It is always a pleasure to follow the hon. Member for Luton, North (Mr. Hopkins), whom I thank once again for his support for beleaguered Welsh hill farmers.

I shall concentrate on the third cohesion report and on regional policy. At a time when trust and confidence in politics and the EU is collapsing, I want to say some
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good things about the Government—and about the European Commission, which has been castigated and caricatured by hon. Members of both left and right this afternoon.

I shall begin with some positive remarks about the Government. As the hon. Member for Twickenham (Dr. Cable) said, the debate is in part about the Government's domestic regional policy, which it is fair to say has acquired a higher profile over the past few years. For the first time, the Government are genuinely trying to address the regional economic disparities in the UK.

The Government are asking some of the right questions, although I do not know whether they have yet come up with the right answers. They have set themselves the ambitious goal of closing the GDP growth gap between the regions and nations of the UK. The policy levers do not exist at present to enable them to achieve that goal, but an interesting debate is going on in the Government. There is different mood music in the respective Departments of the Paymaster General and the Minister for Industry and the Regions. The divide may not be as great as that between the US State Department and the Pentagon over Iraq but, from afar, the slight divergence of emphasis and opinion is interesting to watch.

I do not want to suggest that either the Treasury or the Department of Trade and Industry are anything other than new Labour. However, the Treasury is possibly more neo-Keynesian in respect of regional policy, whereas the DTI is more neo-liberal or old-fashioned Thatcherite. The Treasury can therefore talk about an active industrial policy—I think that the Paymaster General used those words earlier—yet the Secretary of State for Trade and Industry has been trying to bury industrial policy over the past few years.

That is a slight digression, but it is relevant to the Government's proposals for repatriating regional economic policy. We look forward to seeing more detail on the Government's proposals for state aid. In the past, the Government have tried to roll back the state—at least in terms of state aid—across Europe, but now it is part of the package that the Government see a new role for state aid in their revived and rejuvenated regional policy.

European regional policy is one of the few European policies for which there is some hard evidence that it works. The third cohesion report presents the relevant data, which show that there is convergence among the original 15 EU member states. For example, between 1994 and 2001, the average annual GDP growth in those countries' objective 1 regions was 3 per cent., compared with an average of 2.5 per cent. across the EU. That is a strong performance over an eight-year period, and it suggests that European regional economic policy has worked.

However, the addendum that I want to add is that the policy has not worked so well that, all of a sudden, we need to get rid of it. The policy has worked especially well in the cohesion countries. As the hon. Member for Caerphilly (Mr. David) knows, those countries have access not only to the structural fund but to the cohesion fund as well. That fund is available only to member states that come below 90 per cent. of the EU average. There is an argument, to which I subscribe, that a
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significant volume of funds has been transferred—along the lines suggested by the hon. Member for Luton, North—in an active policy of spatial redistribution across the EU, which has delivered an average annual GDP growth of 9 per cent. in the cohesion countries, especially Ireland, in the period to which I refer. European regional policy has been a success, and we have heard examples from Cornwall and elsewhere of successes in the UK. That is a justification for the level of increase in the budget for the structural funds—although I will not be drawn into saying that about the other funds. The data show that the policy works and that we should expand the budget, not only for the enlargement countries, but for those parts of western Europe that still have significant regional economic problems.

The Government have acknowledged the problems in the UK; the question now is which is the best mechanism to address them. Should we revert to a domestic regional policy or maintain the structural funds system for the UK regions? The European Scrutiny Committee rightly asked how we could measure the differential impact between the Government's proposals and the Commission's proposal. The Government have said that it is impossible to give accurate figures because of the imponderables that remain to be determined. I can make out the outlines of the Government's logic; the problem is that the proposals—from both the Commission and the Government—have been expressed in terms of a proportion of the existing levels of funds. In that case, it is possible to compare because we know the existing level of funding in those regions and the Government and the Commission propose different proportions for the transitional arrangements.

The Commission has produced a new category—the statistical effect category—to compensate regions in the UK for the effects of enlargement. If a region would have qualified for objective 1 funding after 2006 had enlargement not happened, it will be in that category. It will include west Wales and the valleys, where GDP per capita has fallen, relative to the original EU 15, since the determination of the last budget. Those regions have not improved economically, only relatively as a result of enlargement. The Commission proposes that those regions should have a cushion of up to 85 per cent. of the funding that they currently receive.

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