European Standing Committee A

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European Standing Committee A

The Committee consisted of the following Members:

Chairman:

Mr. John Cummings

†Dean, Mrs. Janet (Burton) (Lab)
†Dhanda, Mr. Parmjit (Gloucester) (Lab)
Foster, Mr. Michael Jabez (Hastings and Rye) (Lab)
†Francois, Mr. Mark (Rayleigh) (Con)
†Green, Matthew (Ludlow) (LD)
†Hamilton, David (Midlothian) (Lab)
Hoban, Mr. Mark (Fareham) (Con)
†Lamb, Norman (North Norfolk) (LD)
Marris, Rob (Wolverhampton, South-West) (Lab)
†Palmer, Dr. Nick (Broxtowe) (Lab)
Viggers, Mr. Peter (Gosport) (Con)
Vis, Dr. Rudi (Finchley and Golders Green) (Lab)
†Wright, Iain (Hartlepool) (Lab)
Geoffrey Farrar, Committee Clerk
† attended the Committee

The following also attended, pursuant to Standing Order No. 119(5):

George, Andrew (St. Ives) (LD)
Michael, Alun (Minister for Rural Affairs and Local Environmental Quality)
Murphy, Mr. Jim (Lord Commissioner of Her Majesty’s Treasury)
Paterson, Mr. Owen (North Shropshire) (Con)
Bradley, Peter (The Wrekin) (Lab)


 
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Wednesday 23 February 2005

[Mr. John Cummings in the Chair]

Financing of Agriculture and Rural Development Policy

2 pm

The Minister for Rural Affairs and Local Environmental Quality (Alun Michael): I am grateful, Mr. Cummings, to have the opportunity to debate under your chairmanship the issues that are important for farmers and for the rural economy.

The two regulations will shape the delivery of support to rural areas under the common agricultural policy and the next rural development programmes. We can take some pride in the fact that the Government played a leading role in securing the reforms of June 2003 and April 2004. Although the common agricultural policy now delivers better value for money, further reform is still needed. Particularly in relation to today’s debate, we should continue to seek better value from CAP, with the aim of increasing its contribution to rural development and to the social, economic and environmental outcomes.

To that end, the regulations will establish a special fund, separate from the normal CAP mechanisms and with simpler financial and management rules, to support the new rural development programmes and to set out a more strategic approach to rural development. In parenthesis, I should say that when I took up my present role and started reading documents associated with rural development regulations, it required time in a darkened room. Although the regulations will make tremendously positive contributions to the rural economy, they are not the easiest reading matter.

The rural development regulation includes a number of new requirements. First, the production of national strategy documents with a clear link to a new European Union strategy will enable each member state to ensure that its rural development programmes are contributing to agreed EU-level objectives. That is particularly important, and it is strongly supported by the UK in relation to environmental objectives such as the water framework directive.

Secondly, although expenditure will continue to be made through a number of measures, each will be linked to one of three themes or axes. Those three axes are entitled “Agricultural and Forestry Competitiveness”, “Land Management” and “Diversification of the Rural Economy and Quality of Life in Rural Areas”. To ensure balanced rural development programmes, it is a new requirement that a minimum of 25 per cent. of community support for each rural development programme will be spent on
 
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land management, and that a minimum of 15 per cent. will be committed to each of the other two axes of competitiveness and diversification.

The LEADER programme that helps to fund local action group in rural communities is to be mainstreamed and will become part of the new rural development regulation. Its role in rural development will be strengthened with the requirement to deliver at least 7 per cent. of expenditure through the LEADER approach. Again in parenthesis, as I come from a regeneration and community development background, I have been encouraged by the enthusiasm that I have seen in those areas with LEADER+ programmes and by the extent of local community’s engagement in supporting those strategic objectives.

I underline the fact that the UK supports the Commission in its efforts to ensure that stakeholders and partners are included in the decision-making process with the proposed creation of monitoring committees. Although I am concerned about the complexity of the responsibilities of some of the bodies proposed in the regulation, I remain hopeful that the Commission will clarify those roles and simplify their operation during negotiations.

I saw something of the work of the monitoring committees, with that sort of co-operative approach to developing policies, in relation to objective 1 in Wales; and we have seen similar activities in Cornwall. Indeed, the hon. Member for St. Ives (Andrew George) was talking about some of those issues the week before last. The problem is that some organisations, such as local government, have the capacity to be involved in what can be quite demanding discussions, whereas others, particularly in the private sector, may find it more difficult. I am certain that the monitoring committee principle is right, but ensuring that it is not too onerous and bureaucratic will be a challenge.

Finally, a process for revising the designation of less favoured areas will be needed, following criticism in a report by the European Court of Auditors, and the Commission has just provided more detail on that proposal. Although the United Kingdom has supported much of the rural development regulation, and we welcome the Commission’s strategic approach, we are pushing it to go further on some issues. We want greater emphasis to be placed on the use of rural development funds to deliver key European Union environmental priorities, particularly water quality and biodiversity.

We also want certain links with the water framework directive to be exploited. Accordingly, we have asked for the minimum spend on axis 2 to be raised to 50 per cent. rather than the Commission’s proposed 25 per cent. It is vital to be able to demonstrate that rural development expenditure is providing real EU added value, and the land management access, with its contribution to our shared European environmental objectives, is the best way in which to do that. The UK’s environmental objectives are clearly well known and have been pursued with considerable success in recent years. We
 
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also want EU funds to be distributed according to need and not because of historical allocation. The fact is that the UK’s current share of funding is unfairly low.

I also underline the importance of ensuring that a mechanism is in place within the regulatory framework for the next financial perspective, which would allow for a further transfer from pillar 1 to pillar 2, either on a compulsory or a voluntary basis. Such a transfer, which may be through modulation at EU or member-state level, or perhaps through an alternative mechanism, may be essential to allow member states to meet existing and future land management commitments and other objectives in the most effective way.

In summary, and without getting into too much detail, we believe that considerable progress is being made, and that we are being taken in the right direction towards better support for a more focused and more competitive farming industry and for more successful rural economies and communities.

The Chairman: We now have until 3 pm for questions to the Minister. I ask Members to be brief. There should be time for everyone to make a contribution if they so wish.

Mr. Owen Paterson (North Shropshire) (Con): It is a great pleasure to serve in this Committee under your chairmanship, Mr. Cummings. Will the Minister say whether the regulations are set in stone, or whether they can still be amended?

Alun Michael: There is still some negotiating to be done. The lines that the Commission has drawn and our position in response to them have been fairly clear, but the regulations are not yet set in stone.

Andrew George (St. Ives) (LD): May I, too, say what a pleasure it is to serve under your chairmanship, Mr. Cummings? I apologise to the Minister for my slightly late arrival, as a result of which I missed his first few words.

Will the Minister say whether the new European Farm Commissioner clarified in discussions whether farmers receiving payments under pillar 1 at the end of this year in the window between December and June can receive them in two separate payments rather than in one payment, as the Minister told the House last week?

Alun Michael: The answer is that it is possible to receive the money in two separate payments. The question is whether it is sensible to do so. We are discussing the best way forward with farmers’ representatives, and with the National Farmers Union and the Country Land and Business Association—the CLA—in particular. As I have told the hon. Gentleman before, we are entering a period in which, after the coming year, we should be able to secure comprehensive payments early in the payment window and in a single payment rather than a staged payment, which will be to everyone’s benefit. As he knows, it was, and remains, our aspiration to do that as early as possible within the payment window, given the complexity of the changes with which we are dealing.

 
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Once the headline arrangements are in place, there will still have to be a period in which a great deal of detail must be worked through, including the detail of claims and payments. Complicated computer systems will also have to be melded together so we can be absolutely certain about the payments made. It remains our aspiration to do that as early as possible, and to work with the industry to overcome any problem that arises from the fact that we are targeting the February date—which is part way through the window, not towards the end of it—rather than an earlier one. I am certain that, in the long term, we shall arrive in a situation that is more beneficial and sustainable and allows for better long-term planning by farmers who are in receipt of payments.

Mr. Mark Francois (Rayleigh) (Con): I, too, welcome you to the Chair, Mr. Cummings, and look forward to serving under you this afternoon. The Government’s response to document 11495/04 said:

“The UK would like to see a fairer allocation of rural development funds on the basis of objective criteria based on the need to spend. The Commission’s proposals are on the objective measure of need and will require further clarification.”

Since that document was written, further discussions will have taken place. Can the Minister give the Committee an update? Have Her Majesty’s Government achieved any progress on that important issue?

Alun Michael: It is important, but discussions can take a long time, and while they are going on it is difficult to know whether one is making the progress that one might wish for. We would like even greater simplification. We would prefer to be told in broad terms the key objectives that member states should aim to meet, rather than being given a list of detailed measures, as we are currently. That would allow each programme authority greater flexibility to come up with innovative ways to meet its objectives. In our case, that would mean targeting the needs of our farmers. I cannot tie it down more specifically than that now, but I am not pessimistic about the direction of the discussions.

Matthew Green (Ludlow) (LD): The Government’s position is to support a reduction from the proposed 1.14 per cent. to 1 per cent. of the total budget as a proportion of EU gross national income. If they are successful—along with other countries—in getting that reduction, are there any parts of the existing budget, pillar 1 for instance, that are ring-fenced and not reducible?

Alun Michael: I am not aware that anything is ring-fenced. There is the issue of how much would be spent on different—for instance, environmental—objectives in order to ensure that they are all met in a reasonable proportion. We want there to be a degree of proportionality that gives flexibility, but also strong pressure from the Commission to ensure that EU-wide objectives are met, and I have referred to the links with the water framework directive and with agri-environment support. Nothing is specifically ring-fenced.

 
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Mr. Paterson: If the negotiations are still carrying on, can the Minister tell us which aspects the Government are not happy with, and which they are pressing to have changed before they sign up?

Alun Michael: We want to encourage the strategic approach, which provides a more purposeful framework for the use of funds, and which, if implemented effectively, will achieve real added value and will benefit EU citizens. That is why we want there to be greater clarity about the contributions expected towards the shared European objectives to which I referred—on things such as water quality—and also on biodiversity and climate change. We want there to be a degree of flexibility because it is not clear that a compulsory national strategy is needed in all cases, particularly if it does not fit well with institutional frameworks. I have already referred to the priority that we would give to simplification and to allowing greater flexibility to individual programme authorities.

At the moment, also, about 70 to 75 per cent. of current expenditure in England alone is allocated to agri-environment schemes, and that is due to increase with the introduction of entry-level stewardship. The proposal as it stands would reduce the flexibility to consider that level of commitment, so, during the negotiations, the UK is stressing the importance that we attach to a 50 per cent. minimum spend on axis 2, rather than the 25 per cent. that is proposed. I think that I referred to that in my introduction, but I hope that I have made it clear why we are pressing for such a requirement, combined with the flexibility to make sure that the outcomes that we want are achieved.

Andrew George: I share the Minister’s wish—which I think is a cross-party one—to shift as quickly as possible more resources from pillar 1 to pillar 2 activities, and I wonder what efforts the Government have been making, particularly in the negotiations involving the Treasury. As I understand the matter, rural regulatory payments must be matched by nation state funds, and, therefore, if the Minister wants to push things further, as he suggested, there will be a budgetary impact for the UK.

Has the Minister reflected on whether it would be appropriate to reopen the question of the country south of the Scottish border using the national envelope, in the way that the Scots have chosen to do? My understanding is that those payments do not need to be matched by the nation state and can be directed particularly at farming enterprises.

Alun Michael: I understand the hon. Gentleman’s point, but we would be keen to make sure that the CAP payments were used in a way that focused on the long-term sustainability of farming, together with diversification of the rural economy and the agri-environment support that I have referred to. There is a danger with some approaches, but one of the strengths of a devolved situation is that different decisions can be taken in Scotland and Wales as they face different problems and challenges. In the case of Wales, for instance, if there is an understanding of the pressure affecting the sheep industry, the greater
 
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emphasis on historic payments makes sense in the short term, but I am not sure it that makes so much sense in the long term.

We want to make sure that we focus on the outcome—that we look to the long-term strategic benefits for the industry in relation to the direct payment to farmers, as well as the EU-wide outcomes.

Mr. Francois: I have a specific procedural question. The Minister has given the Committee some idea of the matters that remain an issue, and on which the Government are negotiating with our EU partners. If those negotiations do not go as some in the UK would wish and we cannot agree with our EU partners, will the regulation be subject to unanimity by Ministers or to qualified majority voting as the latter would mean that we could eventually be outvoted against our will?

Alun Michael: I believe that the procedure will be qualified majority voting, but we entered the CAP negotiations with the expectation that we would be in a minority; at that time Commissioner Fischler and the UK Secretary of State were the two who argued for an ambitious programme of CAP reform. We emerged with a position closer to ours than to any other, so if we are a minority, we can sometimes be a powerful and influential one. I do not think that we should underestimate the capacity to persuade others through argument and negotiation. I encourage the hon. Gentleman not to be pessimistic, not to be too Eurosceptic and to support the Government’s ambition to successfully push forward reform, as we have done up to now.

Matthew Green: If the Government are successful in persuading others to accept the 1 per cent. gross national income target, is it possible that the UK could find that it has fewer funds available in 2007 than it will spend in 2006?

Alun Michael: I am not sure that I quite follow the argument. With the progression of modulation, we are increasing our spending on rural development within the context of the modulated finances. The reform decisions go in that direction rather than the reverse.

Mr. Paterson: Could the Minister confirm whether the single farm payment will come out of the EAGF? If that is the case, would it be possible that payments from the EAFRD could impinge on that?

Alun Michael: I believe that the answer is no. I get challenged by some of the details, particularly when initials are used and the hon. Gentleman obviously has a command of that language. My understanding is that those payments do not impinge.

Andrew George: May I suggest to the Minister that he did not entirely answer my last question? I will put it to him again. Presumably his Department has been in negotiation with the Treasury about the impact of shifting resources from pillar 1 to pillar 2. Pillar 2 funds, particularly many of the rural development regulation funds, have to be matched by the nation state. If the Government intend to shift further funds from pillar 1 to pillar 2 for supportable purposes, as I
 
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would encourage them to do, that will have an impact on taxpayers’ money in the UK. What assessment has he made of that?

Alun Michael: I am not going to get too deeply into the subject of discussions with the Treasury, or that of the detail of the discussions that are going on with the Commission. I think that the hon. Gentleman’s questions are based on a pessimistic premise.

Andrew George: An optimistic one.

Alun Michael: It depends on whether the hon. Gentleman expects a positive or negative answer, I suppose. We are not expecting to see major changes in the way in which such matters are pursued. The Government as a whole certainly support the process of modulation, including the process of co-financing, which is at the heart of the his question. We do not intend to move away from that.

Mr. Francois: In an earlier answer, the Minister confirmed that the regulation will ultimately be subject to qualified majority voting. It is possible that the United Kingdom could be outvoted against its will, but he asked me not to be too pessimistic about the outcome. If he hopes to reassure me, and I would appreciate his efforts in that respect, could he give the Committee some idea of the other countries in the EU that broadly share our perspective on such matters so that we can have an assessment of what the Soviet Union used to call the correlation of forces?

Alun Michael: The greatest cause for optimism is where I started: during the course of the discussions, we have achieved many of the outcomes that the UK set as its objectives. Initially, other Governments would have sought not to go down that road. It is arguable that had unanimity been required, we would not have achieved as many of the UK’s negotiating objectives as we managed. Those are good grounds to encourage the hon. Gentleman to be more optimistic.

Matthew Green: In reply to my previous question, the Minister said that he did not foresee the rural development budget being smaller in 2007 than in 2006, because the Government are unilaterally modulating further than suggested by Europe. However, what is the legal basis for further UK unilateral modulation in 2007? The Agenda 2000 regulation runs out at the end of 2006. Has the Minister confirmed with the Commission that further unilateral modulation will be possible after 2006?

Alun Michael: Indeed, it is possible. Of course, we would prefer more comparable modulation, not least because that would mean that the playing field was level. Having said that, we have set the clear objective that direct farming support should assist the industry to move towards a more competitive and sustainable situation. Indeed, that is the objective of this country’s strategy for sustainable farming and food. We also want to ensure that the modulated sums are used effectively to pay farmers for the contribution that they make to managing the rural environment, to economic regeneration and to diversification in the farming
 
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industry. All those things are making a considerable contribution to the viability of the farming industry, and that should not be underestimated.

Mr. Paterson: To go back to my earlier point, perhaps I can phrase it slightly differently. The specific sums allocated to rural development in article 70 of the draft regulations amount to €88.75 billion from 2007 to 2017. Is the overall sum to be allocated to the whole CAP over the same period?

Alun Michael: I am not sure how to answer that question, to be perfectly honest. Perhaps I can ask the hon. Gentleman to rephrase it.

Mr. Paterson: What I am trying to get at is that, as I understand it, the single farm payment, on the basis of which Britain’s farmers are planning for the years ahead, will come out of the EAGGF. I am worried that there may be a global pot and that the figure of €88.75 billion may cut into the single farm payment, which comes out of the EAGGF.

Alun Michael: No, that will not be the case. I thought that I had answered that point in response to the hon. Gentleman’s first question.

Mr. Francois: The Minister appreciates that these matters may be important for Britain’s farmers. As he said, the negotiations are ongoing, and we shall see what the final outcome is. Can he give the Committee some idea of the likely timings? I appreciate that it may not be possible to be precise at this stage, but when does he feel a final draft of the regulations is likely to be available? Based on that, when are the regulations most likely to come fully into effect?

Alun Michael: I think that the timing depends on the nature of the discussion. It is worth saying that the Commission has promised further discussion papers on a number of issues, including the allocation criteria. There is some support for our position on several issues, including our opposition to the use of historical expenditure. I am not sure that I can give a precise timing for the conclusion of the negotiations. As the hon. Gentleman will know, when one gives an estimate, it often becomes a hostage to fortune, because such issues are not entirely in our hands. I am reluctant to say anything more than we have already said on the issue.

Andrew George: The Government are a member of the 1 per cent. club and are in favour of retaining the budget rebate, but they also want to expand rural development payments and shift resources into pillar 2. Which is the Government’s biggest priority: being a member of the 1 per cent. club, retaining the budget rebate or expanding rural development payments?

Alun Michael: That is one of those interesting philosophical questions. If the hon. Gentleman asks for purely political reasons, I can only say that if I said that the third point was the priority, he would go to people who would want me to answer positively on the first and second points. However, the answer is that all three are major priorities for us.

 
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We also need to consider the negotiations in Europe, the movement in CAP reform and the rural development regulation in the context of the World Trade Organisation negotiations, where we expect a reduction in tariffs and an end date for all export subsidies. That relates to the Government’s wider objectives. As we negotiate in Europe we cannot ignore the fact that we are doing so in the context of a wider round of WTO negotiations. We need to keep a balance among priorities and seek to achieve as much as we can on each of them.

Matthew Green: The Minister said yes when I asked him to confirm whether the Commission would allow further unilateral modulation by the UK, which will be possible after 2006. What is the legal basis of that reply? Will the Agenda 2000 regulation be extended, or will there be further regulation?

Alun Michael: First, it is fair to say that we are seeking to encourage modulation post-2006, which is a matter for the current negotiations, so the question is not, at this stage, whether or not it is within scope. Everything comes down to how the negotiations go and how quickly they can be completed to give the certainty that everybody wants.

Fairly frequently I find myself before this and other Committees saying that negotiations are ongoing and that we will not know the outcome before the end. We certainly hope to continue making progress under the Luxembourg presidency, and we hope that there will be a preliminary agreement during that time. However, those issues depend on the overall outcome of EU future financing discussions. My understanding is that the Luxembourg presidency aims for June, but I refer only to its hopes and aspirations—such matters are not in our hands. We have made that point before, but that is as far I can go in offering anything approaching certainty.

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Prepared 24 February 2005