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Mr. Llwyd: I fully accept the logic that the more prosperous states should assist the newcomers, but I remind the right hon. Gentleman that west Wales and the valleys, which constitute a large part of Wales, benefit from objective 1 status. Will he assure the House that whatever deal is struck—hopefully in the next three
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days—will not affect the amount of assistance that is available, as the gross domestic product of west Wales and the valleys is still, unfortunately, less than 75 per cent. of the average EU GDP?

Mr. Straw: I accept the point that the hon. Gentleman makes. My hon. Friend the Minister for the Middle East will provide more details for him and the hon. Member for Inverness, Nairn, Badenoch and Strathspey (Danny Alexander). We are conscious of the needs of areas such as west Wales, the highland and islands and Cornwall, which qualify for objective 1 status, and we want to ensure that, as far as possible, they are protected.

Mr. Cash: After the rejection of the European constitution by France and Holland there was a period that was described as a "pause for reflection". That was about six months ago. Have the Government been reflecting, and why have we not heard anything in today's debate about the fact that the constitution is dead but certainly not buried? Exactly how does the right hon. Gentleman respond to the recent statement by the German Chancellor that her coalition would reintroduce the constitution in the first months of the German presidency, which starts at the beginning of 2007? [Interruption.]

Mr. Straw: Yes, I shall take my time, and reflect on my reply.

The blunt truth is that we have had rather more important things to do in the real world than try to revive the constitution. If the hon. Gentleman has abandoned the habits of a lifetime to suggest that he wants the document to be revived, I will listen carefully.

Mr. Cash: I want to know what the right hon. Gentleman thinks.

Mr. Straw: I have just explained what I think. The hon. Gentleman knows what I think anyway, so I am not entirely sure why he asked the question. Chancellor Merkel is the new leader of the centre right party in Germany, just as there is a new leader of the British Conservative party which, apparently, is a centre right party, although I shall come to that later. New leaders say new and interesting things, and perhaps it would be appropriate to have a period of reflection to consider them.

Mr. Mark Francois (Rayleigh) (Con): The Foreign Secretary intimated that Britain may be prepared to give up about £1 billion a year of anticipated income from the rebate to try to achieve a deal later this week. Will he confirm that that is not included in the pre-Budget report figures that were published by the Chancellor on 5 December—so there would be a hole of £6 billion if that money were subsequently given up?

Mr. Straw: I think that the hon. Gentleman is correct to say—[Interruption.] Well, the figures could not have been included, because they have not been decided yet. In a column in the world's most important newspaper,
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the Lancashire Evening Telegraph, which I hope Members read, because it is even more important than the Darlington and Stockton Times—

Mr. William Hague (Richmond, Yorks) (Con): Surely not.

Mr. Straw: That is our first disagreement.

In a column to be published tomorrow morning, I have told my constituents that if they are thinking about putting a bet on the outcome of the negotiations tomorrow and Friday they should place it on a horse instead, as I am not predicting the outcome. The pre-Budget report necessarily includes firm estimates of firm commitments, and the Chancellor will naturally seek to adjust it in the light of any negotiations that are concluded.

Mr. David Drew (Stroud) (Lab/Co-op) rose—

Mr. Straw: If my hon. Friend will allow me, I should like to make some progress before giving way.

The rebate was designed to deal with the unfair treatment of western European states of comparable prosperity. It was never intended to be a means of redirecting money from much poorer states to the United Kingdom. Indeed, in the early 1980s, when the rebate was negotiated, there was no serious expectation that the European Union could or would expand eastwards into the Soviet empire. I have been unable to find any occasion on which an hon. Member on either side of the House said that the new and poorer accession states should pay, directly or indirectly, the rebate in full. In any event, as I have already told the House, the rebate will rise from an average of €5 billion per annum in this period to €7 billion per annum in the next. It cannot therefore be said that we are giving it up. Our offer on enlargement involves a reduction of about €1 billion per annum in what the rebate would otherwise be. However, the rebate remains on every penny and cent of spending on the common agricultural policy anywhere in the 25 member states of the European Union, and on all spending in the 15 western European states.

When Baroness Thatcher made her statement on the Fontainebleau summit in 1984, you and I will remember, Mr. Speaker, because we were both in the House, that it did not quite receive the rapturous reception that is now written up for it. I asked the right hon. Lady why she had failed in her stated intention of achieving a broad balance between the United Kingdom's contributions and the amount that we got back. I pointed out that in the following year, and the year after, despite the rebates, Britain's net contribution would be more than it had been in the previous three years.

As it turned out, I underestimated the scale of the problem that Mrs. Thatcher was describing, for over the following 20 years the United Kingdom paid—after the rebate—twice as much net into the European Union compared with similar sized economies such as those of France and Italy. Under our proposals, we will for the first time achieve broad parity. For the first time in the 30 years of our membership and for the first time in the   21 years since the rebate was agreed, we will be making a net contribution broadly equivalent to those of France and Italy.
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Mrs. Thatcher was unsuccessful in another respect too: she did not constrain the growth of the European Union's budget as a share of the European Union's economy. Under successive Conservative Administrations, it rose by 50 per cent. It is this Government who have led the way to budget discipline—an average of 1.03 per cent. of gross national income over the next financial period and falling to below 1 per cent. on a commitments basis by 2013. Finally, the previous Administration failed to sustain reforms which dealt with the inequalities underlying the rebate—the imbalances of their spending on the common agricultural policy.

That leads me briefly to my third point: the case that we are making for reform. Reform in the European Union is necessary if the Union and its member states are to compete effectively in a world economy that has changed beyond recognition over the past 20 years. We are pushing for parallel reforms in the World Trade Organisation negotiations, which got under way yesterday. We are proposing in our budget a full-scale review of expenditure and revenue, including agriculture, and the right of the EU to make further decisions in this financial period, rather than having to wait until 2014.

When Mrs. Thatcher returned from Fontainebleau she admitted to the House that because her Government had taken so much time on the problems of the budget, they had not been able to turn as much attention as they should have done to some other vital problems in Europe. We have done better. Away from the headlines, the Government have been getting on, successfully, with the vast majority of the business of a presidency.

In pursuing our agenda we have worked closely with the European Parliament. British Ministers have visited the European Parliament on more than 50 occasions. My right hon. Friend the Minister for Europe sends his apologies to the House. He is at the European Parliament today—we have an able substitute in my hon. Friend the Minister for the Middle East—and my right hon. Friend the Prime Minister will be at the European Parliament tomorrow. This engagement with the European Parliament has been particularly worth while in our discussions with British MEPs. Indeed, I am heartened to say that we have been greatly assisted by British MEPs of all parties.

As the House knows, each of the main British political parties is able to magnify its influence in the European Parliament through membership of the mainstream European political groupings. My party does so through the party of European Socialists, the Liberal Democrats do so through the Alliance of Liberals and Democrats for Europe, and the Conservatives do so through the European People's party and European Democrats or EPP, which covers the centre right. Who joins which group is a matter for MEPs and their parent British political party and not for the House, but the consequence of those decisions can directly affect the national interest. The House therefore has an interest in that.

All those groupings are loose confederations. There cannot be a single party which agrees with every item on the European political agenda. National party groups are free to depart from the groupings' line where they wish. That right was enshrined, as far as the EPP is concerned, by the right hon. Member for Richmond,
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Yorks when he was Leader of the Opposition in the agreement that he made with the European People's party in 1999. However, there is real practical value for the UK in these groupings. In particular, there is practical value in the Conservative party's membership of the EPP, because the EPP is the largest grouping in the Parliament and has crucial positions on many of the key committees. It holds such positions on five of the key committees, and I am grateful for the support that we have received from those co-ordinators.

The right hon. Gentleman recognised the importance of that when he was Leader of the Opposition. Indeed, as I said, he negotiated an agreement in 1999. When he signed that deal, he said that Tory MEPs would be joining

He went on to say:

His predecessor continued the link, as did his two successors. Now we read that the right hon. Member for Richmond, Yorks is being pushed by his new leader, the hon. Member for Witney (Mr. Cameron), to leave the EPP

and to form a new grouping.

Who will sit in this new grouping? The right hon. and learned Member for Rushcliffe (Mr. Clarke) thinks the Tory MEPs will have to sit alongside "ultra-nationalists". The Conservative MEP, Mr. Struan Stevenson, says that they are

even worse—

In a later article he describes them even more succinctly as

The hon. Member for Grantham and Stamford (Mr.   Davies) has asked whether the Conservatives really want to sit with

The deputy leader of the Conservatives in the European Parliament who used to sit in the House, Sir Robert Atkins, thinks his new bedfellows will be

He gives further details:

Indeed, he quotes the right hon. Member for Richmond, Yorks as saying in 1999:

That is exactly what his new leader is proposing.

I am therefore not surprised that when the right hon. Gentleman was interviewed about that on the "Today" programme he was plainly extremely uncomfortable. After all, it showed that the promised unity of the Tory party had lasted for all of 36 hours. But it also shows
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that the Conservative leader, the hon. Member for Witney, is prepared to tear up solemn manifesto commitments, for the Conservative election manifesto in 2004 stated that

In the right hon. Gentleman's argument with his new leader he has our full support and our full backing in fighting for what is right and for the national interest, and in fighting for a Conservative party that at least on one thing sticks to the principles on which it was elected only 18 months ago.

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