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Mr. David Gauke (South-West Hertfordshire) (Con): The report to which the hon. Gentleman refers and the benefits for the average family in the UK are absolutely right, but the people who would gain most proportionately would be those in the poorest 10 per cent. of society. Trade liberalisation would benefit the poorest the most.

Hugh Bayley: Yes, that is true globally, and it is certainly true in this country. If I remember rightly, the figures in the report suggested that the poorest 10 per cent. of families would see an increase in their average income of about 3.5 per cent., whereas the richest 10 per cent. would see an increase in their income of about 0.5 per cent. If we were to make those changes, it would be good for social justice in Britain, and it would be good for global social justice, too.

The real importance of a rebate is not the reduction that it makes in the UK's net contribution to the EU, but the incentive that it provides to reform the CAP. To return to the Financial Times report of the Fontainebleau summit in June 1984, when the rebate was agreed, it said:

"The real impact of a budgetary deal will be critically dependent on parallel steps to impose tighter control over Community spending, and to reduce the share going on agriculture. If the Community can, over time, substantially reduce the farm burden, Britain's gross budgetary transfer should also decline."

The way for the EU to get rid of a rebate is to get rid of the cause of the rebate.

Mr. Robert Walter (North Dorset) (Con): I share the hon. Gentleman's passion for CAP reform—he and I
 
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both served on the International Development Committee for a number of years—and he has made an eloquent case for reducing the tariff barriers, but does he share the concern of those who suggest that the subsidies could be paid by national Governments rather than by the EU? Would that not just simply compound the problem? We are trying to get rid of a subsidy regime. To transfer it to national Governments would be self-defeating.

Hugh Bayley: The hon. Gentleman has moved on to greater things, but as a continuing member of the International Development Committee I went to Brussels to meet the Commission last week. We met the Agriculture Commissioner, and I can tell the hon. Gentleman that the idea of converting the agriculture subsidies into a call on national Government spending, rather than the EU budget, gets no support whatsoever from the Commission. Whatever the merits or otherwise of such a change, it is not one that will happen under this Commission presidency.

I do not know what the outcome on the budget will be at this week's summit—it may end in deadlock because of a French "non" to change in the CAP—but I have little doubt that the final budget package, when agreed, will be close to the UK's proposal. I expect that it will contain substantial support for the 10 new member states. It will include a slight reduction in the overall budget and an agreement to review the CAP earlier than the current deadline of 2013. So I say to the Government, "Stick to your guns." The EU needs to reform not only its spending, especially on the CAP, but its contribution system. Although I do not expect progress to be made on the latter this weekend, tax systems generally are seen to be fairer—they are certainly better understood and more transparent—if they are simpler.

At the moment, there is an overlapping matrix of four main income streams for the EU. We should move to a much simpler system, whereby all the income derives from the source that a majority of it comes from now: a simple proportion of gross national income. Then people in this country would feel that they were being treated fairly, alongside those in Germany, France, the Czech Republic or Latvia. That would not make a huge difference to the overall budget, but it would become much more understandable. I have asked the Library to generate some figures on such a system. It would produce some marginal benefits for the UK, but it would produce a system that would be much fairer overall and seen to be so by people throughout the EU.

2.56 pm

Mr. David Heathcoat-Amory (Wells) (Con): I am pleased that the hon. Member for City of York (Hugh Bayley) introduced the subject of the European economy and financial and economic performance into the debate, although I draw the opposite conclusion. I believe that economic success goes to self-governing countries that possess their own fiscal, monetary and trade policies. There are dangers in membership of a large bloc if that large organisation pursues anti-competitive practices. Unfortunately, the EU is largely discredited as an economic model for the world to emulate. We are paying a heavy price for that already.
 
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The Chancellor of the Exchequer occasionally expresses admiration for the United States economy and enterprise, but he, the Treasury and the Government are converging not on the US model but on a European model that is characterised by high unemployment, high taxation and a high regulatory burden. That should form the basis of the discussion at the forthcoming summit that will take place at the end of this week, instead of which we have got bogged down in a series of quarrels and it is difficult to expect that anything positive will come out of it.

A positive development in the debate has been the return to front-line politics of my right hon. Friend the Member for Richmond, Yorks (Mr. Hague). That was certainly a benefit of the recent leadership election. I wish him well in his endeavours. I contrast his contribution with those of not just the Foreign Secretary, but all Government Members, who have talked endlessly about reform that is not happening.

In fact, it is striking that almost no hon. Member even tries to stand up for the EU as it is; they talk instead of the possibility of reform, but we have had the reform process. I was part of it—it was called the European Convention—and the organisation that met for nearly two years in Brussels, chaired by ex-President Giscard d'Estaing of France, was given a very wide remit indeed. Instead of tackling reform, the Convention wrote a constitution that gave more power to the very European institutions that had created the problem in the first place. The public's sense of alienation and disillusionment has got worse since 2001 when the Convention came into being. There was no sign in the Foreign Secretary's contribution this afternoon that he had grasped the scale of the reform that is needed.

Mr. Mark Hendrick (Preston) (Lab/Co-op): The right hon. Gentleman will be aware that there have been reforms, although obviously not on the scale that we would like. For example, the CAP has been reduced from 66 to 40 per cent. of the budget over 10 years, and between £3.5 billion and £4 billion has been knocked off the CAP due to recent reforms to the sugar regime during our presidency. He does not give credit where it is due.

Mr. Heathcoat-Amory: Those are trivial and peripheral changes. I am talking about the need for deep-seated structural reform of the European Union, as signalled in the Laeken declaration of December 2001, when it was asserted that Europe stood at a crossroads. It was said that Europe was behaving too bureaucratically and referred to the gap between the leaders of Europe and the led. It called for more democracy and simplification. None of that was done.

The Government tabled about 200 amendments, only a handful of which were accepted. They almost immediately gave up on the concept of the constitution. Originally, the Prime Minister said that he did not want a constitution, but he retreated from that when it became inevitable. He gave up, too, on his promise not to make legally binding the EU charter of fundamental rights. Then he actually signed the constitution. He cannot have believed in large chunks of it, because we return occasionally to the Government's unsuccessful
 
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amendments, but we now know that the constitution was turned down not by the politicians of Europe but by the people. The Government failed to take advantage of that reform process. The entire process was a failure, so it is not good enough to say, in the dying days of the British presidency, that the Government stand for reform.

The same process—talking tough in advance and then giving way—is apparent in the question of the budget. The Prime Minister gave explicit and unambiguous assurances at the Dispatch Box that were simply forgotten. I shall not repeat the process eloquently outlined by my right hon. Friend the Member for Richmond, Yorks, who showed how the Government started by saying that the rebate was justified and would not be given up in any circumstances. Then they said it would be given up in return for CAP reform and then in return for talk of CAP reform. Now they say that it will be given up with no CAP reform.

The present budget is indefensible and, as long as that situation endures, we must not give up our only real lever for reform—the British rebate. This year, this country is giving more than £4 billion net to a European budget whose accounting system is pre-15th century. The former chief accountant of the EU, Marta Andreasen, discovered that the Commission did not even use double-entry bookkeeping, which was invented in Venice in the 15th century, as I know because I am a chartered accountant. It was a European invention, but    it has not yet reached Brussels. Into that unreconstructed, unreformed accounting system, where the auditors have refused to sign off the books for the past 11 years, we pay a net amount of more than £4 billion.

During the debate, it has been said that the poorer countries of the east need that money. In fact, they joined under the present system not to obtain handouts but to exert a comparative advantage in a free market, as well as for the supposed political and security advantages. They did not join for an endless stream of cash transfers. They are not by any means the poorest countries of the world, but if there is a case for helping the poorer countries of the east and one accepts that obligation, it would be far better not to meet it by filtering money through the most inefficient and corrupt accounting system in the western world.

The same is true about our structural funding and the CAP. Indeed, several Members have said that we need the structural funds. We represent different parts of the UK, some of which are in receipt of structural funds, but for every £2 we pay into the EU budget, we only receive back just over £1. That is a bad bargain. If we really want to look after our farmers and those in receipt of structural funds, it would be much easier, and certainly more efficient and better for the taxpayer, if we repatriated that money. Indeed, the Chancellor of the Exchequer advanced the proposition that we should repatriate structural funding.

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