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Chris Huhne: Although progress has been glacially slow on reforming the CAP, there is nevertheless progress. How does the hon. Gentleman account for the fact that, when I first knew the CAP in the late 1970s, it took 78 per cent. of the EU budget and the figure is now 40 per cent.? I hope that he is prepared to concede that some progress on reform has been made.

Mr. Cash: I concede that the percentages have changed as the hon. Gentleman described, but we are now at a watershed in Europe. There is therefore a need, which also applies in the context of the developing world and in the interests of efficiency, to ensure that the levels are brought even lower. Time will tell, but at this juncture President Chirac makes it abundantly clear that there will be no change. That has become inextricably bound with the problems of the rebate, which has got bogged down. We shall see what happens in the next few days.

Kelvin Hopkins: Much has been made of the falling proportion of the EU budget that the CAP consumes. However, the EU budget is much larger than when
 
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Britain joined and, viewed as a proportion of the EU's gross national income, agriculture is more costly than it was when we joined.

Mr. Cash: The structure of the CAP is such that the sole legitimate governmental function is exercised by the European Union, as is also the case for trade, according to the legal arrangements laid down by the treaties. There is no reason on earth why we should not provide the necessary subsidies to our own farmers, or why we should not enter into proper trading relationships with other countries, if there were a tangible advantage in doing so. However, because we are hidebound by the treaty arrangements that created the common agricultural policy, the common fisheries policy and so on, we are unable to make those changes without breaking the law. That is why I reassert my proposals regarding the supremacy of Parliament over and over again. When our vital national interests are affected, it is and should remain the case that we will legislate on our own terms, unilaterally, in our own national interests, if we have to. We should not be overawed by the fact that some treaties that might have been relevant to past thinking have been drawn up to deal with problems that are not relevant to the present.

Chris Bryant: There seems to be a difference of opinion between the hon. Gentleman and the right hon. Member for Wells (Mr. Heathcoat-Amory). Does the hon. Gentleman really believe that there should be a free-for-all in agricultural subsidies across Europe? That seems to be the end point towards which his logic would lead. He seems to be saying that we in Britain should be able to give out whatever agricultural subsidies we want to. The cost of such activities would go through the roof across Europe, and there would be no benefit whatever to the developing countries.

Mr. Cash: We are engaged in a dynamic process at the moment, and changes are needed. At this juncture, however, the proposed changes to the common agricultural policy are being blocked by France in its own protectionist national interests. I hope that, in the course of these discussions, some common sense will eventually emerge, resulting in our not being completely constrained by the common agricultural policy. The CAP is the elephant sitting in the room. It is unnecessary to have a common agricultural policy in order to have a sensible agricultural policy. There is a difference.

We must be radical in our approach to all matters affecting the European Union because its structures were constructed in the 1940s and 1950s and, thereafter, were followed by the treaties of Maastricht, Nice and Amsterdam and, ultimately, by the European constitution. None of these was ever pursued, in this Parliament at any rate, with any kind of rational explanation. We were simply told that this was the way forward and that they involved negotiating positions that we had to try to accommodate.

The problem that we now have in Europe is such that we are at a crossroads. It is therefore essential that everyone, whether in the Government or the Conservative party—or even, to judge by what I have heard from the right hon. and learned Member for
 
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North-East Fife, the Liberal Democrat party—takes a realistic view and starts to work out which structures are relevant. We must also recognise that, in order to achieve the necessary changes, there will have to be substantial, radical reforms that other member states in the European Union are not disposed to implement.

Ed Balls (Normanton) (Lab): The hon. Gentleman mentioned pro-Euro-realism. I believe that that phrase was first used by the Chancellor of the Exchequer in his Mansion House speech in 2001. The hon. Gentleman talks about withdrawing unilaterally in regard to agriculture and trade, and gives the impression, as members of his Front Bench have done, that we can somehow pull away from qualified majority voting or even leave important groups in the European Parliament, such as the European People's party. Is he not at that point withdrawing from the world of realism? Is not that form of realism really the realism of withdrawal?

Mr. Cash: I think that it was T. S. Eliot who said that humankind could not bear very much reality. The hon. Gentleman may just have demonstrated the importance of that statement. To be realistic in this context includes accepting the fact that the Lisbon agenda, for all its attempts to improve the competitiveness of Europe, has failed. Recently, in the European Reform Forum, we took evidence from Will Hutton, who was the rapporteur on the Kok report. He indicated that, as he said in his report, he was deeply concerned about the failure to make the kind of progress needed. The European Reform Forum has also taken evidence from Lord Owen, Lord Dahrendorf and those on the left and right such as my right hon. Friend the Member for Wokingham (Mr. Redwood), Rodney Leach, Charles Grant and others. We have asked open-ended questions of a cross-section of people, with a view to trying to find out whether there is a rational basis for the status quo of the existing treaties, and whether there is or ought to be a serious examination of those existing treaties to improve the situation in Britain and Europe as a whole.

Chris Huhne: I fear that the hon. Gentleman is in danger of falling into the same trap as the right hon. Member for Richmond, Yorks (Mr. Hague) in assuming that the failures of the Lisbon process are somehow down to the EU. Let us remember that the competence for the Lisbon process is overwhelmingly with the nation state. I am sure that the hon. Gentleman would be the last person in the House to advocate that competences for labour market reform and other structural matters should be handed to the European Union.

Mr. Cash: I think that the hon. Gentleman is rather perversely misinterpreting the information at his disposal. The fact is that the Lisbon agenda is an EU initiative, and it has failed. The best thing that I can recommend him to do—I am surprised that he obviously has not done it—is to read the excellent, or at least interesting, report by Will Hutton. That will answer his questions.

Chris Huhne: Will the hon. Gentleman give way?

Mr. Cash: No, I think not. I would like to ask the hon. Gentleman, however, whether he had any discussions
 
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with Edward McMillan-Scott before both of them went on to the "Today" programme regarding the European People's party.

Chris Huhne: I can correct the hon. Gentleman on that matter.

Mr. Cash: The hon. Gentleman comments from a sedentary position, but we would be digressing, and you will rightly intervene shortly, Mr. Deputy Speaker, if we are not careful.

Problems relating to fraud are endemic in the European Union and have not been solved. There were the incidents involving Martha Andreasen, about which we have heard a lot. Nothing effective has been done to change the system to make it work properly. The Court of Auditors has failed to sign off the accounts for the 11th year. Those things are now common knowledge.

I remember saying to the Prime Minister, shortly after he took up his post in 1997, that he was walking on water now but he would drown in Europe. At the time, he did not really believe that that was possible, but it really looks as though it might be happening. The cheerleader, Peter Riddell, an eminent columnist whom we all read avidly, said in a recently published book, "The Blair Effect 2001–05":

"So after eight years Blair had failed in his initial aim of ending the decades of British distance, reservation and hesitation about Europe . . . Europe has been a central failure of his premiership. Moreover, since it was one of his top priorities in 1997, Europe is a failure that will feature heavily in the final assessment of his record in 10 Downing Street."

If that is the case, and the analysis comes from somebody as respected and distinguished as Peter Riddell on a subject that he knows well, all I can say is that the situation has got completely out of control and must be restored, and the existing treaties must be reformed, which will include some extremely difficult but necessary institutional changes. I put it to my party that that will involve a realistic assessment of the kind of Europe that will be capable of delivering prosperity and democracy in the next century. I fear that it will not be capable of reform in its present shape, and that it will therefore fall to the individual member states—and Britain in particular—to take unilateral action to ensure that those things are done, first through diplomatic negotiation and secondly through assertion of the supremacy of our own Parliament.

There is a vast amount at stake in terms of stability. That has been demonstrated by what is going on in France and Germany, and the rejection of the constitution. There is a massive democratic deficit. In my opinion and, I believe, the opinion of a growing number of people here and elsewhere in Europe—not among the elite, but among the ordinary people—there will be an increasing need to move to a form, whatever it may be called, of associate status. That will enable us genuinely to co-operate in a democratic environment, while sustaining enterprise and business in the new global economy and also ensuring that we preserve the rights of the people who elected us to make decisions on their behalf.

4.1 pm

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