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Mr. Elfyn Llwyd (Meirionnydd Nant Conwy) (PC): I join in the welcome to the right hon. Member for Richmond, Yorks (Mr. Hague) on his return to the Front Bench. He made a good speech and although I did not agree with parts of it, the House will benefit from his presence on the Front Bench.

The Commission proposes to modify objective 1 and I shall speak briefly about structural funds as they affect Wales today. Hitherto, no one has mentioned objective 1, which is vital to Wales. Before I deal with the subject, I simply want to say that I accept that reform of the CAP is a given and that we should be prepared to consider an aspect of the Fontainebleau repayment. I also agree with the Foreign Secretary's opening remarks that the more prosperous countries in the European Union should be prepared to assist the incomers who are in need.

I want to confine my main comments to objective 1, which the Commission proposes to modify to highlight the economic convergence aspect. It may become known as the convergence objective. Regions will be eligible if the GDP per head is less than 75 per cent. of the average for the enlarged EU. That is not a fanciful figure. There are already three such areas in the UK, of which west Wales and the valleys is one. Unfortunately, at present anyway, that area is still hovering around the 75 per cent. mark. So it is not fanciful to talk about this; it is the reality. I live in the middle of that area. There will be transitional funding for regions that currently qualify but which will cease to do so as a result of enlargement, and there will be money for whole member states whose GDP is below 90 per cent. of the European average.

In January this year, the Commission published new statistics on GDP per head. These included figures for the average for 2001–02, which will determine the
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eligibility for the structural funds. Under the heading "Revised eligibility statistics", west Wales and the valleys is among those areas listed as being below the 75 per cent. threshold, with a GDP at that time of 73.8 per cent. of the EU average, and only 67.35 per cent. of the average for the pre-enlargement 15 EU member states, compared with 73.8 per cent. of the average for the EU 15 in 1999.

Obviously, Wales has benefited to a certain extent from objective 1 funding, and we are as desperate as anyone else to ensure that we continue to do so. However, it appears from recent press releases and from statements by Ministers that the UK Government seem almost to have planned for 2007 on the assumption that only one objective 1 funding area will remain in the UK—perhaps Cornwall. Speaking in Newcastle in June 2004, the then Secretary of State for Trade and Industry said:

I have already prefaced my remarks by saying that I agree with that in principle. Unfortunately, however, there are still parts of Wales, Cornwall and Scotland that qualify as being poor.

In a letter dated 17 January 2005 to the Chair of the House of Commons European Scrutiny Committee, the then Financial Secretary to the Treasury listed six objectives of UK Government policy in the present EU budget discussions. They included

That appears almost to rule out any further European structural objective 1 funding for parts of the UK.

The Competition Commissioner, interviewed in the Financial Times on 26 January, argued that even regions falling below the 75 per cent. figure should not be eligible for UK Government state aid, as distinct from EU aid, if they were within member states that were not relatively poor. That would rule out west Wales and the valleys, as well as some regions in eastern Germany. The Governments of the United Kingdom, France and Germany have all objected to this, even though it appears to be UK policy.

So the level of funding for the new convergence objective depends on an unresolved argument about the EU budget as a whole, including the total size of the budget and the proportions allocated to agriculture and other budget headings.

Mr. Walter: The hon. Gentleman and I were involved some years ago in discussions about bringing on objective 1 funding for Wales. I am sure that he will remember that part of the Treasury's problem—this may or may not be helpful to him—is that the combination of the match-funding and the abatement of the rebate means that the Treasury actually meets 70 per cent. of all the EU regional aid that is provided.

Mr. Llwyd: The hon. Gentleman is right, and that has always been a problem, although it is rarely spoken about as factually correct. In a strange sort of way, if the
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rebate goes, we might be in a better position if we retain objective 1. [Interruption.] That is not a perverse argument, but a perfectly logical one, as it happens.

Chris Bryant: A perverse system.

Mr. Llwyd: Perhaps it is a perverse system, as the hon. Member for Rhondda (Chris Bryant) comments from a sedentary position, but there we go.

As I have said, the Government have stated six objectives, and I have referred to what the Financial Secretary said. We really must impress on the Government the need to ensure that objective 1 funding remains available for west Wales and the valleys—I am trying not to be parochial, but the fact is that the area qualifies in any event.

The 1 per cent. ceiling, which was put forward in a joint letter on behalf of the Governments of the UK, France, Germany, Sweden, Netherlands and Austria in December 2003, is important, but the recent EU enlargement, as we know, has increased the EU population by about 30 per cent. but its total GDP by only 5 per cent. That is the pressure with regard to assisting those who are most in need. That implies further pressure to raise EU expenditure as a percentage of EU GDP. The number of farmers, as we know, has increased by 50 per cent.

There are problems in the European Union—I am not saying that everything is hunky-dory—such as not signing off the accounts. I accept that. There are also problems from the UK Government perspective. The Court of Auditors has referred to the UK's persistent errors in transactions, failure to comply with regulatory requirements, delay in closing the 1994–99 structural programmes and poor forecasting of expenditure. Those are genuine problems that need to be sorted out.

All of a sudden, we have arrived at the 11th hour of the UK presidency. It is as if Christmas has leapt up on us, but we knew Christmas was coming six months ago. The Prime Minister is having great difficulty in settling the budget, and I am not altogether surprised. There has been some handbagging and some megaphone diplomacy. It seems to me that the last thing that one would do to the French and Germans is to say that one is going to do away with the CAP—any fool can see that that will not engender any assistance from them. Equally, grandstanding on the Fontainebleau rebate, which has been a thorn in our partners' sides for some time, will not engender any co-operation either. We are now at the last hour, however, and we must find some way forward. If we do not do so, the structural funds to which I refer seemingly disappear. Among other areas of the UK, west Wales and the valleys will certainly suffer.

The Government have been a little lax. It appears that four months of inaction have led to some bad drafting that has been rejected by all but Malta. They are only a few days away from the discussions and apparently nowhere near a deal.

I am also concerned about the low level of the budget and funding for structural funds. The Commission's proposal is €336 billion, Luxembourg's is €306 billion, while the UK's proposal is €296 billion. That means that, whatever happens, there will be less money available for structural funds within the UK. Added to that is the problem of a funding gap because of a late
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decision. Many projects in the west Wales and valleys region are dependent on European funding, and those involved do not know at this stage what will happen. If there is no decision, some form of alternative money will have to be found, or the schemes will have to be wound up. If there is no decision this week, and we lose out on convergence, will the Government support statistical effect status, and will they guarantee to make up the shortfall in funding caused by the delay and their late and possibly bad negotiating? Will they guarantee that match funding will be provided?

New GDP figures are due from Eurostat in January. That means that if the budget is not agreed at this week's summit, some areas may not qualify. The new figures may show that the GDP of west Wales and the valleys is marginally above the EU per capita average of 75 per cent. I understand that the Minister for Industry and the Regions has said that if west Wales and the valleys qualifies, Wales as a whole will receive roughly what it receives now from the EU, but if it fails to qualify Wales will receive only about two thirds of what it receives now.

I should like the Minister to consider whether objective 1 money could be spent on housing. The UK presidency apparently proposes such spending for the 10 new EU states, but rules it out for us. Will the Minister tell us where is the logic in that?

West Wales and the valleys is a large and vital part of Wales. The position has improved—it would be wrong of me to say otherwise—but there is still much work to be done. Concern about the loss of structural funds is widespread, as has been made clear in yesterday's and today's press in Wales. We are told, for instance, that

—presumably she flew over it—said

In fact, it is the last chance. It would be a disaster if we failed to hang on to the money.

I will not labour the point, but I felt that it was important to make it as strongly as I could. Others—in local government, for example—have expressed concern. Denbighshire county council's European officer has said that up to 250 council jobs could be lost if the budget talks fail. There is a similar story from Ynys Môn county council and from Sheila Potter, Conwy county council's head of regeneration. If we do not retain our designation, Wales is in danger of losing about £1bn over the next seven years. More important, there is a distinct possibility of our losing convergence status over the following seven years, which would have even more dire consequences for us.

The Foreign Secretary said that my point about objective 1 would be responded to by the Minister for the Middle East. Will the Minister answer this question as well? Some 10 years ago, my party and I referred to all the jollity surrounding where the Conservatives might or might not be sitting in the European Parliament. At the time, my party sat with the European Free Alliance. We discovered a rather unsavoury character there—indeed, a bunch of them—and left the group within a week or so. The Minister discovered that,
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and sent out a very nasty press release calling Plaid Cymru all kinds of things for having sat with the "nasties", albeit for only a few days. The "nasty" concerned was Silvio Berlusconi. May I ask the Minister what advice he gives the Prime Minister when the Prime Minister holidays in the home of Silvio Berlusconi?

5.19 pm

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