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The budget agreed in December has four key elements. First and crucially, it supports economic development in central and eastern Europe—a cause that the United Kingdom has consistently championed, and for which we should rightly pay on the same basis as others. The agreement provides an unprecedented transfer of receipts to the poorest member states of central and eastern Europe. Such transfers will provide the basis for economic development in those member states, making them and the EU more prosperous. Secondly, the rebate remains
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on all expenditure except economic development in the new member states. Thirdly, the total rebate over the next financial perspective will actually be larger than in the current period.

Fourthly, the December agreement is fair. For the first time in the history of our membership of the EU, we have rough parity with France and Italy in terms of net contributions. I repeat: at every stage of the negotiation, this Government made it clear, here and in Brussels, that the UK abatement remains fully justified because of our disproportionately low level of EU receipts. Without the abatement, the UK would have paid, net, 10 times as much as Italy and 13 times as much as France over the last decade. It is therefore absolutely right that under the agreement reached in December, the UK abatement remains and will in fact be worth more than in the current budgetary period.

It is also important, however, that the UK pays its fair share of the costs of enlargement in return for the economic, political and social benefits that enlargement brings. That is why we agreed that spending on economic development in the new member states could gradually be disapplied from the abatement calculation from 2009. But we were also clear that the UK would not pay more than its fair share, which is why the UK abatement will be applied in full on all expenditure in the 15 original member states, and on CAP expenditure everywhere in the EU.

Overall, under the December agreement, the UK will go from paying two and a half times more than France and Italy over the last decade to paying roughly the same, net, as those countries as a proportion of national income, for the first time since we joined the EU. That is a good and fair result for the UK and, indeed, for our EU partners. Agreement on the budget deal is only the beginning of a process to ensure that the EU has a more rational and logical budget that more effectively supports the EU’s longer-term aims. This Government’s arguments in favour of budget discipline have resulted in agreement to an effective and controlled budget that focuses on the EU’s priorities. Overall, expenditure as a share of EU income willfall to some 1 per cent. by 2013—the lowest level in20 years. Yet within this disciplined budget, sufficient funding is guaranteed across the range of theUnion’s priorities, such as competitiveness, research and development, freedom, security and justice, and development assistance.

The package agreed under the UK presidency also contains a number of modernising elements. It offers member states the opportunity to shift money from CAP direct payments and market support to rural development, and creates a globalisation adjustment fund to help re-skill workers who lose out as a result of structural economic change. Furthermore, the agreement provides for a fundamental review of all aspects of the budget, on the basis of the Commission’s 2008-09 report, on which the Council can take immediate decisions. That sets the path towards a modern budget fit for the 21st century that responds to the challenges of globalisation.

Since December, negotiations have continued between the European Parliament, the Commission and the Council on an inter-institutional agreement for the next financial perspective. This is a usual feature of the EU’s multi-annual budget process, and it is necessary for the expenditure side of the December deal to come into
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effect. That debate continues the parliamentary procedure to endorse the IIA. The Government’s prime objective in the IIA negotiation has been to ensure that it retains the main elements, and therefore the main benefits, of the December deal. The EU institutions reached provisional agreement on a new package last month. Overall, that agreement meets the Government’s objectives and, subject to the agreement of this House, should establish the spending priorities agreed in December. It is due to be formally approved by EU Ministers on 15 May.

Under the provisional agreement, the basic structure of the expenditure side is maintained, with an additional €2 billion of expenditure within the financial perspective ceiling and a further €2 billion of expenditure outside the financial perspective. Such additional funding is broadly comparable with the level agreed in the context of the 1999 IIA negotiation, and it will be set aside for priority areas supported by this Government, such as competitiveness and external action. It will result in an overall expenditure ceiling of €864 billion over the seven-year period.

John Bercow: Bearing in mind the right hon. Gentleman’s considerable authority on matters European, and leaving aside the specific issue of fraud by European Union institutions, what assessment has he made of the serious phenomenon whereby large sums of money given by the Union in humanitarian aid for Zimbabwe, for example, are wasted through currency manipulation? Does the Union have a plan to address that phenomenon when dealing with rogue states?

Mr. Hoon: The hon. Gentleman, as ever, raises an important—and disturbing—issue that clearly needs to be investigated further. Indeed, it demonstrates some of the difficulties that have to be faced in tackling fraud. The essential problem remains, in that, although the institutions often will the money and the direction in which it should go, they do not always directly supervise how it is spent. Frankly, if it is put into other people’s hands, accountability is not as good as it could, or should, be. We are determined to tackle that issue, and there is much greater recognition than ever before that it requires the co-operative approach that I described earlier.

Mark Pritchard: The right hon. Gentleman will of course be aware that the European constitutional treaty deals with European institutions. Will he take this opportunity to dismiss the comments of Prime Minister Prodi, who suggested that the European constitutional treaty might be revived?

Mr. Hoon: I was wondering whether I would get through my first debate without uttering the words “European constitutional treaty”. I am grateful for the opportunity to say those three words, but I cannot see how they are relevant to our debate this evening. I congratulate the hon. Gentleman on his initiative in introducing the issue and I look forward to debating it at some stage, when it is more relevant than it is tonight. We are all agreed about where the treaty is now, and we can debate it in future when we know where it is going, if indeed it is going anywhere.

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The provisional agreement also achieves the Government’s objective of retaining the existing flexibility instruments without increasing the amounts allocated to flexibility, or changing the institutional balance necessary to use the instruments. The provisional agreement includes no increases in the annual flexibility instrument, no increase in the solidarity fund, and no increase in the emergency aid reserve.

Finally, the provisional IIA contains a number of elements related to improving the financial management of EU funding. The Government welcome those measures and, although they do not have to be part of the IIA, support their inclusion in the text.

In addition to negotiations for a new IIA, negotiations are also now under way between EU member states for a new own resources decision, which will set out the financing arrangements for the new financial perspective. Once again, the Government’s primary objective is to ensure that the own resources decision fully reflects the agreement reached by the European Council in December. For the reasons that I have mentioned, that agreement represents a good and fair result for the UK and underlines the concept of using net balances in assessing relative contributions to the EU budget. Crucially, the own resources decision must retain the balance of net positions achieved in December, and ensure that the measures introduced to make the EU financing system simpler and more disciplined are preserved.

In summary, the agreement reached by the European Council in December is a good deal for the UK and a good deal for the EU. It provides a fair and effective budget, focused on priorities, with a broadly stable expenditure ceiling, and rightly provides a foundation for economic development in the new member states. It also sets the path to fundamental reform, which should equip the EU with a modern, effective budget that meets the needs of its citizens and represents a modern Europe. I commend the agreement to the House.


Mr. Deputy Speaker (Sir Alan Haselhurst): I have to notify the House, in accordance with the Royal Assent Act 1967, that the Queen has signified her Royal Assent to the following Act:

Northern Ireland Act 2006

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Future EU Finances and Own Resources

Question again proposed.

7.52 pm

Mr. Graham Brady (Altrincham and Sale, West) (Con): First, I congratulate the European Scrutiny Committee on the excellent work that it does, frequently without the credit that it deserves. If it were not for its recommendation, the House would not have this opportunity to debate a matter that is of real and pressing concern to the country.

It is however regrettable that we do not have a full day for this important business and our debate will necessarily be truncated, not something for which the Minister for Europe could normally be expected to take responsibility, but as he was responsible—as Leader of the House—for scheduling this week’s business, it is entirely down to him on this occasion. Nonetheless, I am delighted to see the Minister in his place. There have been times since Friday when I was worried that he might not be joining us, but I am very pleased to welcome him to his new job, or should I say back to his old job. I hope that he stays in the brief for longer than the three months that he managed before, all of which fell during the summer recess of 1999.

In the less than two years that I have been shadowing Europe, he is already the third holder of his portfolio. Indeed, there has been no more consistency in personnel than there has been in the Government’s European policy, which has variously been: in favour of the euro and against it; certain that a constitution for Europe was unnecessary and passionate in its belief that an enlarged EU could not function without one; determined to secure fundamental reform of the common agricultural policy, but happy to let months of the British presidency slip away without even tabling a proposal for change; and steadfast in defence of the British rebate, and yet prepared to surrender it while gaining nothing in return.

It will be interesting to see whether the new Minister follows the avowedly integrationist agenda of the current Prime Minister or the apparently more sceptical tone of the next one. His longevity in office may depend on him making the right decision. This debate is a welcome opportunity for the House to examine the shambolic events of the last 12 months as the Government have not only failed to achieve their targets, but—having conceded an unnecessarily costly budget deal in December—have flaccidly observed as the cost has escalated and the assurances they gave to British voters have proved worthless.

The experience of the British EU presidency and of the budget negotiations has been sadly typical of the utter incompetence of this Labour Government. It all started so well, as so often, with the Prime Minister’s speech to the European Parliament—a speech about a “crisis of political leadership”. Well, he should know that when he sees it. He spoke stirringly of the need to reconnect Europe with its peoples, and he spoke of a “moment of decision”. He also set out Britain’s bottom line for the budget negotiations, linking any reduction of the British rebate to fundamental reform of the CAP and saying in terms that

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He spoke of the rejection of the EU constitution by two referendums as a “wake-up call”. He said:

But like all the Prime Minister’s promises, all that has come to nothing and the ambition of his rhetoric serves only to emphasise the scale of his failure and of the massive opportunity that he has missed.

The Minister spoke about the need to finance enlargement. As he said, the Opposition have always strongly supported enlargement, but the necessary funds for that process should have come from reductions in the bloated CAP budget, not from growth in the overall budget.

At the beginning of their presidency, the Government set out to achieve three things—to contain the overall size of the EU budget, to achieve fundamental reform of the common agricultural policy and to protect Britain’s budget rebate, at least until such a fundamental revision of the CAP was agreed. None of those objectives was secured.

Keith Vaz: The hon. Gentleman said that the Opposition supported enlargement, although they called for a referendum on the Nice treaty, which gave rise to enlargement. Bearing in mind that there was no fundamental review of the CAP, will he not accept that the budget was the best deal in the circumstances to ensure that the new countries would be properly financed?

Mr. Brady: Absolutely not. I am delighted to welcome another former Minister for Europe to the debate, but the Prime Minister’s speech to the European Parliament at the outset of the British presidency made it clear that a better deal could be obtained, and that was his objective. However, it was not secured.

The EU budget is rising. The common agricultural policy has not only gone without fundamental reform, but is actually getting bigger. According to last December’s joint report from the Treasury and the Department for Environment, Food and Rural Affairs—then under the leadership of the new Foreign Secretary—the CAP will leave the EU economy some €100 billion poorer over the next financial perspective 2007-2013, with a further €100 billion cost to consumers every year, in a combination of taxes and inflated food prices. That amounts to an average cost for a family of four of around €950 a year, and that cost will be far higher for families in the UK, as a major net contributor.

Mr. Davidson: The hon. Gentleman pointed out that the Government failed to achieve any of their three objectives, but at least that has the merit of consistency. What is the Opposition’s position? Will they vote against accepting this budget, and which other right-wing parties in Europe support that position?

Mr. Brady: The hon. Gentleman always has the merit of consistency of course, and I hope that I do, too. We oppose the budget, we think that it was a bad deal for Britain and we will be opposing it. The cost to consumers will be enormous.

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The Prime Minister told this House in July that he wanted to get rid of the CAP, but in fact it will increase from 40 per cent. of the EU budget now, to 44 per cent. under the new arrangements. The Chancellor of the Exchequer said last September:

Far from ending the excesses of the CAP, the Prime Minister agreed to a deal that increased its costs considerably. Billions more euros will be spent on protecting and sheltering inefficient and counter-productive agricultural subsidies.

Mr. Wayne David (Caerphilly) (Lab): Does the hon. Gentleman acknowledge that the new financial perspective agreement is very good news for some regions of the United Kingdom? West Wales and the south Wales valleys will receive about £1.2 billion in cohesion funding. Is that not good news?

Mr. Brady: I am delighted to hear that south Wales will do well from the funding, but the hon. Gentleman must be aware—as we all should be—that it is British taxpayers’ money; it is simply being recycled through EU institutions, losing administrative costs meanwhile. It would be far more efficient, as I think the Chancellor of the Exchequer believes too, to pay the money directly, and I do not see why we cannot look into doing that instead.

Given all those issues, no wonder the Prime Minister identified the urgency of reform, but how shocking that reform has not been addressed. Not only did the Prime Minister fail to secure real reform of the CAP, but having linked the future of the British rebate to that reform he gave up £7 billion of the rebate while getting nothing in return. That £7 billion alone is equivalent to the total annual budget for policing in England and Wales.

The surrender on the rebate is only a small part of the increased cost to British taxpayers, however; the net cost of our payments to the EU will increase by far more. At present, we pay in about £2.8 billion a year more than we get out. Under the deal agreed in December, that net cost almost doubles to £5.5 billion every year. Furthermore, as the hon. Member for Luton, North (Kelvin Hopkins) pointed out, those funds do not always go to the most deserving places. Under the new financial perspective, we will pay in a fifth more than the French, but we shall get back only half as much. Per capita EU spending in the UK will be a quarter of the figure in Ireland and will be lower than in any of the other, soon to be 27, member states.

Remarkably, the expensive new Foreign Office booklet, “Guide to the European Union”, which cost taxpayers a further £80,000 to produce, notes thatthe existing net cost is £3 billion a year—[ Interruption.] The hon. Member for Leicester, East (Keith Vaz) is clutching his copy, so at least somebody was waiting for it to arrive on their doormat.

The booklet makes no mention, however, of the fact that the cost is set to double from 2007.

Mark Pritchard: Can my hon. Friend advise us of the likely cost of reprinting the brochure, as we now have a new Minister for Europe?

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