The Chairman: Does a member of the European Scrutiny Committee wish to make a brief explanatory statement about the decision to refer the relevant document to this Committee? I think that the answer is no. In that case, I call the Minister to make an opening statement.

The Economic Secretary to the Treasury (Kitty Ussher): As always, it is a great pleasure to serve under your chairmanship, Mr. Bercow. I will make a few opening remarks in the optimistic hope that I will be able to pre-empt anything that follows and that we will be able to go on our way swiftly. I am, of course, at the Committee’s disposal for however long I am required.

Today’s debate will help to inform our position at the budget ECOFIN meeting in Brussels on 17 July when the Council will conduct its first reading and adopt a draft budget. As always, I am grateful to have this debate now.

The Commission’s proposal for the 2009 EC budget will, as every year, be heavily scrutinised and challenged by the Government where we feel it appropriate. Our overall and consistently stated objective for the EC budget is to ensure that expenditure at the EU level provides value for money, is affordable and well managed and that the budget is fairly financed by member states. That will continue to be our approach towards the 2009 EC budget.

In line with the agreed 2007-13 financial framework, the ceiling for payment appropriations for the 2009 budget is lower than that for 2008. There are financial programming reasons for that. It does not mean that we will be taking a less rigorous approach in advocating budget discipline and seeking to contain budget growth in the light of implementation rates and absorption capacity.

Our high level priorities for the 2009 EC budget will therefore be to ensure that total payment appropriations are set with the objective of preventing a large budget surplus arising and to ensure that the financial framework ceilings are adhered to with adequate margins and a budget heading ceiling to provide for unforeseen expenditure needs. At the more detailed level, we will continue to bear down on areas of the budget where the Government question value for money, particularly agriculture and administration expenditure and to support sufficient financing for certain areas of external expenditure on development co-operation, food aid and common foreign and security policy missions.

On administration expenditure, I can confirm that the Government will continue to question the Commission on what efforts have been made to find efficiency savings and economies of scale in administration spending. Recent Council conclusions in relation to the discharge of the 2006 EC budget, which called for the better financial management of EU agencies, represent an encouraging development on this front. The Government will continue to work with like-minded member states to examine the efficiency of agencies and EU staffing levels more generally.

The annual budget negotiations are essentially about how to divide up between the various expenditure programmes the resources that have already been agreed under the financial framework ceilings. The negotiations are not the occasion to discuss major reform of the EU budget and, unlike the financial framework negotiations, the European Parliament has at least as much influence as the Council on the outcome of the annual negotiations.

Since the preliminary draft budget was published, the UK has been working closely with like-minded member states. It is always dangerous to say this, but I am cautiously optimistic that the draft budget adopted by the Council next month will represent an improvement as far as our priorities are concerned.

With your permission, Mr. Bercow, I will turn briefly to the wider context. The 2008-09 budget review is an important opportunity to reform the EU budget so that the EU is better equipped to meet the challenges of the 21st century and to achieve the outward-facing flexible EU that is needed to meet the challenges and opportunities of globalisation. Our approach in that area is guided by three principles: that the EU should act only when there are clear additional benefits; where EU action is appropriate, it should be proportionate and flexible, and; that there should be the highest level of financial management and administration.

The Government submitted their response to the Commission consultation called “Reforming the Budget, Changing Europe” on 19 June. The document, which builds on the 2007 “Global Europe” publication, outlines the UK’s priorities for the budget review, which are consistent with the budgetary principles that I have just laid out. The priorities are as follows. First, the reorientation of the budget towards three areas—building a prosperous Europe within a strong global economy; addressing the challenges of climate change; and ensuring security, stability and poverty reduction. Secondly, a shift away from agricultural support through far-reaching reform of the common agricultural policy. Thirdly, the structural and cohesion funds must focus better on the less prosperous member states.

The third principle that I mentioned earlier relates to sound financial management and the administration of the EC budget. We have been a consistent champion of improved management of the budget, and the UK’s initiative to publish a consolidated statement of the use of EU funds is evidence of that. We must do a lot more to achieve the scrupulous EC budget process that taxpayers deserve. We remain strongly concerned that the European Court of Auditors has been unable to give a positive statement of assurance on the EC budget year after year.

With regards to the Lisbon treaty, which provides for new annual budget negotiations procedures, the European Council of 19 and 20 June responded to the Irish referendum result. It is right that the EU should wait for the Irish Government to report back in October on how they propose to proceed. Treaty implementation cannot proceed until ratification in all 27 member states has taken place, and no decisions regarding treaty implementation can be taken until ratification is confirmed. I assure hon. Members that the Government will continue to make the case for our budget-discipline priorities and for the broader budgetary principles at budget ECOFIN in July and throughout the annual EC budget negotiations on the 2009 budget.

I am grateful to you, Mr. Bercow, for allowing me to put the discussions in context with these opening remarks, and I look forward to the debate.

The Chairman: We have until 5.30 pm for questions to the Minister. I remind hon. Members that those should be brief. It is open to a Member, subject to my discretion, to ask a series of related questions one after the other, but, in doing, so I hope that Members will bear in mind the interests of other Members, who may also wish to pursue a sustained line of questioning.

Mr. David Gauke (South-West Hertfordshire) (Con): It is a pleasure to serve under your chairmanship once again, Mr. Bercow. The Minister referred to the Lisbon treaty and the Irish no vote. Can she confirm that the preliminary draft budget we are looking at was drawn up when the assumption was that the Lisbon treaty would come into effect in January 2009? Does she envisage any discussions at the Council meeting in July as to how and if the budget should be reviewed in the light of the Irish no vote?

Kitty Ussher: A decision has already been taken that none of the preparatory work for implementing the Lisbon treaty should proceed until the Irish have had an opportunity to report back to their Council colleagues on how they wish to proceed. In terms of the budgets, because the Lisbon treaty is about re-organising the European system, there were work streams taking place pending ratification. We are looking at how Europe can best organise itself, for example, in the recent reorganisation of its external actions and in the budget process. It was always the case that that sort of preliminary work would only be done pending final ratification. Following the Irish referendum result, it has been decided that that preparatory work should also cease until the Irish have had an opportunity to come back.

I understand that there are no specific budget lines beyond the normal administrative lines that would have been reorganised in a budget neutral way had the treaty been ratified. All that work is now in suspended animation until it is decided, at the European level, how we should proceed.

Mr. Jeremy Browne (Taunton) (LD): Does the Minister think that the budget taking shape more closely represents the EU vision of President Sarkozy or that of Commissioner Mandelson?

Kitty Ussher: I am not sure what the hon. Gentleman is getting at. It obviously represents, at a high level, the view of all EU sovereign Governments, since they agreed the broad financial framework and perspectives. The individual budget lines are of course agreed by all Governments, rather than by an individual President or Commissioner. Regarding the UK’s priorities, we continue to do what the Government think best.

Mr. Browne: Thank you, Mr. Bercow, for effectively allowing me a supplementary question. Although this is simplistic, it is nevertheless broadly accurate that there are two EU visions. There is the outward-facing flexible vision that the Minister described, which—I think it is fair to say—most Scandinavian states and many East European nations share with the United Kingdom. The other is the French-led vision of a more introspective, more protectionist European Union. I am interested to know whether the Minister thinks that our vision is winning.

Kitty Ussher: If one of the key issues behind the hon. Gentleman’s question is whether we are able to reform the common agricultural policy, which has long been operating more in the interests of France than of Britain, we are making progress. There has been a shift from pillar one to pillar two, as a result of sustained lobbying over many years at Agricultural Council, Budget Council and overall European Council level. However, the negotiations before us for the next six months or so are concentrated more on the minutiae of how existing Council decisions are implemented, and whether that represents value for money. We still think that we can bear down on agricultural expenditure, and we hope that the parallel conversations about the budget review, in which we have made that case clearly, will enable us to continue to do so. In summary, perhaps I can best say that there is always room for improvement but things are heading in the right direction.

Mr. Graham Brady (Altrincham and Sale, West) (Con): The hon. Member for Taunton was a little unfair in asking general questions, so I shall try to help the Minister by being more specific. In her opening remarks, she referred to work streams that have been ceased following the Irish referendum result. Can she tell us in more detail what the value of those work streams is, and what precise difference they make to the budget?

Kitty Ussher: It has always been our view that the cost of the reorganisation should be neutral to EU member states. The question feels hypothetical, since that work has been stopped, and it would not be in the budget until all member states had ratified. For example, the European Council President and the new high representative for foreign affairs and security policy were in the Lisbon treaty. We have not had specific costs put forward for those posts and their support staff. We will continue to press to ensure that those costs are met from savings elsewhere, rather than being an additional cost to any EU taxpayer. Merging the existing high representative and the existing External Relations Commissioner will offset some of the costs, although more savings will be needed. I am not saying that the overall effect on the EU taxpayer will be one way or the other. Pending any new suggestion from the French presidency or a way forward suggested by the Irish Government, all the work has been put into stasis.

Mr. Brady: The Minister said that she expects that the changes will be cost neutral, and she referred specifically to the President of the European Council and the office of the high representative. However, her explanatory memorandum specifically states that those two offices

Can she therefore tell us what her assessment of the worst case scenario is for the cost of those changes?

Kitty Ussher: No, I cannot, because nothing has been put on the table. What I have explained is what our proposal is, that there is some cost saving from ending some of the existing arrangements and that we will push hard for budget neutrality throughout, if the treaty is ratified.

Mr. Gauke: With regard to the costs of the President of the European Council and the high representative, as my hon. Friend the Member for Altrincham and Sale, West has alluded to and as the Minister has said, the Government intend to finance those additional offices where possible from the existing administration costs. Given that the budget would increase those costs by around 5 per cent., which is considerable, the suspicion must be that the budget is based on an assumption that those positions will exist in 2009. Is not it time to review the figure for administration costs in light of the fact that the Lisbon treaty has been defeated in the Republic of Ireland and, strictly speaking, should be dead? It has been rejected, so there is no need to have a considerable increase in administration costs to fund those posts.

Kitty Ussher: I am not entirely clear that the 5 per cent. proposed increase in administration expenditure, which I agree is unjustified, flows directly from any putative costs of implementing the Lisbon treaty. It is important that we should see the further costs for the administration budget line reduced. We have successfully done so in previous years and will continue to work with like-minded member states and negotiate hard for efficiency savings and specific reductions that better reflect the implementation capacity set out under heading 5.