Preliminary Draft Budget 2009

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Mr. Gauke: May I turn to the Galileo project, which the Minister raised? She will be aware of the Select Committee on Transport report published in November last year, which stated:
“It would be entirely unacceptable to proceed with the Galileo project at this stage without fresh, independent and rigorous evaluations of the balance between costs and benefits.”
The preliminary draft budget proposes an increase in expenditure on the Galileo project of some €62 million—a 20 per cent. increase. Is she satisfied that there has been sufficiently rigorous evaluation of the costs and benefits of that project to support that further increase in expenditure?
Kitty Ussher: No, not entirely, but things are going in the right direction. I was at the heart of the negotiations last November on whether to start funding the Galileo project. We felt that the proposal that we ended up with had costs and benefits far more clearly articulated, and that the net benefit was much clearer than it was when hon. Members on the Select Committee on Transport undertook that work.
It is probably worth placing on record that when I was in Brussels at the end of November negotiating on that matter, I made efforts to speak to the late Member for Crewe and Nantwich, Gwyneth Dunwoody, who took me to task in her usual way. I wanted to ensure that there was at least an understanding in Parliament of what the situation we faced was: there was a programme that could be of benefit to the entire world—certainly to the EU and the UK—and there was a blocking minority against it, for tactical rather that principled reasons. We felt that if we broke that blocking minority in a certain way we could extract far greater benefit for UK industry, and that is what we sought to do. Mrs. Dunwoody held me to account when I came back to the Committee to explain what we had done. I hope that if we look at the record there will be a greater understanding of the pressures that were faced. I think that we did exactly the right thing in the circumstances.
Mr. Gauke: Further to that answer, does the Minister still see the Galileo project as purely for civilian use, or will it also possibly have a military capability? Could she also expand on what she sees as the benefits to the UK of that project?
Mr. Brady: In the period that the budget has been under preparation, there has been a depreciation of sterling against the euro. Will that have any bearing on the net contribution that the UK makes to the EU, either with regard to the calculation of the abatement and other payments or the return of unspent budgets?
Kitty Ussher: Yes, it will. My understanding is that the entirety of the accounts are conducted in euros, as is our net position, so the appropriate exchange rate will apply when the money is finally returned.
Mr. Brady: I am grateful for that response, but will the Minister give the Committee some sense of what the overall impact of that will be in the current circumstances?
Kitty Ussher: Obviously, it will depend on what the exchange rate will be in 2009, and we are not yet there. Had the hon. Gentleman asked these questions in a more discursive manner, I would have been able to respond to his list at the end, but I shall nevertheless endeavour to do so.
Mr. Browne: Does the Minister think that the points just made by the hon. Member for Altrincham and Sale, West add strength to the case for Britain joining the single currency at an early opportunity?
Kitty Ussher: No, we have made our position entirely clear. We have five tests that remain unaltered by the strength of the euro at any moment, and we will, as always, provide an assessment in the Budget.
Mr. Gauke: Turning briefly to the Galileo project, does the Minister think that the project’s commercial rationale is significantly altered by the fact that it is now forecast to come into operation in 2013, whereas it was originally envisaged to be available from 2008, and does that affect the Government’s considerations in that area?
Kitty Ussher: Yes. The initial proposal was for a public-private partnership project with a definite time scale and costs attached to it. The negotiations broke down, and we were extremely worried by the effect on value-for-money of the changed circumstances, with regard to both time scale and financing. That is why we negotiated, quite effectively, to reduce the impact on the EU taxpayer. That is not to say that it is not a valid project, which it is. We must continue to ensure that it has a realistic project plan that represents the best value for money for the UK taxpayer.
Mr. Gauke: On page 7 of the Treasury’s memorandum, heading 1, which deals with sustainable growth, states that the Government
“intends to scrutinise and suggest appropriate reductions to commitment and payment levels”
and ensure
“that payment levels more accurately reflect absorption capacity.”
Could the Minister enlighten the Committee more fully on what that means and its significance in that context?
Kitty Ussher: There was a difference between the amount that we had been trying to spend and the amount actually spent, so there is clearly a problem with fulfilling the deal all the way through. We do not want to get into a situation in which there is a huge underspend simply because we were not able to assess in advance whether we had the project planning teams in place to spend the money. We think that that leads to rather lax budgetary pressures that allow people to raid that pot of money for their latest pet project. However, it is improving.
Mr. Gauke: I am grateful to the Minister for that answer. Has that concern arisen as a consequence of past experience of the EU budget?
Kitty Ussher: Yes.
Mr. Brady: I do not know whether I shall get such a precise response to my question. What actions are the Commission and the UK Government taking to ensure proper financial management of EU funds by other member states?
Kitty Ussher: Other member states are sovereign bodies, but we feel that we can lead by example in that area and intend to publish extremely shortly a consolidated fund analysis of the moneys coming into the UK from the EU to show that the audit arrangements are effective. A number of countries are following our example in this area. We continue to put pressure on our colleague countries as a result of the work of the European Court of Auditors. There is some good news in that a greater amount of EU spending than in previous years has got over that hurdle, but we still think that there is an extremely long way to go. We can use the European Court of Auditors route and we can demonstrate by example the right way to do it. We will continue to do both. Ultimately, it is up to other countries to implement their own procedures.
Mr. Browne: I am grateful for that response. I want to follow it up because the majority of EU money is spent by member states. There is surely a legitimate concern among UK taxpayers that our money, which could be spent within the UK, is funding projects throughout the EU. Many of those are worthy and legitimate, but waste or even fraud is taking place using EU money that has come in part from the UK. That is surely a concern for our Government. It is surely reasonable that we should do our utmost to ensure that money spent by other EU member states is spent wisely and legitimately.
Kitty Ussher: The answer is, of course, that we are doing our utmost. We are genuinely putting an enormous amount of resource into this area. The hon. Gentleman mentioned fraud, but there is no evidence that fraud is rife. A report in 2006 from the other place made that clear. The EU’s anti-fraud watchdog, OLAF, puts fraud at about 0.3 per cent. of the budget. That compares quite well to the spending activities of national member states. I am not trying to apologise and we should not be complacent, but sometimes tabloid perception is not the same as reality.
The hon. Gentleman’s wider point is correct. About 80 per cent. of EU funding is done through member states and we must continue to ensure that it is spent in the most effective way. We have taken a lead in improving the situation through a number of initiatives. The use of activity-based budgeting means that the budget lines and what they are being spent on are far clearer to external scrutiny. As I said, we are publishing a consolidated statement on the use of EU funds here, which we encourage other countries to follow. The general answer to his question, apart from on the fraud point, is yes.
Mr. Brady: I was pleased that the Minister referred in her opening remarks to her concern that the European Court of Auditors has been unable to sign off the accounts for so many years. What are the Government doing to ensure that the accounts can be signed off this year or within a foreseeable time scale?
Kitty Ussher: In a sense, it is up to the European Commission to do that. As I said in reply to the hon. Member for Taunton, we want to lead by example by exposing our spending lines to the scrutiny of our own audit body, the National Audit Office. We think that that sends a signal that we are going in the right direction. We spearheaded the use of activity-based budgeting. We want to ensure that there is a greater focus on outcomes in all EU activity so that incentives are aligned in the right direction. There have been a number of changes to the audit procedure and in everything that we do we want to focus outcomes on performance to make it harder for funds not to be spent in the correct way. We are doing everything that we can think of. If the hon. Member for Altrincham and Sale, West has any further ideas, I will be happy to take them on board.
The Chairman: If there are no more questions from hon. Members, we will proceed to the debate on the motion.
Motion made, and Question proposed,
That the Committee takes note of the unnumbered Explanatory Memorandum from HM Treasury dated 2nd June 2008 relating to the Preliminary Draft Budget of the European Communities for the year 2009; and supports the Government’s efforts to maintain budget discipline in relation to the budget for the European Communities.—[Kitty Ussher.]
5.19 pm
I come back to and wish to highlight the administration issue. I note what the Minister has said but, none the less, a 5 per cent. increase in administration costs is very significant. Given that the expectation a few weeks ago was that the European Union would have a president of the European Council and a high representative in 2009, one could be forgiven for suspecting that there was slack—as it were—put into the administrative budget because it was going to be used, in part, to fund those additional posts. The Government have said, in the document before us and this afternoon, that they hoped that the cost of the additional posts could be found from reprioritisation. I agree with the Government; there is clearly scope for the costs to be found from the administration budget.
I do not want to run through an argument about the rights and wrongs of the Lisbon treaty and I am sure that you do not want me to, Mr. Bercow. However, the Government’s position that the Lisbon treaty is not dead is—to put it mildly—unfortunate. Their refusal to state that it is continues to place pressure on a small country—the Republic of Ireland—and on other countries, such as the Czech Republic to ratify the treaty, notwithstanding the views of the people of Ireland. If the Government were to adopt a different approach and say that the Lisbon treaty was dead, that also ought to guide the way in which they approach the negotiations on the budget in July. The European Union needs to look again at its budget in the light of the Lisbon treaty not being in force in January. It is a further indication that the Government are failing to recognise or are participating in the collective failure to recognise the views of the people of the Irish republic, and that is unfortunate.
Putting aside the detail of the Lisbon treaty, there is also, of course, its direction, which is to an increased role, in, for example, foreign and common security. As the hon. Member for Taunton makes clear, there are savings within that budget, but there are also increases in particular areas. The budget, as a whole, suggests the EU taking an increased role within that field where a lot of us would have concerns. Equally, the same point could be made with regard to freedom, security and justice, in respect of which substantial increases in certain elements of the budget are consistent with the direction in which the Lisbon treaty was taking the EU, although it was rejected by the people of the one country given the opportunity to vote on it,. That is my first objection to this budget.
The Government may have more sympathy with my second objection, which is that, at a time when everybody is finding it a little bit more difficult and the economy is not performing as well as it was—not just in the UK, but elsewhere—it is essential that we have rigour in assessing public spending. The European Union should not be immune from that. There are some real opportunities for savings here that are, to some extent, being missed. I highlight agriculture in particular. We are seeing a 4.8 per cent. increase in expenditure on agriculture, which is a €2 billion increase for market support in this area, at a time when food prices are high and when the arguments for subsidising agricultural production in this way—specifically, in respect of those farmers for whom the market has moved in their favour, although I do not begrudge them that—and providing additional support are particularly weak. That is an especially pertinent concern given the Government’s stated purpose on many occasions, including today, to reform the common agricultural policy. Tony Blair, when Prime Minister, said that he would only give up our rebate in exchange for a substantial reform of the common agricultural policy. He gave up a substantial element of our rebate, yet we have not seen that reform. There has been a promise of a review, but nothing much coming from that. On the evidence of this document, we will not be seeing any substantial reform of the common agricultural policy in 2009. That is a missed opportunity. There is a chance for real savings to be achieved, yet it is being missed.
In respect of the Galileo satellite navigation programme, there is not so much a saving but an increase in expenditure. We touched on that and I do not need to dwell on the subject. I have read the report produced by the Transport Committee in November 2007 and the Government’s response to it published in January. There are already considerable concerns about this expenditure. An additional €62 million will be spent in this area next year by the EU and the UK is picking up some 17 per cent. of the costs. The UK has already spent more than €250 million on this project, the total cost of which is estimated to be in the region of €10 billion. The Transport Committee said that, throughout the process, there has been a lack of a rigorous cost-benefit analysis. The concern remains that this is a grandiose project for the glorification of the European Union, without a commercial rationale behind it, which is why the private investors have withdrawn from it. We are concerned about this project.
There is a lack of an address to the changed circumstances with regard to the Lisbon treaty and a lack of rigour in controlling public spending—from what the Minister has said, she shares some of the concerns about that—and a question about whether some of the expenditure would be better made by member states. I highlight international development in that regard. Quite a lot of evidence suggests that the EU is not the best deliverer of aid. The right hon. Member for Birmingham, Ladywood (Clare Short) has, on occasions, described the EU as the worst deliverer of aid in the world. It has a reputation for not targeting particularly successfully, whereas in the UK the percentage going to low-income countries increased from 62 per cent. to 81 per cent. from 1990 to 2004.
Over the same period, with the EU, the figures have fallen from 63 per cent. to 32 per cent. A survey has shown that 21 per cent. of EU aid money arrives more than a year late compared with 3 per cent. from other aid donors. That is also an area of concern and the argument needs to be made that more could be done by member states, rather than the EU. I am not making a case of an absolute nature, but that matter needs to be looked at.
We touched upon administrative failures and fraud within the EU budget. This is not necessarily the occasion to debate those matters at length because we will have other opportunities to do so. I do not therefore intend to dwell on that point, but it is recognised by members of the Committee from all parties that the EU’s performance with regard to administrative failures is not all that it might be and that the European Court of Auditors has never signed off the EU accounts. I take the point made by the hon. Member for Taunton that much of that matter is to do with expenditure by member states, but there is also a monitoring role for the European Union in relation to that. Genuine concerns have also been raised about the expenditure of the European Commission on areas such as research. That comes directly from the European Commission and so the problem is not entirely to do with member states. In the light of that, the point also needs to be made that the EU needs to do less and needs do it better. A growing budget, which is what we are seeing, does not create the ideal circumstances in which to tackle the issue of administrative failures and fraud. The EU does not deserve an increased budget on the basis of its previous performance.
The budget does little to tackle the real concerns that many have about the performance of the European Union. It does little to provide reassurance to taxpayers that our increased contributions to the EU are being well spent in the interests of the UK and wider Europe as a whole. We continue to have concerns about the budget as it takes little account of the concerns of the people of the UK and elsewhere, who fear that the direction the EU is taking will make it more remote and out of touch, and that it will fail to address the concerns of the 21st century.
5.33 pm
Mr. Browne: This has been a useful debate and it is particularly timely because the European Union and its member states need to consider their response to the global credit crunch, the reduced rates of economic growth in EU member states, and Europe’s diminishing share of world GDP. I understand that that is forecast to roughly halve between now and the middle of the century, which corresponds with the rise of countries such as China and their influence. When framing a budget for the European Union, there is a need to decide what the role of the European Union is and what vision it is putting forward for our continent in the decades ahead.
The first question I asked in the first part of our deliberations was deliberately aimed at driving at precisely that point. My view, which is one widely held among the political circles of the United Kingdom, is that a French/Belgian/mainland western European vision—if one can call it that—of a future European Union is more statist and protectionist than is received to be good in this country. It is entirely in our interests that the United Kingdom rejects that approach, because it is a cul-de-sac in terms of the economic prosperity of our citizens.
I wish there were greater consensus on the matter. I share the free-market beliefs of the hon. Member for South-West Hertfordshire. I only note in passing that at the same time as he was criticising the emphasis on increased agricultural subsidy, the Conservative party has a debate in the House of Commons today on food security, which is a euphemism for greater protectionism in the agricultural industry. I occasionally feel like a lone voice—or perhaps it is me and Peter Mandelson—in championing the need for free-market economics, but that has often been the case for my party as we have fought protectionism and trade restrictions over previous centuries.
My second point is that the greatest achievement of the European Union in the past 10 to 15 years has been expansion from 15 to 25, then 27 and soon to be more member states. That has helped the European Union to embed our values of democracy, free markets, free speech and free trade in eastern European countries that previously came under the auspices of the Soviet Union. I urge the Minister to continue to push for western European nations to take an enlightened view on how we can assist eastern European nations to increase their economic prosperity. In my view, that is entirely within our national interest as well as being, obviously, within the interests of the countries in eastern Europe.
I am more concerned than the Minister appears to be about the policy priorities of the European Union. It seems to me that the European Union has to make a case to its population for why it should exist—what it is adding in value for the taxpayer. That may be in part about the political benefits that it brings to countries in eastern Europe. I would accept that on the credit side of the ledger. It may be about helping to negotiate on the world stage in respect of trade. It is potentially strongly in our interest as a country that the European Union is able to bring that role to bear.
However, the European Union needs to be alert and alive to other challenges. Climate change is an obvious one, but I suggest that organised crime and terrorism is potentially a very useful area for the European Union better to co-ordinate activities throughout our continent. It surprises me that that part of the budget is being reduced when the administration budget, which other hon. Members touched on, is being increased. That seems a totally perverse set of priorities. In the current climate, any organisation that believes that it needs to employ more administrative staff but reduce its emphasis on counter-terrorism is out of line with the mood of the population, particularly as the European Court of Auditors has been unable to sign off the accounts for the past 13 years. There is a particular need for the European Union to show that it is trying to be more lean and more administratively efficient, rather than less so.
I shall end on a topical note by referring to the Lisbon treaty, which I regard as being of far less consequence than the Conservative party does. It seems to be quite a modest treaty compared with many of those that the Conservative party, when it was in office, supported with such zeal and enthusiasm, without feeling the need to detain the British public with a referendum. One benefit of the Lisbon treaty was surely that it tried, however imperfectly, to frame an administrative arrangement that could accommodate 27 member states working together, rather than 15 or fewer. It will be a lost opportunity if the Lisbon treaty is not eventually enacted. I urge the Minister to press other member states to examine ways in which we can make the workings of the European Union more manageable, more transparent and less of a burden in administrative terms. Perhaps, as an unfriendly gesture, she could suggest to President Sarkozy that there should be one European Union language—English, which most people understand. That would massively cut some of the translation overheads as well as being a good opening gambit for negotiations with the French. We could then go down the path of a more outward-looking and flexible Europe, to which the Minister and I both aspire.
5.40 pm
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