The Chairman: Does a member of the European Scrutiny Committee wish to make a statement?

Kelvin Hopkins (Luton, North) (Lab): It is a pleasure to serve under your chairmanship for the first time, Mr. Sheridan. It may be helpful to the Committee if I take a couple of minutes to explain the background to the document and the reasons why, as is customary, the European Scrutiny Committee recommended it for debate in the European Committee.

The Commission’s preliminary draft budget is the first stage in the Community’s annual budgetary procedure. The 2010 PDB will form the basis for negotiations between the two parts of the budgetary authority—the Council and the European Parliament—to agree the 2010 budget, which is expected to be adopted towards the end of December 2009.

As always, the proposed Community budget has significant financial and policy implications, and the UK has a substantial interest and role in scrutinising the PDB, not least because of the large sums involved and the UK’s position as a large net contributor. As the Government remind the House each year, it is in the UK’s interest to restrict budget growth and to ensure efficient use of resources.

There are many issues of interest to hon. Members arising from the PDB, but the European Scrutiny Committee suggests that in this year’s debate hon. Members might wish to examine particularly the Government’s objectives for the forthcoming budget negotiations, the consequences for other policies of the commitment to expenditure for the European economic recovery plan and the continuing issue of absorption and implementation capacity and its relationship to budgetary surpluses.

Thank you, Mr. Sheridan. I hope to contribute later on.

The Chairman: I call the Minister to make an opening statement.

The Economic Secretary to the Treasury (Ian Pearson): Mr. Sheridan, it is a pleasure to serve under your chairmanship this afternoon and to appear before this Committee to discuss the preliminary draft budget of the Commission for 2010. The debate today will help to inform the Government’s position at the budget ECOFIN meeting on Friday 10 July.

As my hon. Friend the Member for Luton, North indicated, the PDB marks the start of the annual negotiations to agree the size and shape of the European Community budget for the following year within the limits set out by the financial framework spending ceilings and budget rules. I want to assure my hon. Friend and the Committee that, as in previous years, the Government will scrutinise and, where appropriate, challenge the Commission’s proposals for the 2010 EC budget.

Our overriding objectives for the EC budget are to ensure budget discipline, value for money and sound financial management for UK taxpayers. Those objectives will underpin the Government’s approach towards the 2010 EC budget negotiations. The Government’s main priorities will be to push for reductions to payments in areas of the budget considered to be over-budgeted, and for sufficient headroom to remain under the relevant financial framework ceilings to allow in-year spending pressures to be accommodated. The Government will also push for a reduction in spending in areas where it represents, in the Government’s view, relatively poor value for money, such as agriculture and administration spending, while supporting sufficient levels of spending in areas that we believe represent, in general, relatively good value for money, including climate change, development and jobs.

The Government remain a firm supporter of the European economic recovery plan, which set out a menu of comprehensive actions that reflect consensus across the EU on the need for bold action and a co-ordinated response to the economic downturn. That supports the actions that the Government have taken to help the UK economy.

We are also in favour of the additional €5 billion EU budget funding provided as part of the recovery plan for energy and broadband infrastructure projects. We expect funding for the remaining €2.4 billion to be identified before finalisation of the 2010 budget, and we will work to ensure that it is found from existing resources and margins without any overall increase to the financial framework spending envelope.

The Government will continue actively to engage with other member states in the EU to achieve our priorities. I am cautiously optimistic that the position to be adopted by the Council at the budget ECOFIN this Friday will represent an improvement on the Commission’s proposals.

Due to legal and decision-making constraints, the annual negotiations over the EC budget are not the place for fundamental reform of that budget. The Government continue to attach great importance to the budget review as the means for achieving a re-oriented budget equipped to meet the key challenges of the 21st century. The negotiations are also not the place to secure major improvements in the financial management of EC budget funds, but I welcome the Public Accounts Committee’s report on that issue last week. The Treasury will respond to the Committee’s conclusions in due course and in the normal way.

As I said in the House on 20 January, the inability of the European Court of Auditors to give a positive statement of assurance on the EU’s accounts is entirely unacceptable. There has been significant improvement, but it is still not good enough. A positive statement of assurance will be obtained only when member states also take more responsibility and act to improve the financial management of the European Community’s budget funds that they manage. The UK will continue to keep up the pressure and to lead by example on that front.

Mr. Sheridan, I am grateful to you for allowing me to outline the Government’s approach in this area and some of the broader context. I look forward to answering questions and discussing these issues today.

The Chairman: We now have until half-past 5 for questions to be put to the Minister and it would be helpful if they could be brief. It is also open to members of the Committee, subject to my discretion, to ask related supplementary questions together.

Mr. David Gauke (South-West Hertfordshire) (Con): It is a pleasure to serve under your chairmanship, Mr. Sheridan; I think that I am doing so for the first time. I also thank the hon. Member for Luton, North and the Minister for their introductory remarks.

Is it still a Government objective that commitment appropriations and payment appropriations are less than 1 per cent. of the EU’s gross national income? The Minister will be aware that, under the proposals contained in the preliminary draft budget that we have before us, that 1 per cent. limit is breached.

Ian Pearson: The key point to recognise is that, as the hon. Gentleman is aware, we are at the start of a negotiation process, which is when we should thoroughly challenge the Commission’s proposals before us today. As I explained in my introductory remarks, we want a deal that represents good value for the UK taxpayer and that is very much a budget-disciplined approach. The hon. Gentleman will be aware that we have always taken a strong budget-disciplined approach and that will remain the case.

Mr. Gauke: I welcome that answer from the Minister. However, just for the purpose of achieving further clarity, is he stating that it is an explicit objective of the UK Government that the commitment and payment appropriations in the final budget will be reduced to 1 per cent. or less of the EU’s GNI?

Ian Pearson: I have tried to explain the Government’s overriding objectives in this budget, which are budget discipline, value for money and sound financial management for UK taxpayers. Those objectives underpin the UK’s approach in general. I have also said that our priorities are to push for reductions in areas of the budget that we consider to be over-budgeted at the moment, and we can go on to discuss some of those areas. Furthermore, I have said that we need sufficient headroom to be made under the relevant financial framework ceilings to allow any new spending pressures to be accommodated.

I think that that gives an overall picture of the direction in which we are going. I do not think that it would be helpful at this stage to be more specific and to set out an individual target. What we want to do is to play our part in negotiations, to work closely with other member states that share our interests in budget discipline and to ensure that, in the next four months, we secure a deal that we believe is right for Europe and in the interests of the UK taxpayer.

Kelvin Hopkins: I have been a member of this Committee for 10 years, as a permanent member and as an appointed member, and I have heard Minister after Minister wringing their hands about the terrible problem of the European budget and its failure to be signed off by the auditors, year after year after year. Is there not something fundamentally wrong with the way the budget is controlled? Also, is it not time that the British Government, who are a net contributor, made some suggestions for fundamental change in the way that the budget is administered?

Ian Pearson: I am sure that my hon. Friend, as a long-standing member of the Committee, understands the reality of the situation here. As I indicated in my opening remarks, we as a Government have consistently taken a very rigorous approach when it comes to these matters. We have always believed that it is important to work constructively with the Commission and with other member states to ensure that improvements are taking place. As my hon. Gentleman will be aware, in its recent report the PAC said:

There is still not enough progress, but we will continue to push constructively to ensure further progress. As I have indicated, a lot of the budget is the responsibility of the member states that implement it. We have tried to lead the way in terms of publishing best practice reports about how to approach the matter. We have also discussed the issues with other member states, and it is important that they, as well as the Commission, show greater budget discipline and attention to detail in relation to financial management.

Kelvin Hopkins: I thank my hon. Friend for his answer and appreciate that his concern about the matter is genuine. It is fair enough that some member states do not implement the budget themselves; they do not do very well either. Is there not a suspicion that the European Union and the Commission itself are not too worried about discipline in the budget, because the money sloshing around helps to keep people sweet about the EU? If discipline were rigorously imposed from the centre, people might feel less inclined to feel enthusiastic about the EU. I may be wrong, but is there not a suspicion that that is the case?

Ian Pearson: It may well be a suspicion, but I certainly hope that my hon. Friend is wrong. On the UK’s position, we have always strongly stated that far more attention needs to be given to good financial management and practice. Pressing the Commission and member states to improve financial discipline has been a consistent theme of Government over a number of years, and that will continue to be the case. UK and European taxpayers want to see rigorous processes and proper evaluation, so that there is rigour in public finances and so that they can be assured that, when they spend a euro, pound or any other currency, they get good value for money when the Exchequers of their nation states contribute it to the EU.

Mr. Graham Brady (Altrincham and Sale, West) (Con): Table 5.1 in the papers under discussion sets out all the projected increases between 2007 and 2013. Both total commitments appropriations and total payments appropriations seem to be projected to increase by about 20 per cent. at current prices over that period. Surely, in the current economic circumstances, there ought to be no increase, or perhaps a reduction.

Ian Pearson: I do not have the table to hand, but I will look at it during the debate and respond to the hon. Gentleman in my closing remarks. However, we are not talking about an overall 20 per cent. increase in the budget. That is not what the preliminary draft budget proposes, as he well knows, but I will return to his question on table 5.1 in due course.

Mr. Brady: I am slightly concerned that the Minister does not have the table in front of him yet, but I am grateful for his assurance that he will discuss it. It seems that a significant increase is projected over the six to seven-year period under every main heading of the budget. He has not responded to my overriding point that surely the Government’s starting point in the negotiations in the current circumstances should be that there should not be an increase at today’s prices in the budget at all.