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Lord McKenzie of Luton: My Lords, I thank my noble friend for his supplementary question. I am sorry if the answers are too long; I shall try to get them to match the length of the questions in future.

I agree with my noble friend that it would be fine if we could settle the issue this month, but it is important that we get the right answer rather than get it quickly. On what has been achieved, the parameters of the 2006 budget are already largely in place and it is much easier to make progress on that than on the financial perspective for the next seven years.

In many ways, the discussion about rebate is a distraction. The key issue is the expenditure side of the equation. The continuing inefficiencies and inequities on the expenditure side of the budget and the resulting unfairness of the United Kingdom position mean that the abatement remains fully justified and is not up for negotiation. If there is a fundamental review and debate about the future of Europe, including the financing of the European Union, everything will be up for discussion.

Lord Biffen: My Lords, is it not the Government's objective to secure a reduction in Community financing of the common agricultural policy, single payments, payments on animal welfare and payments on environmental protection? If so, would it be in the context that payments in that direction could be made by national governments out of national resources?

Lord McKenzie of Luton: My Lords, the Government's policy is to continue to seek to bear down on expenditure under the CAP, particularly following the success in 2003 of the new financing arrangements.
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If the funding of agriculture were returned to member states, it would have to happen across the piece. We are not optimistic that that will happen quickly but one of the Government's objectives is to reduce spending on the CAP. We regard the agreed levels as ceilings not targets. It cannot be right that so much of the budget—some 40 per cent—is spent on agriculture.

Lord Tomlinson: My Lords, does my noble friend agree that referring to this as a rebate is not helpful? In fact, it is a corrective mechanism that was never intended to be renegotiated. As my noble friend said, it was intended to be a reform of the expenditure side of the budget, which, when so reformed, will mathematically eliminate the need for any payments back to the United Kingdom. The real challenge is for the other countries of the European Union—not only France, but also major net beneficiaries such as Spain—to renegotiate the expenditure side of the budget so that the need for the corrective mechanism disappears.

Lord McKenzie of Luton: My Lords, I agree with my noble friend's assessment. Calling it a rebate is incorrect because it never gets paid over in the first instance. It is simply deducted from the contributions that we make in a subsequent year. The assessment is right. Unless we tackle the inequities of the expenditure side, we will not make progress on this issue. If we do, it is not so much a matter of negotiation, it is a matter of arithmetic as to what will happen to our net contribution.

Lord Newby: My Lords, does the Minister envisage that as part of the Government's negotiating policy they will argue that the structural funds should no longer be receivable by the UK and should go simply to the poorer new accession states? In that case, what action do the Government envisage they will take to make sure that those regions which are currently beneficiaries of EU structural funds do not lose out in future?

Lord McKenzie of Luton: My Lords, the Government would want the structural funds to be concentrated on only new member states, as well as Greece and Portugal, which fall below 90 per cent of the EU average. Domestically, the Government have given a guarantee that should our position prevail on this, a guarantee will ensure increased domestic regional spending in the UK based on the funding that UK regions might have expected under a status quo scenario after enlargement.

Baroness Noakes: My Lords, whether or not we are talking about a rebate or a corrective mechanism, the Minister will be aware that Commissioner Mandelson has said that it is wrong for the UK to expect poorer countries to pay for any amount, thereby saying that the UK should give up around £300 million of its rebate. Does the Minister agree that Commissioner Mandelson was wrong to get involved in that way?

Lord McKenzie of Luton: My Lords, I have set out the Government's position. It is for Commissioner Mandelson to answer himself on what he has said.
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Lord Lea of Crondall: My Lords, if this is a negotiation, one cannot expect either side—I am thinking particularly of Britain and France—to make unilateral concessions. In any negotiation, any trade union official would say that either it can be conducted in decibels or with a view to reaching some sort of outcome. Is it not right to see Mr Mandelson's contribution in that light?

Lord McKenzie of Luton: My Lords, that might be right, but in any negotiation it is important that the participants are clear on the parameters. In relation to the rebate, or the abatement as is probably a more appropriate term, the Government have set out their position, which I dealt with earlier.

Baroness Ludford: My Lords, do the Government believe that this country might have learnt its lesson? Had we been in at the beginning of the European Community, the CAP would never have been shaped as it was. When we exclude ourselves from a project or we are semi-detached, as is the case now with asylum, immigration and law enforcement, we will never be full beneficiaries from the policy. Have the Government learnt that lesson from the past 50 years of the European Union and the European Community?

Lord McKenzie of Luton: My Lords, we are where we are on those issues. We cannot rewrite history. It is always important for a judgment to be made on what is in the UK's best interest on all of those issues. When we enter into agreements, that is the key judgment which should underpin our decisions.

Baroness Oppenheim-Barnes: My Lords, does the Minister agree that we are where we are because inequalities and inefficiencies have been allowed to continue for far too long? In many cases, no one on that side of the House questioned them until the matter of the rebate arose. We are paying for what was not done in the way of vigilance in the past.

Lord McKenzie of Luton: My Lords, I am not sure that I can speak for the Government in the 18 years between 1979 and 1997. But certainly this Government have been diligent in seeking to make sure that the budgetary process reflects value-added at the European level and that we have tight budgetary discipline, which has been a key plank of the Government's approach to those matters.

Lord Pearson of Rannoch: My Lords—

The Minister of State, Northern Ireland Office (Lord Rooker): My Lords, we are well into the sixteenth minute. We have to be fair to the other Questions.
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Middle East Peace Process

3.5 pm

Lord Dykes asked Her Majesty's Government:

Baroness Royall of Blaisdon: My Lords, the road map is the best means to reach a just and lasting settlement to the Middle East conflict. We work with the parties, EU partners and other members of the quartet to seek to move this process forward. When we take over the presidency of the European Union on 1 July we shall have a seat on the quartet. We must and we shall do whatever we can to use that opportunity to seek progress towards the goal of a negotiated, two-state solution.

Lord Dykes: My Lords, I thank the Minister for that reassuring Answer, but is she aware that more and more people, depressingly, feel that it will be only a pull-out from Gaza, unless the quartet really work together from now on and get Israel to launch negotiations and talks with the Palestinians?

Baroness Royall of Blaisdon: My Lords, the Government, like many other governments in the quartet, believe that the pull-out from Gaza, as the noble Lord states, is the first step in the process towards a peaceful settlement and solution in the Middle East. The key priority for the UK presidency over the next few months will be to support that disengagement. Thereafter, we will be able to move on to encourage both sides to return to the road map.

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