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Secondly, these treaty Bills are often the result of extended and painful negotiations by our sovereign Government with all the other sovereign Governments—sovereignty writ large in the European Union—to reach a sometimes complicated compromise. As each party makes concessions, it would be easy every time to scream that we have sold out to wicked foreigners, because they would normally be in the majority against
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It is also worth remembering that the EU budget system, unlike that of many sovereign member states, apparently now including Britain, is constantly virtuous, since the mechanism ensures that, broadly speaking, the outgoings always equal the receipts, at least over a significant period of time. This is naturally so as it is an allocation system, like the money allocated to local authorities. On the subject of local authorities in Britain, the number of staff directly employed by the Commission in Brussels—even allowing for enlargement to a much greater union, and including overseas missions—is still smaller than that of an average county council in the United Kingdom.
We all know the four sources of the resources in this mechanism. I will not go into detail, save to refer, as the Minister did, to the reduction in the VAT call-up rate—compensated for by increasing the GNI-based contributions of all but two member states. This has produced a much better adjusted system that allows for the latest economic differences between member states. Paragraph 9 of the Explanatory Notes explains the complicated adjustment arising from the UK surrendering a small part of its rebate. I would not read it out even if I had time, but it is a very telling paragraph. When this unique concession was secured by the Tory Government in the mid-1980s, I do not recall that it was intended to last for ever. Perhaps British Governments hoped that it would, but that was not the agreement in the European Union. It has already lasted 20 years, with the latest, very modest adjustment.
The principle of gross contributions by member states was always that of an automatic formula mechanism, not the strident Sun newspaper concept of “Give us back our money”. As far as the net contributions applied, ours quickly got out of line in relation to our GDP and output measurements. However, this was not the fault of the other member states—it was because our total farm output was less, pro rata, than that of others, and because we imported far more from third countries, particularly from the old Commonwealth countries. The situation was relatively difficult.
I will quote from the other place on one matter, which summed that up very well. Rob Marris, from the Labour Benches, said:
“My right hon. Friend spoke briefly about the origins of the rebate. Was it not the case that Mrs. Thatcher was able to negotiate the rebate because the structure of the UK economy in those days was markedly out of line with the structure of the economies of France in particular, and of Germany? Those structural differences—the differing proportions of GDP raised
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The Minister, Andy Burnham MP, now Secretary of State for Culture, Media and Sport, said:
“My hon. Friend is absolutely correct. The point ... is how the decision that we are debating to some extent reforms the way in which the own resources decision is constructed”.—[Official Report, Commons, 15/01/08; col. 845.]
That is how people should now regard this matter. A comparison can also be made with Germany, which has always contributed the biggest amount to the EU, usually with no complaints in the German press and perhaps with only rare complaints from a small number of Members in the Bundestag. It is a given datum and accepted as part of Germany’s contribution, being the biggest economy.
Today, we also need to note carefully paragraph 16 on page 3 of the Explanatory Notes concerning the 12 new member states. That sets out the essence of the adjustment in this scheme. Our contribution will now be limited to £10.5 billion at 2004 prices over 2007-13, as the Minister himself stated. This is now roughly equal to France’s contribution but much less than that of Germany. It was a classic response from the opportunistic Mr Tony Blair, trembling as usual lest he displease Mr Rupert Murdoch and the “Daily Wail”, when he claimed that the other countries—as usual, to secure peace and quiet with the recalcitrant British, as sadly they regularly perceive us to be—had promised a thorough review of the EU budget and the common agricultural policy from 2013.
The farm review proposals will be promulgated soon—perhaps even during the Slovenian presidency—and legislation may follow in that six-month period or perhaps under the French presidency. We shall see how it turns out. While farmers everywhere have to expect a long-term erosion of the subsidy system, production subventions have already virtually ceased to exist in their old form. However, in reality, no member state can allow farmers to starve, and therefore even in the future compromises will be needed. Some kind of support system, even a residual one, will have to continue.
France has been mentioned, and I declare an interest in that I also live there. No one can say that France has not adjusted to the decline in farming with a fall in the population involved now down to below 3 per cent, which was the traditional British figure 10 to 15 years ago. The Third Reading in the other place brought out a number of other important matters. As I emphasised earlier, the budget adjustment was literally unavoidable to support very useful non-farm support budgets in the eastern European member states. I assume all noble Lords here will agree that that was a very worthy objective. Secondly, there was the sense that the amendment to new Clause 1 in the Commons was somewhat mischievous to say the least. However, I think it had the come-uppance that it deserved.
EU contributions, even with the bearable and modest increase, remain a tiny part of total UK government spending. Indeed, the Minister alluded to
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Unfortunately, the Tory party remains totally isolated in the EU and, in particular, in the European Parliament. That is very noticeable when one visits and talks to the Members there. I predict that, if it intends to remain deeply and fundamentally hostile to virtually all aspects of our membership, as was shown in the Commons debates in Committee and at Third Reading, that will be another, possibly vital, factor in explaining why an election victory will not be in the bag, as some Conservative Members in the other place tend to believe because of their lead in the polls. If that is so, I trust that Mr Gordon Brown or his successor will continue the recent, brand new trend, after Mr Blair’s contortions and changes of mind, including on the referendum for the European Union reform treaty, of showing more enthusiasm for our 34-year membership. Mr Brown has begun to do that. “Britain for a new Europe” was mentioned when he addressed a recent conference. After all, like all the other member states—the old 12 or the old 15—we should be getting used to our membership of the European Union by now.
8.30 pm
Baroness Noakes: My Lords, it is a pleasure to follow the noble Lord, Lord Dykes, whose speech did not surprise us. No word of criticism about the European Union has ever been known to come from the noble Lord, Lord Dykes. What did surprise me was that when he reviewed the Third Reading of this Bill in another place, he selected the only Back-Bench Member to speak in favour of the Government, who happened to be a Labour Back-Bencher. He did not reflect what his own colleagues in another place actually said or did because his own colleagues voted with the Conservatives against the Third Reading of this dreadful Bill. It gives me no pleasure whatever to take part in this Second Reading debate. The Government should be ashamed that they are asking Parliament to ratify one of the worst financial deals in Europe that any Government have ever done. That is saying something because an awful lot of bad financial deals have been done in Europe over the years and your Lordships’ House should be ashamed to be part of the process.
We have had some excellent speeches this evening, laying bare the dreadful truth of this Bill. My noble friend Lord Waddington gave an excellent historical account of the betrayal of the UK’s interests. I shall be repeating some of that and make no apology because it is important to understand the scale of what has happened. The noble Lord, Lord Barnett, dazzled or perhaps confused us with his mastery of
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In 1984, the UK’s interests were the keen concern of the Prime Minister at the time, my noble friend Lady Thatcher. She tenaciously and skilfully fought for our country. To do that she had to alter the financial settlement with which a previous Labour Government had saddled us. She had to persuade all of the other countries in the EU. She did it and obtained the rebate mechanism which has delivered a total of £54 billion to the UK economy by the end of last year. It was a triumph.
The Government’s hand in going into the last own resources discussion could not have been stronger. Changing the rebate requires unanimity. As my noble friend Lord Waddington has already pointed out, Mr Blair portrayed himself as the defender of the UK. He said,
“The UK rebate will remain and we will not negotiate it away. Period”.—[Official Report, Commons, 8/6/05; col. 1234.]
And of course Mr Brown agreed with the statement that the rebate was “justified and not-negotiable”. As ever, the public cannot believe a word that this Government say. We could not believe them when they said in their manifesto that they would give the people of Britain a referendum on the EU constitution and we should have known not to believe them when they said that they would protect our rebate. The details of the rebate calculations are not important. The essence of the rebate is that it reduces the UK’s contribution to Europe to a more reasonable level. If the rebate had remained untouched by the Government’s ham-fisted negotiations in 2005, the UK would be paying €10.5 billion less, or £7.8 billion at current exchange rates. In fact, this is expressed at 2004 prices, which is how the Government have chosen to continue to present the EU budget figures, including in the Explanatory Notes.. The only thing that we know for certain is that the final outturn cost to the UK will be higher.
I do not need to spell out for the House the financial position of the Government, which is getting tighter by the day. Last week, the Institute for Fiscal Studies calculated in its green budget that the Chancellor would need £8 billion of tax rises in order to keep within the Government’s fiscal rules. The National Institute of Economic and Social Research came up with £9 billion. Does anyone seriously doubt that we can afford the voluntary handout to the EU of nearly £8 billion, which is the consequence of this Bill?
Other noble Lords have referred to what the rebate could be spent on, but the issue is really whether we could save by making cuts in expenditure or in tax rises in the UK. The Government claim that the rebate is going up in absolute terms in the next financing period. Of course, it is going up because the totality of
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I know that the Government like to present the Bill as the inevitable consequence of enlargement but that is a long way from the truth. The Bill does not affect the decision on total spending; it is just about the rebate. If Tony Blair had not abandoned his country’s interests in late 2005 our rebate would be roughly 25 per cent higher going forward. As it is we now have the double-whammy of a reduced rebate and higher underlying spending. Our average net contribution to the EU over the period 2000-06 was around £3.3 billion. Over the period to 2013, still at 2004 prices, it will be on average £2.3 billion higher, which is a rise of more than 40 per cent. I agree with other noble Lords that we should look at the figures before the EU gives us back some of our own money. The figures are quite bad enough when considered at a net level.
The structure of the rebate giveaway is about as bad as it could be for the UK. It ratchets up over the period so that the rebate as a proportion is much greater at the end than at the beginning. When we go into the next negotiation round, when the rebate reduction will cease to be capped, our rebate will be on a strong downward trend. The annual contribution paid net by the UK to Europe at the end of the next financing period is €6.4 billion at 2004 prices, and when inflation is added this will double our past rate of spending. That is likely to damage our prospects for a sensible negotiation in the next round since we will be arguing from such a low rebate base.
I turn to the underlying spending settlement. If the EU spent less, our rebate would normally be lower in monetary terms, but at least the net cash transfer to the EU would also go down. We believe that the EU should spend less. I remind noble Lords of the conclusion of the report Funding the European Union, to which the noble Lord, Lord Barnett, referred. That report—the 12th report of the 2006-07 Session—states:
“If real reform of the expenditure side were secured the scale of, and possibly the need for, the UK abatement would be reduced. The pressing need for reforms is on the expenditure side: reform of the revenue side, as addressed in this report, is desirable but less important”.
We thought that the Government shared those sentiments.
The worst example of spending, which is inefficient and unfair, is the common agricultural policy. It accounts for nearly 47 per cent of the overall allocated expenditure in the EU. The amount spent on it is set to rise over the period to 2013.
When Mr Blair began his retreat from his stance on the rebate—it was that,
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he replaced it with some tough sounding words on CAP reform. But he blew it. He ended up giving away the rebate without any reform whatever. When he tried to explain his sell-out on the rebate to Parliament, he said,
- “we also agreed on a fundamental review of all aspects of the EU budget, including the common agricultural policy ... it is then possible for changes to be made to this budget structure in the course of this financing period”.—[Official Report, Commons, 19/12/05; col. 1564.]
I wonder whether Mr Blair was just fooling himself or deliberately misrepresenting the likely outcome.
When the Commission’s discussion document on the budget review finally appeared, it clearly indicated that there would be no changes in the financing period up to 2013. Worse, it concentrated on the revenue rather than the expenditure side of the budget. The French Agriculture Minister announced to the French nation immediately after the budget was agreed that there would be no review of the CAP. The then President Chirac followed that up by publicly declaring that the current CAP was safe until at least 2020, and current President Sarkozy has declared that CAP reform must feature more protection for French farmers—that means more money for French farmers. Similar sentiments have been muttered in the Club Med countries, Ireland and Germany.
The CAP is not the only necessary target for reform. Regional funds remain unreformed. The wasteful Commission will see its spending rise by 28 per cent in real terms when it is plain for all to see that this is wholly the wrong direction to travel, especially since, as referred to earlier today, for the 13th year in a row the Court of Auditors has declined to give the EU’s accounts a clean bill of health. When do the Government realistically expect any meaningful budget reform to take place? Do they still expect some reform in this financing period? What do they think is the honest timetable to achieve reform of the CAP?
This Bill does not deliver a fair result to the British taxpayer. It will deliver an annual bill of around £30 to every UK citizen. We will pay 20 per cent more than France even though our economy is only 6 per cent bigger. Ireland, the second richest country in the EU, will still be a net recipient from the EU. The highest spending per capita is in Luxembourg, which is ludicrous. Any system of funding that produces these results is not fair and ought not to be allowed to continue.
This Government had a veto back in December 2005. They not only failed to use it, but also set the UK up for further rounds of financial pain at the hands of our European neighbours. They have not even apologised. The Government have let the people of the UK down. We are invited to conspire with them by approving this Bill. It is a money Bill, so, as we were reminded by the noble Lord, Lord Stoddart, it is outside the powers of your Lordships’ House to do more than nod it through. From those on these Benches, it will not get so much as a nod to see it on its way.
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8.43 pm
Lord Davies of Oldham: My Lords, I am grateful to all noble Lords who have contributed to this robust debate. The fact we are restricted solely to Second Reading concentrates the mind wonderfully, and that is why such forceful speeches were made on the issues raised by the Bill. I emphasise that the Bill represents a settlement and a future for Europe which is promising, fulfils the requirements of the United Kingdom and asks noble Lords themselves some serious questions, as well as the ones they have addressed to me.
First, there was a great deal of emphasis on the problems of the CAP—started by the noble Lord, Lord Waddington, who made his usual forthright contribution. He of course knows that the Government are as one with him on the need for far-reaching reform of the CAP. That remains an important priority for the Government. Nor do we fail to recognise the challenge this represents, a challenge faced up to by previous Conservative Administrations, who found themselves unable to cope as adequately as we have done with these issues.
Let me make the point. The CAP budget is declining. In line with the Brussels ceilings agreed in 2002, the budget commitments for agriculture are on a downwards trajectory. They will be 7 per cent smaller in real terms in 2013 compared with 2007. In the current financial perspective, the CAP accounts for 43 per cent of the EU budget, compared to 56 per cent in the budgetary framework agreed in 1994.
From the force expressed in the speeches from the other side—not just by the noble Lord, Lord Waddington, although he made an excellent start, but reinforced by the noble Lord, Lord Pearson, and again by the noble Baroness, Lady Noakes, to say nothing of the noble Lord, Lord Stoddart—anyone would think that the CAP monster was maintaining itself with the same force that it had done in the 1980s and 1990s and that there was no change at all. The problem with the analysis of all the positions on the opposition Benches is that it is an analysis of a static position, when Europe, European economies and the British economy are very much in a dynamic relationship.
I want noble Lords opposite to recognise that there are real developments in the present position. The noble Lord, Lord Waddington, suggested that we were surrendering our rebate for nothing—that nothing was being gained from that at all—and that the British negotiating position had been a complete failure, a position reinforced in fairly trenchant terms by the noble Baroness, Lady Noakes. How is it, therefore, that UK and French net contributions will be in rough parity over the next period, with France’s net contributions rising twice as fast as those of the UK? Does that suggest that the British Government are being rolled over while others exploit the so-called weaknesses that we displayed? Far from it. That was the achievement of a real recognition of what should be fairness within Europe.
Of course, we have not gone far enough. We all recognise that aspects of the budget are quite unacceptable. My noble friend Lord Barnett made a plea for clarity and for the Government to make things easily understandable for Parliament and for
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