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In the Parliament, that kind of ambition will be reflected. There will be an ambition to strengthen the commitment in the European budget to emergency aid, but, more particularly, to systematic long-term support for development in the Third World. There will be arguments over that too. I do not anticipate a huge increase in that area, but it certainly will be an alternative presented against the current level of agriculture spending as a proportion of the budget.

Those tensions are healthy, democratic tensions. Those pressures are democratic pressures that really do reflect the changing priorities of modern Europe, including this country. I do not think there would be anything remotely like majority support for maintaining even the level of spending as a proportion of budget that has been reduced, that still goes on the common agricultural policy. It is to the credit of the member

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states and the Commission that, in the years since the mid 1980s, the proportion taken by the CAP has gone from about 70 per cent, then down to just over 50 per cent and is now about 40 per cent and should not just be lower, but should be allocated in a different way. There would be a stronger mandate even for spending 40 per cent of the budget on agriculture, broadly defined, if a larger proportion of that 40 per cent was going to rural development so that communities were provided with alternatives and attractions to encourage young people to stay in the rural areas. I do not think there would be a terrific argument about that. However, that, too, is one of the arguments that will now be heard in consideration of the European Union budget to the degree that it was not heard outside the Commission or in the Council in past years.

I think that we are observing a healthy development in two respects. First, no change is implied in the total of the European Union budget, because I foresee no substantial change of will in the member states to bring about an increase in the total—certainly not one of any significance. Secondly, there will be a new source of argument about the priorities to be pursued with the money available in the European Union budget over a budgetary period. As the noble Lord, Lord Williamson, said, it will deprive the agriculture Ministers, with particular constituencies and priorities to serve over the decades, of a monopoly in conclusive decision-making on the way in which the budget for agriculture is spent. That budget still takes up a substantial part of the budget of the European Union.

Legitimate though his arguments are in a parliamentary context, I hope that in the detail the noble Lord, Lord Hunt, will seek an opportunity to withdraw the claim that the consequence of the changes in the Lisbon treaty will be that the budget will be bigger. That will not be the case. Indeed, I believe that the changes will bring about a better, more accountable and more democratic form of decision-making because it will be a new method of shared decision-making between elected parliamentarians and elected Governments. That will be an advance for the European Union and the people who pay for it—the taxpayers.

Lord Dykes: I apologise to the noble Lord, Lord Grenfell, who may want to intervene now. If he does, I will give way, but if it is convenient I shall carry on. I think we should all be very grateful that in this brief debate—I am sure we hope that it will be brief, because there are plenty of other amendments to follow—we have had the great benefit of having in this Chamber two of the key experts on budgetary matters in the form of the noble Lords, Lord Williamson and Lord Kinnock. I am personally extremely grateful, as I am sure these Benches will be. I thank the noble Lord, Lord Kinnock, for his remarks, which to some extent reiterated some of the comments of the noble Lord, Lord Williamson, but they also put a modern gloss on the matters that we will see in the new budget mechanism in the future if all works out well.

What surprised me about the rather masterly analysis of the noble Lord, Lord Hunt, which I think we all enjoyed, was that it sounded like an explanation of the budget of several years ago—particularly the CAP

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components and so on, and the distinction between compulsory and non-compulsory expenditure. He is right to say that the system will persist for a few more years before the changes come about but it sounded like living in the past. I apologise for repeating a point that was made last week by me and perhaps by others but this issue comes back to the nature of the origin of the amendment, which I think was Amendment No. 89 on page 563 of the House of Commons Marshalled List, probably of 3 February, if my memory of the numbers and date is correct. However, on that occasion, it was put forward not by Mr William Cash and Mr David Heathcoat-Amory but by Mr William Cash and Mr John Redwood. Presumably, in anticipation that the noble Lord, Lord Hunt, would be introducing this amendment today, the media sources in Vulcan—they have prescience and foresight there, which we do not yet have electronically in Great Britain or our universe—have been sending him the explanation of the budgetary system which will be replaced. I strongly agree with the assertion of the noble Lord, Lord Kinnock, that there is no way in which the belief of the noble Lord, Lord Hunt, that the budget will automatically grow too big beyond the existing level can be proven just by the change in this mechanism.

I regret very much that a person who has honourably described himself as a European enthusiast—I accept his explanation—would seek to put a spanner in the works with this amendment. That is why I hope that it will not be pressed and that he will withdraw it at the end of this debate. It is a spanner in the works of a modernisation of the budgetary system which has been extensively worked on, fought for and struggled for over recent years both by Members of the European Parliament and—strangely, because it may seem as though there is a conflict of interests—by members of the Council of Ministers of the various member states. They see the need for modernisation and for the abolition of the distinction between compulsory and non-compulsory expenditure.

This European budget remains a minuscule proportion of the total public, central government and other expenditure in all the member states. It is of the order of 1.5 per cent of total public spending, as was mentioned by the noble Lord, Lord Williamson. That is a tiny proportion. It remains a virtuous system in the sense that its receipts automatically equal its payments. That is particularly the case given that the UK now has an uncomfortably large budget deficit—the Conservative Benches in the Commons suggest that historically it is one of the biggest deficits ever. How many member states will be in that position? The answer is: not many. A while back, that was regarded as a virtue for member Governments—or individual national Governments before the European Community was created.

Bringing in the European Parliament must surely be seen as sensible by noble Lords on the Conservative Benches, including the noble Lord, Lord Forsyth, and others, who earlier lamented the lack of a sufficient democracy within the European Union. That is precisely why this mechanism is being modernised under the proposals of the treaty. Therefore, it seems a shame that, once again, the Conservatives are not bringing us all up to date on what the Conservative Party in the Lords really feels about the European Union, our

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membership of it and this Lisbon treaty. It is a modest modernising treaty if ever I saw one—it is totally different from the old constitutional proposals—and the budget is a good example of that. The Conservatives are stuck in a groove, reflecting the other place, with the much deeper hostility towards Europe that is always encountered there.

Subject to further arguments in this debate, surely we must back the Government in the proposal to support new Article 9A in the Lisbon treaty in order to bring about greater involvement by the European Parliament. The need for a health check for the CAP would coincide with that process. That would be mainly a Council of Ministers function and the European Parliament would react to it rather than being a prime mover. That is right because this will be a decision between sovereign member Governments. Personally, I do not believe that the French Government will be as difficult as some of the British newspapers suggest. They see the reality of the changes in the agricultural world, even in France. No one can criticise France, where the agricultural population has now fallen to 3 per cent; after the war, it was traditionally 25 per cent but many farms in France have closed down. The French see the logic of the modern system of the single farm payment, providing for the resuscitation of the environment and all sorts of other activities linked to farming. The end to production subsidies will come about quite soon—over the next few years—and, instead, there will be support for environmental and agricultural modernisation and investment. That must be the way forward. The elected representatives of the European Parliament, as well as the national MPs of all the national parliaments, will work together to achieve that objective. They will work with the Governments rather than follow the old-fashioned system that the noble Lord, Lord Hunt, seems to think should carry on for ever.

Lord Grenfell: I hesitate to intervene. I assure the Committee that I shall intervene very rarely in the Committee and other stages of the Bill, and I hope that I stick by that. The report of your Lordships’ Select Committee seems to be something of a Cinderella in the debate. By consensus, we reached some conclusions which I think the Committee may want to recall. If I may, I shall mention one in particular, and I do so in no partisan spirit—I am neither for nor against the amendment. I am simply recalling what the all-party committee agreed by consensus as a conclusion on the question of the European Parliament being part of the co-decision procedure on compulsory expenditure—in particular, in relation to the common agricultural policy. Therefore, perhaps your Lordships will forgive me if I quote from paragraph 10.39 on page 230 of our report, which I hope will be helpful to the Committee:

That was a consensus conclusion.

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6.30 pm

Lord Pearson of Rannoch: I give rather lukewarm support to this somewhat lukewarm amendment. Before dealing with the amendment itself, I will comment on the usual Europhile canard that has been put forward by the noble Lords, Lord Tomlinson and Lord Kinnock, supported by the noble Lord, Lord Dykes.

Lord Tomlinson: I have not spoken yet on this one.

Lord Pearson of Rannoch: I meant the noble Lords, Lord Williamson, Lord Kinnock and Lord Dykes. I apologise to the noble Lord, Lord Tomlinson—

Lord Tomlinson: You won’t in a minute.

Lord Pearson of Rannoch:I fancy that the noble Lord would agree with the other three noble Lords that we really need not worry about this question of the EU budget because it amounts to only some 2 per cent of GDP and so is not worth bothering about.

That canard is closely associated with that other line that we generally get from Europhiles, which is that there is really nothing much to worry about with the European Union because there are only 30,000, or 40,000, or perhaps 60,000 civil servants employed in Brussels—fewer than the Scottish Office used to have. Of course, the answer to that is that those 30,000, or 40,000, or 60,000 civil servants, whose number is difficult to discern accurately, make the law supported in the Council that is then executed by the civil services in all the member nations, which control the democracies of hundreds of millions of people. I hope that we will not get too much more of that in these debates.

On the amendment itself, it is of course good that the European Parliament will now have more control over the budget, as the noble Lord, Lord Hunt of Wirral, explained. Well, it would be good if the European Parliament were actually going to use its new powers. The basic point here is that no European institution—not the Parliament, the Commission or the Court—wants to halt, inconvenience or hold up the gravy train that is the European Union.

We have the clearest possible demonstration of that in the story of Marta Andreasen, who, as your Lordships may know, is now treasurer of the UK Independence Party. Mrs Andreasen was the first qualified accountant ever to be appointed to the position of chief financial officer in the European Union and, under the treaties, the chief financial officer had the power to control and be responsible for the budget. What happened? When she refused to sign off the first set of accounts that were put in front of her, she was first suspended and eventually dismissed. She is now appealing, so I do not want to say much more about her case, except that the first stage of that appeal—at some form of staff court in Brussels—found entirely against her and merely parroted the Commission’s position. There is no hope, then, of reform coming in this area from the European Union institutions.

As other noble Lords have mentioned, the accounts have not been signed off for 13 years. I remind the Committee that that process has been undertaken by the EU’s internal auditors; this is an organisation whose internal auditors have refused to sign off its

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accounts for 13 years. If that happened anywhere else in the normal world, the directors would have been locked up at least 10 years ago, so I have a proposal that I hope that the Government will take seriously. I am sure that they will put this to the appropriate channels in Brussels. It is, quite simply, that the Court of Auditors should be abolished and a leading firm of international accountants appointed in its place, for perhaps five years. That leading firm should be selected by the donor nations to the EU’s profligate coffers.

In other words, the countries that produce the money for that absurd circus should be the ones to select a major firm of international auditors to get inside Brussels and see what is happening. Then the taxpayer might begin to get better value from this project and a greater understanding of it—and thus a greater determination to leave it. I would be grateful to know what the Government think of that considered suggestion.

Lord Hannay of Chiswick: It is always a pleasure to follow the noble Lord, Lord Pearson. I enjoyed him getting his canards in a twist just now; I am glad that he sorted them out eventually. However, on this issue, I was rather astonished to see this amendment proposed on the Marshalled List. I wondered why on earth those who oppose this Bill and treaty were looking a gift horse in the mouth. I understand a bit better now; I suppose that the real answer is that the red flag of more influence for the European Parliament had gone up and was considered to be a conversation stopper.

Through all my experience of the European Union, which has covered quite a few years, British Governments and Members of the European Parliament have railed against the distinction between obligatory and non-obligatory expenditure. Now that that is about to be abolished, they discover that they wish that they had had more of it. I honestly do not think that wise.

The introduction by the noble Lord, Lord Hunt, was subtle and careful, as usual, but he did not mention a couple of fairly germane points. First, what he called the nuclear option brings about something that could bring everyone to their senses if it ever had to be used, as the European Union would go on to what are called provisional twelfths. That is to say, it would have to spend per month what was available the year before. That is a conservative measure, so we should not feel worried by the possibility that it might arise in circumstances where one or another institution was going too far.

Secondly, the noble Lord did not mention something rather important on the European Parliament—and although I do not wish to get into it, the proportion of gross national income covered by the European budget is a genuine issue. It is that the European Parliament, in so far as it gets more influence on the obligatory spending—when that becomes obligatory no longer—will still be totally constrained by the financial perspectives for the next six years and thereafter. These are agreed by inter-institutional agreement between the Parliament, the Council and the Commission. The flexibility given in all this will be pretty modest, so the amount of risk in giving the Parliament more say on the matter is pretty small.

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I will not stand here and argue that it is a sure, done deal that the Parliament will actually use its powers on every occasion as we would wish, but the words of wisdom from the European Union Select Committee should be considered rather carefully. The balance has shifted in the parliamentary committees and I hope very much that this amendment will not, on reflection, be agreed.

Lord Tugendhat: Over 20 years ago, I was the commissioner in charge of the budget. Of course, much has changed in the mean time and my recollections are, no doubt, out of date. However, I would like to cover some of the same ground as the noble Lords, Lord Hannay and Lord Williamson, both of whom I had the pleasure of working with when I was a commissioner. They were then British civil servants.

First, I agree very much with the point made by the noble Lord, Lord Hannay, about what my noble friend Lord Hunt called the nuclear option. It is far from that; the budget was indeed rejected one year when I was the budget commissioner and everything went along smoothly thereafter on the one-twelfth system—a very effective way of curbing public expenditure. I am not suggesting that it should be used very often but, far from laying waste to the budget, it enables controls to be exerted.

I agree with the point made by the noble Lord, Lord Williamson, that the European budget should be seen not in isolation but as a part of the totality of public expenditure within the European Union—as part of the totality of what is spent at the Union level and what is spent at the national level. In my opinion and the opinion of many noble Lords, rather more is still spent on agriculture than is justifiable but, as the noble Lord, Lord Williamson, said, we are talking about something like 1 per cent, which helps to put it into context.

I do not agree with the noble Lord, Lord Pearson of Rannoch—I rarely do on these occasions—that because we point out that the European budget is only a very small proportion of European public expenditure, those of us who support the European Union feel that it somehow does not matter. Of course the budget should be subjected to exactly the same disciplines and constraints as public expenditure at the national level or at the local level. No one in his or her right mind—I am sure that the Minister will agree on this point—would suggest that you should exert discipline on public expenditure at one level but not at another level. It is quite absurd of the noble Lord to suggest otherwise.

My penultimate point is that, rather than being about a larger or smaller European budget, the argument ideally should concentrate on whether expenditure can be most effectively made at the European level or at the national level. It is not a case of saying a big European budget is good or bad; it is a case of saying at what level—European, national, local or whatever it may be—expenditure can most effectively be made in the public interest.

The burden of proof in those circumstances should almost always be on those who wish to transfer expenditure from the national to the European. I do not think that a large budget is a sign necessarily of a

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vigorous European Union. The European Union is about many things other than the budget and many of them are more important to the life of the European Union than the budget. In my view, the burden of proof should in general be on those who wish to transfer expenditure from the national to the European level.

For that reason, I support a cap on the proportion of public expenditure that can be spent at the European level. I am in favour of a cap partly because I do not share the confidence that some others have in the European Parliament. Where you have an elected assembly—whether it is the European Parliament on the one hand or the Scottish Parliament on the other, to take two examples—that has the power to vote expenditure but is not responsible for voting the taxes that go to fund that expenditure, you tend to get the members of those assemblies generally in favour of spending. It is always nice to be in favour of spending and it is always less pleasant to be in favour of higher taxes. My own experience of the European Parliament—now a very long time ago—was that, in general, there was always a majority for spending more.

If the European Parliament is to exert the kind of discipline on the budget that we wish to see, it needs to be within the context of a cap so that more on one lot of things will mean less on another lot of things rather than more on everything. The lessons of the European Parliament in relation to public expenditure might very well be applied in dealing with the Scottish Parliament.

6.45 pm

Lord Tomlinson: The debate has reminded me of my 15 years as a member of both the Budget Committee and the Budgetary Control Committee in the European Parliament. It has reminded me of one of the happier moments—the noble Lord, Lord Tugendhat, referred to this—when the budget was rejected and we went on to provisional twelfths. It was quite remarkable how, just before the summer holidays, the rational European Parliament realised how much in pay and allowances was being stored up by provisional twelfths. I am sure that it had a salutary effect on its members to approve the budget just before the break in order to give themselves sufficient resource to go and enjoy it.

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