EU Finance (Hansard, 15 June 2004)

§ Mr. Deputy Speaker (Sir Alan Haselhurst)
Mr. Speaker has selected the amendment in the name of the Leader of the Opposition.

§ The Paymaster General (Dawn Primarolo)
I beg to move,
That this House takes note of European Union documents No. 6232/04, Commission Communication: Building our common future: Policy challenges and Budgetary means of the Enlarged Union 2007–2013, and No. COM (04) 107, Commission Communication: "Third report on economic and social cohesion"; supports the Government's efforts to refocus allocations within a budget of 1 per cent. of EU Gross National Income in support of the European Union's goals, with structural funding focused on the poorest member states; and in particular, supports the Government's view that the Commission's overall proposals are unrealistic and unacceptable, that its structural funds proposals are inconsistent with the United Kingdom's objectives for reform, and that the future European Union Budget should be reprioritised and refocused in line with the principles of subsidiarity and spending that adds value at the European Union level. The Government welcome the opportunity to debate the European Commission's communication on its framework proposals for the next financial perspective and its third report on economic and social cohesion. It is of course right that the debate is taking place on the Floor of the House so that all hon. Members with an interest may contribute.
As part of the scrutiny process, the European Scrutiny Committee has asked further questions about the Government's position on the Commission's future financing communication. The Government have given full answers to those questions and I am glad to learn that the Committee shares our attitude that the EC budget should be subject to a rigorous assessment of its value for money and supports the need to appraise existing activities.
On 10 February 2004, the Commission published "Building our common future: Policy challenges and Budgetary means of the Enlarged Union 2007–2013", which set out its proposals on the political priorities of the enlarged European Union, the framework, instruments and levels of EC budget expenditure, and how that expenditure should be financed between 2007 and 2013. That was followed on 18 February by the publication of the Commission's third report on economic and social cohesion, which set out progress made towards achieving economic and social cohesion
703 in the Union and the Commission's proposals on the future of the structural and cohesion funds over the same period.
As the European Scrutiny Committee noted, the Commission's communication is an important document, so it is right for the House to have the opportunity to debate its contents. In the communication, the Commission defines its three priorities for the next financial perspective: first, the completion of the internal market so that it can play its full part in achieving the broader objective of sustainable development; secondly, establishing the political concept of European citizenship that is based on the completion of an area of freedom, justice and security, and access to basic goods; and, thirdly, having a Europe that plays a coherent role as a global partner.

§ Mr. John Redwood (Wokingham) (Con)
Will the Minister remind the House what the auditors found regarding the high proportion of waste and fraud in the current disposition of the budget? What action can Her Majesty's Government take to force the Commission to undertake better and wiser expenditure of moneys so that our taxpayers may get a rebate instead of being asked for more?

§ Dawn Primarolo
The right hon. Gentleman, who follows these debates closely, raises an important issue. We shall debate this afternoon how to ensure that the Commission has an appropriate budget that is clearly based on subsidiarity, and is also based on added value and understandings about appropriate expenditure that is properly monitored and accounted for. I urge him to bear with me as I outline the Commission's view before moving on to the Government's key principles and our objectives in the negotiations. In doing so, I will deal with his points, as well as many others.
The Commission communication sets out its budgetary proposals to support the achievement of its objectives. As for the overall level of spending, it proposes commitment appropriations of more than €1 trillion over the period 2007 to 2013, representing an average of 1.26 per cent. of the EU gross national income, compared with 1.08 per cent. in 2004. The corresponding proposed payments ceiling is about €930 million, averaging 1.14 per cent. of EU GNI, compared with 0.97 per cent. in 2004. Hon. Members will note the wide scope of the communication proposals, which include increases in spending on research, education, training and EU networks intended to boost competitiveness and employment covering: fresh action in the area of citizenship, freedom, security and justice; the integration of the European development fund in the budget; measures to improve the quality and effectiveness of expenditure; a road map designed to bring together goals, objectives, instruments and indicators; proposals on the duration of the financial perspective; and the classification of expenditure.

§ Mr. Peter Luff (Mid-Worcestershire) (Con)
Will the right hon. Lady give way?

§ Dawn Primarolo
I should first like to make one final point. I stress to the hon. Gentleman that I am setting out the Commission's proposals, which include flexible procedures for adjusting expenditure ceilings.

§ Mr. Luff
The document that the right hon. Lady is outlining seems to be one of huge and genuine significance. Is it primarily a matter for the Treasury or the Foreign Office? I understand that the Minister for Europe will respond to our debate.

§ Dawn Primarolo
I remind the hon. Gentleman that the House is discussing two sets of communications this afternoon—the financial perspectives, on which the Treasury leads, and the cohesion report, on which the Department of Trade and Industry leads. However, it works closely with he Treasury, both on the financial perspectives and on cohesion.
It may help the House if I give the Government's view of the Commission s proposals, which are politically unrealistic and unacceptable. It has failed to grasp the opportunity offered by the negotiation of a new financial perspective to increase the effectiveness and transparency of European Union expenditure and to consider how allocations within a limited EU budget can best be focused on adding value at the EU level, including underpinning the Lisbon strategy for European economic reform. The issues of effectiveness and transparency go to the heart of the questions asked by the right hon. Member for Wokingham (Mr. Redwood).

§ Mr. David Stewart (Inverness, East, Nairn and Lochaber) (Lab)
Does my right hon. Friend share my view that the fact that the UK is a net contributor to the EU budget is a crunch issue? Increasing the budget effectively means that the UK taxpayer is paying twice.

§ Dawn Primarolo
In his uncompromising message to Finance Ministers in European-level discussions, the Chancellor of the Exchequer made it clear that, when each member state has to take tough decisions on spending and show fiscal discipline, it is unacceptable and unrealistic for the Commission to propose a 25 per cent. increase in its spending. He also told Finance Ministers that it would be wasteful and inefficient to increase spending on current Commission programmes that do not match the European Union's economic reform priorities and in some cases, such as the common agricultural policy, work against them. The Government's view clear about the negotiation that is necessary on the financial perspectives and where we are starting from.
Indeed, as the Prime Minister set out to the House in December last year, the Government view a budget of 1 per cent. of EU gross national income, with growth and reprioritisation, as adequate to meet the needs of an enlarged Union. That view is shared by the heads of five other member states—Germany, France, Sweden, Austria and the Netherlands—who have also written to Commission President Prodi, arguing for a budget stabilisation around 1 per cent. of EU gross national income.
With that in mind the Government believe that EC budget spending should be objectives-focused, with the emphasis on policy outcomes rather than budgetary inputs; that it should he evidence-based, with a proper evaluation of budget, try policy; that it should be based on a proper assessment—again, I think this is what the right hon. Member for Wokingham was driving at—for existing and new arras of spending, of whether the 705 Union budget is the best instrument for adding value at the EU level; and that it should ensure sound financial management, budgetary discipline and an equitable distribution of spending across the EU, consistent with value-added principles and objectives. It is the Government's view that the Commission has failed to respond adequately to the challenge posed for the next financial perspective.

§ Mr. George Howarth (Knowsley North and Sefton, East) (Lab)
As my right hon. Friend may have expected, I have received a communication from our colleague the Member of the European Parliament for the North West, Arlene McCarthy, who asked me to stress that she fully supports the Commission's proposals. For my own part, I am concerned about the effect on objective 1 status on Merseyside, particularly on many of the ongoing projects and schemes across Merseyside and in my constituency that are addressing problems that need to be addressed. Will my right hon. Friend agree to meet local authority leaders, myself and parliamentary colleagues to discuss our concerns so that we can hopefully reach an equitable solution?

§ Dawn Primarolo
I am always happy to facilitate meetings between Members of the House and Treasury Ministers, including myself, as my hon. Friend requests, so that I will be able to explain clearly to Members of Parliament and the colleagues whom my hon. Friend wishes to bring to such a meeting the Government's intentions with regard to reform of the structural funds and the benefits that that will bring. If he will forgive me, I shall return to that matter later in my speech when I discuss the cohesion report.
On the common agricultural policy, the Government are a leading advocate of CAP reform, pressing for a more liberalised and market-focused agricultural sector. Last year, we succeeded in a significant reform of the CAP, for the first time largely breaking the link between tax-funded subsidies and production. This year, we secured yet more reform, including an end to the specific subsidies for tobacco from 2010 and a significant reduction in trade-distorting support for cotton, which is a key product for some of the world's poorest countries. The Government will continue to press for CAP reform, with the next stage likely to be the reform of the sugar regime.
For external actions, the Government would like the next financial perspective to refocus development assistance on poverty reduction and achieving the millennium development goals, to enhance the EU's capacity for crisis management an i conflict prevention and to improve flexibility across the budget to respond to unexpected spending needs.
For present internal policies, the Government will seek to focus spending on a smaller number of initiatives that demonstrate added value, especially in supporting the Lisbon agenda objectives and n pursuing freedom, security and justice objectives.
I turn now to the Commission's communication on the third cohesion report. Again, that is a wide-ranging document that examines changes it economic and social differences between member states, regions and social groups and how member states and EU policy may be affected by these changes. In terms of the link with the 706 wider Commission proposals for EC budget expenditure, it sets out the Commission's proposal for the reform of the structural and cohesion funds for the period 2007 to 2013. The Commission's proposals in that regard focus on the three objectives of convergence, regional competitiveness and employment, and European territorial co-operation. To meet those objectives, the Commission proposes increasing spending by 30 per cent. from €260 billion over the current financial perspective—2000 to 2006—to €336 billion, or 0.41 per cent., of EU gross domestic product, over the period 2007 to 2013. Including, as now, expenditure on the proposed single rural development and fisheries instruments, spending would rise by around 40 per cent. to €370 billion, or 0.46 per cent. of EU GDP.
Despite the fact that with enlargement the richest parts of the Union would become more than 10 times richer than the poorest, the Commission proposes that less than half of the structural and cohesion funds should go to the new member states where they add most value.
The Government do not share that view of the future of the structural funds. Following a UK-wide consultation on the future of the funds last year, the Government proposed an EU framework for devolved regional policy. Under that approach, all EU member states would agree to pursue common objectives in support of regional development, but delivery would be substantially devolved and decentralised to give member states and regions the freedom and flexibility that they need to pursue their own strategies.

§ Mrs. Claire Curtis-Thomas (Crosby) (Lab)
As my right hon. Friend will know, the north-west has received multi-billion-pound investment through the objective 1 funding programme. I welcome her comments on devolving budgets, but given the region's concerns about the future of funding, will she, as my hon. Friend the Member for Knowsley, North and Sefton, East (Mr. Howarth) requested, agree to meet local chief executive officers and Members of Parliament so that we can talk further about the investment that is needed to underpin our economy and our robust employment situation?

§ Dawn Primarolo
I see the potential for a long queue outside my office. I understand that the Minister for Industry and the Regions has met my hon. Friend and her colleagues for discussions. I would not wish to deny Members access to Ministers to discuss such important issues but I emphasise that preventing the costly recycling of funds is at the heart of reform. Let us consider the instruments that are already in place in the United Kingdom and the further commitments that have been made, for example, through regional development funds, the role of local authorities and the funding streams for employment, enterprise and competitiveness. We must ensure the continuation of the Government's commitment to economic growth in all regions and nations of the United Kingdom and of our support for those regions in that development.
Although I would be happy—another Treasury Minister may have to be happy—to discuss this important matter with my hon. Friend the Member for
707 Crosby (Mrs. Curtis-Thomas) and others, I stress to her that it is inappropriate for any member state to pay an increased contribution to get less back when arrangements could be secured in the negotiations to support the development of the regions.

§ Adam Price (East Carmarthen and Dinefwr) (PC)
rose—

§ Ms Candy Atherton (Falmouth and Camborne) (Lab)
rose—

§ Mr. George Howarth
rose—

§ Dawn Primarolo
I shall give way to the hon. Member for East Carmarthen and Dinefwr (Adam Price) shortly. A few Labour Members want to intervene and I have a feeling that I shall be in meetings until Christmas at this rate. However, I shall not forget the hon. Gentleman. First, I shall give way to my hon. Friend the Member for Falmouth and Camborne (Ms Atherton).

§ Ms Atherton
I do not wish to add to the length of the queue outside my right hon. Friend's door but I ask her to acknowledge that the Commission is calling for the poorest region in both the United Kingdom and the north of Europe—Cornwall— to receive the full tranche of 2007 objective 1 funds. Will she make a commitment that the Government will work with Cornwall to ensure that we enjoy the same employment and other opportunities as other parts of the European Union, north, west, central and south?

§ Dawn Primarolo
My hon. Friend is a fierce and convincing advocate for Cornwall and use of objective 1 funds. I have had the opportunity of discussing the matter with her previously. I emphasise to her and all hon. Members that the Government's policy on the economic development of all the regions and countries of the United Kingdom is clear. Our objective is to ensure employment growth, skills development, competitiveness and productivity in them all. We are discussing the most effective and efficient way, with added value and respecting subsidiarity, to continue to achieve those objectives.

§ Mr. George Howarth
Will the Paymaster General give way?

§ Dawn Primarolo
If my hon. Friend will wait a moment—I have given way to him previously—I shall come back to him. First, I give way to the hon. Member for East Carmarthen and Dinefwr.

§ Adam Price
The Commission said that, under its proposals, regions such as west Wales and the valleys would have continued to qualify for objective 1 under the previous system with 15 member states but will not because of enlargement, and would therefore receive transitional relief of between 60 per cent. and 85 per cent. of the funding that is currently available. Will the Government guarantee that the same amount of 708 transitional relief—between 60 per cent. and 85 per cent.—will be available to those regions under their proposals?

§ Dawn Primarolo
First, if the Commission is making promises, it is doing so on the basis of a budget that it does not yet have. Secondly, I refer the hon. Gentleman to the statement of he Secretary of State for Trade and Industry in which she clearly set out the methodology that the Government would follow to ensure the development of all t le regions and nations of the United Kingdom in pursuing our objective of raising all to the levels of growth and employment from which some currently benefit.
As all member slates will do, the Government are entering a negotiation process with the Commission about future funding. It is crucial that we judge that on added value, subsidiarity, the efficiency and effectiveness of the pending, and the opportunities for us to streamline and simplify the process and cut out the wasteful recycling of funds that often happens. I am sure that all hon. Members would wish to achieve the continued support for that development that will result from the Government's economic policy.

§ Mr. George Howarth
From the tone of my right hon. Friend's response to my hon. Friend the Member for Crosby (Mrs. Curtis-Thomas) and me, I think that she may have misunderstood the point that we were trying to make. We are not into special pleading for Merseyside and the north-west, although, since the occasion presents its elf, we might well engage in some. My concern is that, as matters develop and as the Government develop their own approach to those matters, we should deliver my right hon. Friend's objectives—many of which I share—to the areas where they are most needed, rather than spraying them about indiscriminately. There is probably not much difference between us on this, which is why I think that a meeting would be helpful.

§ Dawn Primarolo
My hon. Friend is a passionate advocate for the area that he represents, as I would expect all hon. Members to be. I hope that I did not misunderstand his pleadings, or give an incorrect indication to the House. What I said was that, following a UK-wide consultation on the future of the funds last year, the Government have proposed an EU framework for the devolved regional policy. Under that approach, all member states would agree to pursue common objectives in supporting regional development, but the delivery would b. substantially devolved and decentralised. That would give the member states and their regions and nations the opportunity to pursue their own strategies.
To ensure that funding is focused where it will add most value, the Government have proposed that those member states eligible for the cohesion fund—Greece, Portugal and the new member states—would continue to receive EC funding, while richer members would take primary responsibility for financing regional policy themselves, thus ending the current system of wasteful recycling of funds between net contributors. That is the issue from a financial perspective.
Hon. Members on both sides are rightly pressing me to ensure that the Government remain strongly committed to regional development and, to that extent, 709 we have guaranteed that, if our proposals on reform of the structural funds are agreed, domestic spending on regional policy will be increased, so that the United Kingdom's nations and regions will receive a level of resources that will ensure that they do not lose out following the UK proposals. That has been the subject of discussion and consultation, involving a large number of meetings. The UK pays 1.6 euros for every 1 euro that it receives under the current financial perspective. Paying for UK regions means paying for other regions of equal wealth elsewhere, which could cost a great deal. That is why the Government are suggesting this way forward, so that we can direct our resources to our regions.

§ Sir Archy Kirkwood (Roxburgh and Berwickshire) (LD)
I come from a region where the use of European funds could hardly be better. Improvements can always be made, but we have been very successful in deploying such money as we have had.
I am listening carefully to what the Minister is saying, and the problem with the Government's position at the moment is that, while they may have support from five other member states for the reduction of the budget— she mentioned that in the first pan of her speech and I understand it—there does not seem to be any agreement between the six that are trying to get the budget constrained about what should follow. Her suggestion that there should be subsidiarity may well be sustainable, but how much support is there among those six colleagues for that? Obviously, if she gets regionally repatriated policy, she must make serious amendments to the state aid rules for that to be of any use whatever.

§ Dawn Primarolo
If I can start with the state aid rules, as the hon. Gentleman knows, those are also a matter for discussion under the proposals being put forward by the Commission with regard to slate aid and regional policy. I am sure that he finds this in his local communities as well, but there are issues with regard to the bureaucracy and complexity of the application for funds. I will put it simply: the Government have committed to increased funding on the basis of 1.6 euros for every 1 euro that we receive, whereas the current proposals in relation to distribution among all member states are for a 50:50 arrangement, so the richer states would also receive it. I am sure that he will agree that we should put forward the proposal passionately and enthusiastically.
The hon. Gentleman questions me with regard to a consensus on cohesion. As he knows, that is sometimes a difficult issue. At this point in the negotiations and discussions with other member states, the Government are strongly of the view that we can put forward our proposals and that they will receive support. I must say, however, that this is the beginning of a long negotiation. If we consider other long negotiations in which the United Kingdom has entered discussions with 14 against and only the UK in favour—the discussions on the savings tax directive spring to mind—he should take comfort from the Government's persistence and ability, in representing the House, to persuade other member states of the correctness of the proposal. On the financial perspectives, the process is about negotiation and putting forward a strong case. I am setting out for the 710 House the principles that we will follow and the objectives that will guide us in negotiations, and we will pursue that process with considerable vigour.

§ Mr. Michael Moore (Tweeddale, Ettrick and Lauderdale) (LD)
I echo the comments of my hon. Friend the Member for Roxburgh and Berwickshire (Sir Archy Kirkwood). In our part of Scotland, which has a series of economic problems, whether in the agriculture sector or textiles, structural funds from Europe, coupled with regional selective assistance over the past few years, have been absolutely crucial to the restructuring of that economy. There is now a state of flux and uncertainty about the future in relation to both those issues. Can the Paymaster General explain to the House exactly what the guarantee from the Government will mean for our region?

§ Dawn Primarolo
I have covered that clearly in terms of the Government's commitment to the English regions and the nations that make up the United Kingdom. As I have suggested in response to previous interventions, the hon. Gentleman should consider the statement from the Secretary of State for Trade and Industry on the methodology that will be used. I would also say that this Government, since 1997, at times in the teeth of opposition from some Members, have created an active regional policy through the regional development agencies and investment in skills and employment. Over that period, we have clearly articulated our commitment to growth and prosperity in all the English regions and the nations that make up the United Kingdom. I see no reason for the hon. Gentleman to doubt that commitment, and I am a little surprised that he does not understand the importance, at the beginning of negotiation, of setting out—clearly as I have here today—the principles, the objectives and the process according to which we will negotiate the delivery of priorities.

§ Mr. Wayne David (Caerphilly) (Lab)
Does my right hon. Friend agree that part of our current difficulty is caused by the fact that the European Commission, which is strongly opposed to the Government's proposals, is trying to promise UK regions larger sums which have not been agreed and will not decide where those sums will come from?

§ Dawn Primarolo
I entirely agree. My hon. Friend puts the case rather more succinctly than I did.
As I have said, the Government are strongly committed to regional development. We are guaranteeing that if our proposals for reform of the structural fund are agreed, domestic spending on regional policy will increase so that the UK nations and the English nations receive an amount that will ensure that they do not lose out. I do not think I could be any clearer at this stage.

§ Mr. Bill Tynan (Hamilton, South) (Lab)
rose—

§ Mr. Mark Hendrick (Preston) (Lab/Co-op)
rose—

§ Dawn Primarolo
May I ask my hon. Friend the Member for Preston (Mr. Hendrick) to wait for a moment? I shall return to him after giving way to my hon. Friend the Member for Hamilton, South.

§ Mr. Tynan
Obviously there is concern about the structural and cohesion funds. The assurances about the Government's position and the protection that will be given to areas that are currently beneficiaries are important, but the real issue is this: if we are sticking to a budget of 1 per cent. of EU gross national income, the poorest nations will qualify under a 75 per cent. formula. Does my right hon. Friend support that?

§ Dawn Primarolo
I dealt with that earlier. According to the Commission's proposals, funds will be distributed among all 25 current member states. There will be a 50:50 weighting arrangement for the nations at the heart of the European Union, which are the richest. That too must be dealt with. Aid should be directed towards those in greatest need. If we arrange spending at the EU level we must do so on the basis of added value, in a way that is appropriate and supports subsidiarity. That will not prevent other member states from agreeing, with a common purpose, to pursue their own regional policies.

§ Mr. Peter Atkinson (Hexham) (Con)
rose—

§ Dawn Primarolo
I must give way first to my hon. Friend the Member for Preston, who has been waiting patiently.

§ Mr. Hendrick
I am sure that no Member on either side of the House would object to the continuance of greater assistance for regions that need it, but can my right hon. Friend explain the logic of reducing the size of the EU budget to the extent that is proposed when 10 new states, mostly very poor, are entering the EU with worse economic situations than ours?

§ Dawn Primarolo
One per cent. growth in the budget is substantial. At a time when other member states are following a tight fiscal discipline, the Government think it reasonable to require the Commission to do the same, and to pursue the policy that we pursue domestically. That is why the Government are advocating, as I said, that there should be, at the beginning of the debate on financial perspectives, a thorough appraisal of where the Commission is spending its money, the efficiency and effectiveness of that, and whether that is the most appropriate way of spending.
When spending at a European level, it is right that we ensure that we are getting added value. We are talking about a substantial budget, and I am sure that my hon. Friend the Member for Preston will agree that it is right for the principles of budgeting to include: first, defining what sort of items merit public spending; secondly, determining the available resources; and thirdly, determining spending priorities based on evidence and political judgment. That is what the Government are advocating in pursuing this matter.
A budget of 1 per cent. of EU GNI is ample to meet the needs of the enlarged Union, but reprioritisation to ensure that EC fund spending adds value at EC level is key, and it is on that that the Government and other member states are pressing the Commission. It would be absolutely irresponsible to European Union taxpayers simply to lump new spending proposals on top of existing ones. We would expect neither our domestic Administrations nor the international community to do that, and the Commission should not do so either. So, as 712 I have said, a thorough appraisal of spending and where it goes has to be part of the financial perspective in order for us to come to reasonable judgments on future financing.

§ Mr. Peter Atkinson
I find myself in the somewhat unusual position of agreeing with much of what the Paymaster General says. Can she give us some idea of the Government's thoughts on state aid if she succeeds in repatriating regional development money? That is a key issue in the north-east of England. Who would adjudicate on the issue of state aid if it had been repatriated to the individual nation states, and who would decide whether that state aid was being given in a justifiable way or being used by another country in a backdoor way to subsidise a particular industry?

§ Dawn Primarolo
The hon. Gentleman raises an important point on regional state aid guidelines. In case he was not able to look at this, I must tell him that the Government explained yesterday in a written statement to Parliament how we plan to consult shortly on the Commission's proposals. The Commission has set quite a tight deadline for the UK Government to respond. The Minister for Industry and the Regions, my right hon. Friend the Member for Redditch (Jacqui Smith), will tell me if I get the date wrong, but I understand that the statement says the t the UK Government will consult on the matter and receive responses by September.
We agree with the Commission that state aid should be limited, and we agree on the need to create a level playing field for businesses across the European Union, but state aid can also distort competition—perhaps that is the point that the hon. Gentleman was touching on—and limit business performance, prosperity and quality for consumers. Through the consultation and discussions with the Commission, the Government are seeking to explore alternative approaches to address that point. It is absolutely right that consultation should be a part of that, and I commend to the hon. Member for Hexham (Mr. Atkinson) the written statement to Parliament that my right hon. Friend the Minister for Industry and the Regions made yesterday. He might well find, uncomfortably, that he agrees with even more of what the Government are currently saying.
I turn to the financing of the budget. The Government are against any proposal for an EU tax. We believe that taxation is a matter for member states to determine on a national basis. The United Kingdom's abatement remains justified and necessary to correct for its disproportionate budgetary imbalance.
It is clear that we at e just at the start of what is likely to be a long negotiation. It is the Government's strongly held view that the Commission's current proposals are not a basis for such a negotiation. The Government are working with other member states that share many of our principles and areas of common interest, in order to question and to challenge the Commission's ideas, and to develop an approach consistent with our objectives.
I have taken note of the Opposition's amendment—which requires the Government to lay out the principles underpinning our negotiations, the objectives that we will use in conducting them and the negotiation process—and I hope that they agree that these issues have been discussed thoroughly in the House. The 713 Government have no difficulty at all with the Opposition's amendment; indeed, it might be slightly uncomfortable for them to discover how vigorously we are pursuing these issues. I commend these documents to the House.

§ Mr. Mark Prisk (Hertford and St Drtford) (Con)
I beg to move, as an amendment to the motion at end add:
and calls on the Government to set out its principles and plans for those objectives and how it will achieve them. I thank the Paymaster Genera 1 for her generally patient and apparently helpful opening remarks. I shall, if I may, begin by commending the European Scrutiny Committee's recommendation that this debate be held. I suspect that, on looking at the title of the two documents involved—the "Third report on economic and social cohesion", and "Building our common future: Policy challenges and Budgetary means of the Enlarged Union"—some of us thought that this would be a rather technical and dull debate. In fact. the two documents consider how much taxpayers' money the Commission should spend and what it should spend it on. Indeed, the Commission's proposal ranges e yen further. As the Committee states,
It will also largely determine the net contribution to the EU of each member state, and the future of the UK's budget rebates. It will, in practice, be binding on the panics to it for those seven years. It is, therefore, one of the most crucial forthcoming EU decisions, with important consequences for enlargement and the draft constitutional treaty. For all those reasons, we believe that this debate provides an important opportunity, and we are grateful to the European Scrutiny Committee for recommending that this debate proceed.
The EU's recent enlargement provides the backdrop to these documents. We argued in favour of the accession of the 10 new member slates for many years, so we are delighted to see their arrival in the European Union. Obviously, the arrival of 10 more nations means that the EU will need to adapt if it is to cope with this fundamental change. It needs to tic far more flexible and to be able to accommodate wide diversity within its borders. Above all, it needs to become a Union for its people, not for its leaders.
On the financial perspective, the Commission is seeking a significant change in its expenditure, as the Paymaster General alluded to, with a proposed increase above 1 per cent. of the Union's gross national income. There have indeed been a number of proposed new spending totals from various member states, but as things stand the Commission has sought an increase to 1.24 per cent. of gross national income. In monetary terms, that equates to more than €336 billion over the seven-year period in question, compared with a figure of €257 billion in the past seven years. Yet, to date, that same Commission has failed to manage its existing budget properly.

§ Mr. Luff
On a point of order, Mr. Deputy Speaker. I apologise to my hon. Friend for intervening, but what I have to say is relevant to what he is talking about and I would appreciate your guidance and assistance. One of the most important papers that we are debating today is "Building our common Future', document 6232/04. The financial framework and requirement for an 714 increase in resources claimed by the Commission is supposed to be set out in a table that should appear on page 30. On page 29 it states:
The following table provides an illustration of the framework described above. On page 30, however, there is a blank page with the words "Insert table" at the top. I do not know whether the table is available somewhere else in the documentation and I have been unable to find it, or whether it is simply missing. In that case, could you, Mr. Deputy Speaker, gently suggest to those on the Treasury Front Bench that the necessary information should be provided before the end of the debate?

§ Mr. Deputy Speaker (Sir Michael Lord)
The hon. Gentleman will appreciate that that is not a matter for which the Chair is directly responsible. I am sure, however, that everyone in the Chamber will have heard his points and that those responsible for providing the documents will seek to make the omission good as quickly as they possibly can.

§ Mr. Prisk
Thank you, Mr. Deputy Speaker.
The problem that I was alluding to was the fact that the Commission, despite asking for all the additional money and a change in the budgetary requirements, has failed to manage its existing budget properly. The fact that the European Court of Auditors has not approved its most recent budget highlights a serious lack of basic financial management. Yet this is not the first time that that has happened. Indeed, the Commission's budget has not been approved by its auditors for nine years. Frankly, that is a shameful record, redolent of Enron's accounting standards—a mix of rampant fraud and inadequate financial management.
In response to this year's budgetary woes, the Financial Secretary said that the EU budget should—the Paymaster General rightly repeated these words—ensure "sound financial management" and "budgetary discipline". We agree. The problem, however, is that the Government have been saying that throughout their entire seven years in office. When are they going to do something about it? When will they try to make the Commission accept its financial responsibilities? After all, if the accounts cannot be trusted, the Commission's financial legitimacy is undermined. How can we know, for example, if the new financial perspective is being achieved? How can we be sure that the Commission's priorities are getting the money that they require? Most important of all, how can taxpayers have any confidence that their hard-earned money is not simply being lost in fraud and waste?
I ask the Minister for Industry and the Regions, the right hon. Member for Redditch (Jacqui Smith), to set out in her reply the representations that the Government have made on this issue. Will she also set out what the Government plan to do if the Commission fails to respond? As far as we are concerned, until confidence in the accounts has been restored, Conservative MEPs will refuse to sign off the Commission's accounts—and so will the future Conservative Government.
Turning to the total expenditure plan, we strongly oppose any increase in the Commission's budget beyond 1 per cent. The Government have correctly identified the need for restraint to act as a discipline to achieve value 715 for money for the taxpayer. I only wish that the Treasury would do the same in Whitehall—though I know that it is trying. In Brussels, the Government's pleas for financial restraint have sadly fallen on deaf ears. Indeed, the Commission seems to hold a fundamentally different view.
The 15th report of the European Scrutiny Committee rightly highlights the problem in a series of rather worrying quotes from the Commission. Apparently, the Commission believes that budgetary discipline does not deliver any value for money. Financial management is simply "matching resources to needs". The Commission is also quoted as saying:
To saddle the Union with a set of goals and then deny it the resources required would be to condemn it to the justified criticism of citizens denied their legitimate expectations. How the Treasury must blanch at those words! That is the language of an unreformed spendthrift—the desperate cry of a shopaholic asked to hand over credit cards. It denies financial accountability and, worryingly, it shows the wide gulf that exists even between Whitehall and Brussels, let alone between Brussels and the poor, self-selected taxpayers who have to foot the bill. When the Minister for Industry and the Regions replies to the debate, will she say what plans the Government have to achieve any meaningful financial discipline in Brussels?
The Commission suggests three new financial priorities for the forthcoming period, as part of its regional and cohesion policy. They are: assistance for regions with per capita gross domestic product below 75 per cent. of the EU average; promotion of regional competitiveness and employment; and support for interregional, cross-border and transnational co-operation. I do not know what that last phrase means, but I love the language.
The Government have argued instead that the focus should be on the poorer member states, notably the new ones. The Opposition agree: equally, we feel that many of the proposed schemes are too remote from the practical assistance that those countries want. A European police college, a disaster recovery capacity and a new European border agency—none of those begins to address the basic wishes of the people of the new member states. What they want is to get their basic infrastructure sorted out. That is more important than a disaster recovery capacity.
The impact of the structural funds is important, and that is true for much of the UK, as we have heard in the debate. The funds are important for parts of Cornwall, the north-west, Scotland and Wales, among other areas. Last Thursday, in answer to a question from the hon. Member for Tweeddale, Ettrick and Lauderdale (Mr. Moore), the Minister for Industry and the Regions spoke about the Government's plans. She said:
If our recommendations are accepted, we will ensure that we increase the resources necessary in the regions and the devolved Administrations to continue the focus on productivity and skills and make the necessary investment to ensure that they are successful."—[Official Report, 10 June 2004; Vol. 422, c. 393.] However, as questioners this afternoon have emphasised, the important point is what happens if the Government's recommendations are not accepted—an outcome that is quite likely. When she replies, will the 716 Minister say whether she can still make that statement? The Paymaster General made a valiant effort to answer that, but hon. Members of all parties would appreciate a clear and unequivocal statement on that point.

§ Mr. David
The Dutch take over the EU presidency for the second half of this year. Is the hon. Gentleman aware that the Dutch Government indicated recently that they strongly support the British Government's proposals? Does he accept that that represents a gathering of momentum behind what the Government are arguing?

§ Mr. Prisk
I am grateful to the hon. Gentleman for adding that information to the debate. My concern is the lack of clarity in the Government's position, which was illustrated by the questions from Labour Members earlier. I hope that the Minister will provide that clarity when she winds up the debate.

§ Mr. David Stewart
Earlier, the hon. Gentleman remarked on the effectiveness of EU spending. Does he accept that spending in UK objective 1 areas has a very good effect? In my area, in the highlands and islands, 90 per cent. of the projects have a high effectiveness rating in terms of the efficiency of the spending. That has led to the creation of 1,800 jobs.

§ Mr. Prisk
I certainty accept that that can happen. My work in the Select Committee on Welsh Affairs has made that clear, but it has also shown that there can be problems. It is dangerous to tar the entire programme with one brush, one way or the other; the important point is that we muse ensure that taxpayers' money is well spent. That is what we want to hear from the Minister.

§ Mr. Moore
The hon. Gentleman is equivocating slightly. I echo the comments made by the hon. Member for Inverness, East, Nairn and Lochaber (Mr. Stewart) about the effectiveness of money spent on programmes in Scotland. From Eyemouth and Hawick to Galashiels, Selkirk and Peebles, one will find very good projects that are both efficient and effective. What evidence does the hon. Gentleman haw that wipes that out and proves that spending that me ney is a bad thing?

§ Mr. Prisk
The hon. Gentleman may have misunderstood. I do not claim that all objective 1 funds are good or bad: my concern is what the Government will do, because—as several hon. Members have pointed out—projects are anticipating that funding and may suddenly find that it w 11 not be forthcoming. I hope that the Minister will be able to help us on that point.

§ Mr. Kelvin Hopkins (Luton, North) (Lab)
On regional spending, surely we should measure not only whether the money has been spent well and effectively, but the cost in terms of the original input. We should measure the cost in terms of budget spend and contributions from member states, as well as the effectiveness when the moneys have finally been spent.

§ Mr. Prisk
I agree. The danger is that those Government programmes that are not carefully thought through—whether funded by EU or UK money— 717 simply transfer job creation from one area to another. We need to ensure that such programmes are fashioned in a way that takes into account the true spatial dynamics of both counties and regions. We need to ensure value for the taxpayer, whether money is spent directly through UK-funded programmes or through EU programmes.
The new financial perspective for the coming years, which the Commission has highlighted and which is contained in these documents, would. in our opinion, need to deliver radical reform of Europe's economies, if the EU nations are to compete globally. At the Lisbon European Council in 2000, member states committed themselves to a 10-year strategy for economic reform, in order to improve Europe's employment and productivity. We were told at the time that that would transform the EU into a dynamic, knowledge-based economy, achieving strong but sustainable growth and creating a thriving environment for enterprise in general, and entrepreneurs in particular.
Sadly, four years on, the reality is rather different. As the Centre for European Reform aid earlier this year:
Even the most enthusiastic proponents of the Lisbon agenda can only describe the EU's performance over the last 12 months as mediocre. Indeed, the Commission seems to agree. The Financial Times reported on 25 March:
Instead of catching up with the US the EU has fallen even further behind. A report by the European Commission in January this year says that in the three most important categories—economic growth, productivity and employment—the EU is far from meeting its own goals. With gross domestic product per heal stuck at 72 per cent. of the US level, Brussels concludes that `the Union cannot catch up on the US."'
In recent months, there have be en negotiations to try and revive the reform agenda. T le Government have been making the right noises, but to date there seems to have been little actual progress. I hope that the Minister will be able to tell us how far the reform agenda has got and what progress she expects to see over the next year.
Finally, there is the question of member state contributions. Alongside proposals to increase the overall spending above 1 per cent. of gross national income, the Commission has set cut a series of options for what it—to my pleasure—calls
a relatively major and visible tax resource payable by EU citizens and/or economic operators".
Apparently, that would replace the existing system. I concur with the Paymaster General—we must not concur too often, or people will tart to wonder—that such an EU tax would be wrong in principle and in practice. We are happy to join the Government in opposing that aspect, although I look forward to the Liberal Democrats' comments when the moment comes.
The Commission has also proposed a system of budget rebates that would replace our existing UK rebates. As I understand it, that system would be available to any member state making what the Commission describes as "excessive budgetary contributions", but unlike the current system, it would be entirely conditional on the a application of what is called "the threshold" and all member states would be required to contribute. I have read carefully through the 718 Government's responses and I see that throughout Ministers say that they will "defend" the current rebate. That is super—very encouraging—but what we really want to know is whether they will keep it—[Interruption.] The Paymaster General happily says that they will—

§ Dawn Primarolo
The answer to the hon. Gentleman's question is, "Yes".

§ Mr. Prisk
The Government will accept our amendment and now they are agreeing to my comments. I should probably retire gracefully while I am still ahead—[Interruption.] I shall do so in a moment, given that clamour from hon. Members.

§ Dawn Primarolo
I am sure that the hon. Gentleman will forgive me for saying this, but perhaps the Government can help the Conservatives to clarify their European policy if they are now declaring that they agree with us.

§ Mr. Prisk
It was all going so well, but then the right hon. Lady had to spoil it. Without pressing the point too much further, can she confirm that the Government have no intention of allowing the rebate to go? Can she confirm that it will not go and that it will not be amended?

§ Dawn Primarolo
I can confirm that to the hon. Gentleman.

§ Mr. Prisk
I am very grateful to the right hon. Lady for that confirmation; it will certainly put the minds of many Members at ease.
At the beginning of the debate, I said that the titles of the two documents underplay the significance of their contents.

§ Ms Atherton
The hon. Gentleman knows Cornwall well. What commitment will the Conservative party make on regional policy for the county of Cornwall? Will it match the Labour Government's commitment?

§ Mr. Prisk
Indeed, I know Cornwall well; I am an émigré, although perhaps ex-pat would be a better word. The hon. Lady knows that it would be quite wrong of me to try to make policy on the hoof and I have no intention of falling into that trap. I may be a relatively new Member of the House, but I do not intend to make that mistake.

§ Adam Price
Will the hon. Gentleman give way?

§ Mr. Prisk
No, I am coming close to the peroration. As hon. Members were keen for me to conclude, I shall accede to the wishes of the House and not give way again.
The issues covered by the documents include some important questions: how much should the EU spend and on what, and how much should we contribute? That is why the Commission's proposals deserve thorough scrutiny. The Conservative party supports many of the 719 stated aims of the motion, especially on limiting total spending and on the "unrealistic and unacceptable" proposals for future spending priorities.
We are, however, concerned that the Government have not been forthcoming or clear in explaining their aims and plans for fulfilling their objectives and those of the EU. Further to that, the scandal of nine years of unapproved Commission accounts reflects a huge gulf in attitudes towards public financial management between the UK and those who spend our money in the Commission. We have yet to be convinced that the Government have either the will or the plans truly to resolve that problem.
Again, I commend the work of the European Scrutiny Committee and its continuing consideration of matters European. I hope that in her reply the Minister for Industry and the Regions will be able to answer the questions that I have raised. If she can also indicate that the Government fully accept our amendment and will include it in the resolution, we shall be quite willing to consider withdrawing it at the appropriate stage. I hope she will be able to give us that information when she responds to the debate.

Several hon. Members
rose—

§ Mr. Deputy Speaker
Before I call the next speaker, may I respond to the point of order raised earlier by the hon. Member for mid-Suffolk—

§ Mr. Luff
Mid-Worcestershire.

§ Mr. Deputy Speaker
I am sorry. I must have been thinking of my own constituency—so close to my heart, as always. I meant the hon. Member for Mid-Worcestershire (Mr. Lull).
An expanded version of the table to which the hon. Gentleman referred is on page 11 of the original report of the Scrutiny Committee—House of Commons document 42-xv—but the table to which he referred and which should have been in the documents that we are discussing today is now available in the Vote Office. I hope that is helpful.

§ Mr. Luff
I am very grateful, Mr. Deputy Speaker.

§ Mr. Wayne David (Caerphilly) (Lab)
This is an important debate because it is all too easy these days to allow the draft EU constitutional treaty to dominate debate on Europe, whereas the financial perspective for 2007 to 2013 is crucial as well. I understand that the perspective represents the EU's multi-annual budget for those years. We are also considering EU cohesion policy this afternoon. That, too, will have a profound impact on the EU in the next few years.
The European Commission has proposed a budget for the next financial perspective of 1.26 per cent. of Community gross national income. That represents an increase in the EU budget of some 25 per cent.—a significant increase by any stretch of the imagination. The European Commission argues that that increase is needed to finance the common agricultural policy, to 720 support a wide range of policy initiatives, some of which are new, and to fund the structural and cohesion funds—in other words, the instruments of regional policy. Of course, the Commission argues very strongly that that significant increase in the EU budget is necessary because of the recent expansion in the EU from 15 to 25 states.
Today, I want to question whether such an increase is justified, especially when, as has been said, the EU is concerned about the budget deficits of several member states in the eurozone. There is something of a contradiction therefore: the EU is saying, on the one hand, that certain member states should tighten their belts, but on the other that they should contribute more to the EU's budget. In particular, I want to question whether that large increase in expenditure is justified in two respects. I want to question the expenditure that is projected under the heading "Citizenship, freedom, security and justice", and I then want to say a little about regional policy.
I should like to spend some time questioning whether it is sensible to increase the CAP budget, but we have to accept the current practicalities and the commitments that have been made on the CAP. The Government of the United Kingdom are to be commended for ensuring that at least a modest reform of the CAP has taken place.
I find it very strange that the European Commission proposes in its draft financial perspective expenditure a raft of new proposals, on some of which there has been no agreement. I cite, for example, the European border guard corps, which has been suggested without any political agreement. The British Government have not agreed to that suggestion, yet the European Commission nevertheless proposes funding for that new entity. The European Commission also proposes that resources should be allocated to reinforce the political concept of European citizenship. That proposal is very dubious to say the least, given the belief of many hon. Members, myself included, that the EU should be based on the principle of subsidiarity. The regions, small nations and the nation states are the EU's essential building blocks, and that should be part of the mosaic of European citizenship
I would question many other proposals, too, but I should like to focus in particular on the resource projection for what is called external representation. It is quite breathtaking to be perfectly honest, that the European Commission suggests that funding should be provided for single external representation at the World Bank, the International Monetary Fund and the United Nations economic agencies. We should place a very large question mark against that.
I also question the need for the proposed increase on regional policy. The European Commission proposes in its draft financial perspective a regional policy that is financed to the tune of €336.3 billion. It proposes that roughly half the structural funds and the cohesion fund should be focused on the new accession states, the countries of central Europe, and that the remaining half should be focused on the 15 states that were members before 1 May this year. It wants to spend the money under three headings. The first is convergence, the second is regional competitiveness and employment and the third is the promotion of territorial co-operation.
721 The first part of the Commission's proposal makes a great deal of sense. We should focus our attention on the accession countries of central Europe. They are very poor by our standards and they are struggling to come to terms with the single market. They certainly want to develop their economies up to the standards of ours. From an economic sense, and also from a moral and social sense, we should give the greatest possible support to the development of those new democracies.
I have problems, however, with other aspects of the Commission's proposals on regional policy. In purely monetary terms, it makes no sense at all for the United Kingdom to have to contribute €1.6 to get €1 back. That situation applies not just to the United Kingdom, but to other member states, and it is quite unsatisfactory and illogical.

§ Mr. David Stewart
Does my hon. Friend agree that the argument is about direction rather than speed and about finding the best organisation to add value? Is it the EU or the nation state?

§ Mr. David
The argument is partly about that, and I shall specifically address that point a little later. However, it is also about hard cash. It does not make sense for the United Kingdom Government to give large sums of money to other quite prosperous regions, but receive only a small amount of money to spend on our regions. It is far more sensible for the 15 member states to control finance themselves.

§ Mr. Hopkins
I remind my hon. Friend that every single region of the United Kingdom is still a net contributor to the European Union.

§ Mr. David
To be honest, I am not sure that that is absolutely the case, but I suspect that my hon. Friend's facts are probably right; he would not have made that point otherwise.
As Members will know from my accent at least, I come from a part of the United Kingdom, south Wales, where we have had large amounts of structural fund assistance—under the current financial perspective, the figure is £1.3 billion. That is because the south Wales valleys and west Wales are classified as objective 1 areas. It is true to say that the programme is very successful: large sums have been spent successfully. To be rather parochial for a moment, I refer to my constituency of Caerphilly and the Tredomen business park and the Ystrad Mynach college, which provides fantastic training opportunities, especially for young people. Widespread intermediate labour market measures have been introduced to help the long-term unemployed and many others.
It is important to recognise, however, that although much has been done, there is still much more to do. As we have heard this afternoon, a debate is going on among many of the regions that support the structural funds about whether they would be better off with an extension of the current arrangements with the European Commission or with the Government's proposals. There is a genuine worry that money from Europe might dry up, but it is difficult for us to debate specific sums at the moment because the budget has not been agreed. The European Commission is talking hypothetically, so we will know exactly where we are only when the European Union budget is agreed.
722 There is much to commend about the Government's firm commitment that the regions of the United Kingdom will not lose out—that genuine statement was reiterated this afternoon. However, if we leave finance aside, we must take account of other considerations, as my hon. Friend the Member for Inverness, East, Nairn and Lochaber (Mr. Stewart) suggested. A few months ago, the British Government published a Green Paper entitled "A Modern Regional Policy for the United Kingdom". The document suggests a new way forward for the United Kingdom's regional policy and I commend much of what it contains, not only because of financial considerations, but because of administrative considerations.
I followed closely the way in which the European single programme document was drawn up because it has governed the expenditure of objective 1 moneys in south and west Wales. Much of the document should be commended, but it would have been much better if more local control had been exercised over it. One of the problems encountered when drawing up such documents is that they must comply with European Union agreements—in other words, they must fit in with what the European Commission says. I shall outline a case in point. The south Wales valleys face the specific problem of a lack of transport because of the area's topography. We desperately need more roads so that we may open up our valleys. That suggestion could not be written into the single programme document because the European Commission was against it. In other words, despite the fact that local people wanted the scheme, European money could not be spent on it because people in Brussels deemed that it was against the blueprint that they had established. That situation is unsatisfactory.
I hope that future policies will be determined according to the principle of subsidiarity. Local plans would thus be drawn up by local people who understand their areas, so in the case that I outlined, the National Assembly for Wales would do that. I want any funds that come via Brussels to match the strategy outlined in the Assembly's national economic development strategy, "A Winning Wales". At the moment, the European programme runs in parallel with that, but sometimes the complementarity is not perfect. The Government's proposal to streamline the system represents a far more logical and sensible approach on regional development.
The Green Paper deals with regional policy and structural funds, but it also places important emphasis on the future of European state aids, which is equally important. The key word must be "flexibility". We must have flexibility so that the regions of the United Kingdom may tackle market failure. The current situation is unsatisfactory. For example, when the Government wanted to introduce regional venture capital funds to benefit regions, they had to wait 12 months for the European Commission's permission. Why should that happen? Why on earth are such measures not determined nationally and regionally, which would be far more sensible and straightforward? Let us consider what happened with the Government's implementation of stamp duty reductions. Again, they had to wait for the European Commission to approve
723 the proposal. There is no logical reason why that should have happened, and I argue that it should not happen in the future.

§ Mr. David Stewart
Does my hon. Friend share my concerns about a possible double whammy for areas that lose objective 1 funding? First, they will lose the maximum amount of European funding, and secondly, they will lose the highest amount of dedicated state aid.

§ Mr. David
There must be a response to cases of need, and people must choose whether they want the British Government or the European Commission to make that response. I am a committed European, but I have more confidence in the ability of our Government than in that of the European Commission to recognise what is needed here. That was not always the case, however, with previous Governments.

§ Ms Atherton
Does my hon. Friend agree that objective 1 created a stand-alone pot of money that enabled communities such as mine to develop new projects that might have taken longer with Government structures? I hope that the Government will address that in their proposals after 2006.

§ Mr. David
My hon. Friend makes a fair point. There is much to be commended in various European programmes and we can all cite examples of good practice and innovation. However, that is balanced by the drawbacks. I have cited the lack of complementarity, but there is also an emphasis on convoluted forms of partnership. In my own area, for example, there has been partnership after partnership, and excessive red tape and bureaucracy. We could all think of ways in which we could streamline the system in our area to make it more effective and ensure that resources get through quickly to the projects and people who need them. I hope that such an initiative will be realised.
In conclusion, we have some way to go in discussions on the financial perspective and the future of EU regional policy, and I am sure that detailed negotiations will take place in the coming months. The Government are certainly correct to argue for a ceiling of 1 per cent. of gross national income in the EU budget, not 1.26 per cent. as proposed by the European Commission. I hope that they will not just be tough in the negotiations—it is all too easy to take such a stance—but persuasive.
It is no longer enough for us to stand in splendid isolation and be self-righteous about our proposals. We must engage effectively with our partners in Europe so that we win the argument and make sure that our interests, along with other interests, are to the fore. The European Union and the budget used to finance it should be responsive to its citizens and reflect concerns about their priorities. Europe should not centralise for the sake of it, and should genuinely serve the people, having recognised their needs. I therefore look forward to the Government arguing their case strongly, passionately and persuasively in the EU, and to their success.

§ Dr. Vincent Cable (Twickenham) (LD)
Last week, a vigorous national debate raged about Europe, but it seems to have passed us by this afternoon, as there is a substantial and, indeed, alarming consensus, to which I propose to add. I largely agree with the essential points in the Government motion, including the fact that the budget should not exceed 1 per cent. of gross national income, the fact that the Commission's proposals are unrealistic and unacceptable, and the need to refocus and reprioritise. If anything, the Conservative amendment strengthens the motion, so I support it as well.
Our debate this afternoon has not been about the EU at all but about British regional policy, and what exactly happens when we nationalise or repatriate—I am not sure whether my terminology is correct—the regional budget. There has been insistent questioning from Members representing the north-west, Cornwall, the borders, the Scottish highlands and Wales about the meaning of the Government's guarantee that the regional flow of funds will continue. The more subtle question is how areas whose needs are met by European budget allocations will be sustained under a national regime with different priorities. There is a series of questions there that have been only partially answered so far.
Returning to the essence of the budget, on the 1 per cent., a pertinent question was posed earlier by the hon. Member for Preston (Mr. Hendrick), who asked why only 1 per cent.—after all, there are more countries coming into the EU, so should not the budget be enlarged? The answer to that is partly a national interest point that the hon. Member for Inverness, East, Nairn and Lochaber (Mr. Stewart) made in an intervention—a larger budget would mean a larger net contribution from the UK. Apart from the national interest point, there is a wider point that is summarised in the letter from the six net contributors, of which we are one, that makes the case that until the European budget in general is tightened up and reformed, there is no case for its substantial enlargement. The formula must therefore remain at 1 per cent.
Some balance is needed, however. The right hon. Member for Wokingham (Mr. Redwood) spoke about waste and corruption, as did the Conservative spokesman, the hon. Member for Hertford and Stortford (Mr. Prisk). We know that there has been waste and corruption in the European Union budget. It is evidenced, the audit trail exists and there are many anecdotes illustrating the point, but not everything that the EU does through its budget is wasteful and corrupt. We have heard examples today of good European budget allocations, such as the descriptions from the highlands of Scotland.
I can quote an example from my constituency, which does not involve European regional funding but none the less shows that, when the EU gets things right, it can make a useful contribution at the margin. I have in my constituency the Twining centre, an institution that specialises in retraining the mentally ill—people who, for the most part, are permanently unemployed. The centre was established to retrain them for the labour force. There was no other source of funding. The council cannot afford to fund the centre. The Government do not regard Twickenham as a particularly high priority
725 area in urban deprivation, so there was no funding from the Government. The private sector is sympathetic and will use the graduates of the centre, but will not fund its running costs, so the European social fund did. Hundreds of local mentally ill people now owe their employability to that well-focused and well-managed centre, which has Spanish management drawing on best practice from the EU.
There are similar examples all around the country and we should not disregard them by painting a wholly negative picture of waste and corruption. Moreover, there is a paradox associated with the arguments about waste and corruption: the greater the concern, the greater the need for detailed documentation of application and monitoring. As a result, some European applications and monitoring are extraordinarily complex. Of course, that is not unique to Europe. Anyone who deals with local area-based initiatives or with the Department for Environment, Food and Rural Affairs will know that bureaucracy was not invented in Brussels.

§ Mr. Prisk
One of our concerns is that, in the absence of properly audited accounts, we do not know how much is wasted or lost in fraud, so the accuracy of information is fundamental. Without that, all the funds and the priorities on which we may or may not agree are undermined by that lack of confidence. Does the hon. Gentleman agree?

§ Dr. Cable
Of course. The hon. Gentleman makes the point moderately and sensibly. Of course there must be audit. Much of the discussion over the past few weeks has been at a populist level, which is not the substantive point he makes, and much of the waste and corruption, as we well know, comes out of the agricultural budget. Because I regularly attend DEFRA questions, I know that many of the hon. Gentleman's colleagues are assiduous supporters of the common agricultural policy when it comes to their own constituencies.
That is my next point. One of the key problems associated with the European budget is a disastrous decision a few years ago, which was heavily discussed in this place and over which the Government appear to have had very little control: the so-called Berlin agreement between France and Germany, which has maintained the share of agricultural spending in the budget for the next decade, effectively paralysing any real innovation in budget initiatives. That utterly disastrous decision reminds us of the many iniquities of the CAP. It paralyses the budget, is enormously detrimental to the consumer, harms the environment and damages international trade and international trade policy.
Although this argument is about the budget, not agricultural policy in general, I hope that the Government will continue to reassert in Europe the fundamental belief that we should be aiming not only for reform at the edges, but for a world in which agricultural products are traded as freely as cars and televisions because there is no reason why they should not be. That is the open market destination to which we should all commit ourselves.
I have a specific question about agriculture in the budget. Given that the Paymaster General said that sugar is next on the agenda for reform, what does that 726 mean for the sugar tariff? As sugar is one of the EU's own resources, the EU has an interest in increased tariff revenue and therefore in resisting the liberalisation of the sugar regime. What is the Government's view, and how do they see the future of the sugar tariff in relation to their reform proposals?
The hon. Member for Hertford and Stortford asked about the UK budget rebate. I joined the consensus on the rebate—I support it, as does my party. It was an achievement of the Conservative Government to have negotiated it and an achievement of this Government to have maintained it. Nevertheless, we could do better. Even after the rebate, we are still substantial net contributors. Over the past three years, we contributed an average of €4 billion a year, which, in comparison with France and Italy, would not be merited on any equitable basis. Although the rebate has secured enormous gains relative to what they could have been, the formula is still not entirely satisfactory.
Moreover, in every negotiation with the European Union, we are hamstrung by the fact that, if the British Government make major demands, the other European countries—particularly the French—will pop up and say, "In that case, let's reopen the whole question of the British rebate." Instead of a special dispensation for the British, it would be better to have an automatic compensation mechanism for all net contributors similar to the system of floors and ceilings that has been developed in local government finance. Of course, that cannot be achieved in the short term—there is no proposal on the table and no political will to achieve it—but we cannot argue for the next 20, 30 or 50 years that the funding of the European Union must be built around the British rebate. There must be a better mechanism and we should keep that as our long-term strategic objective.
My final point relates to the refocusing of priorities. It is a simple matter of logic that, if there is a limited budget pot of 1 per cent. of GDP, an expanded membership of predominantly poor countries and redistribution based on income, the existing recipients will lose revenue. The UK regions and regions of the other relatively high-income member states will have to accept that European regional aid will be phased out, albeit with transitional relief, because that is an inevitable consequence of the way in which the budget is evolving. There is a whole set of practical questions about how transitional relief is managed and how the Government's guarantee to honour regional payments will be met.

§ Ms Atherton
I am interested in the hon. Gentleman's argument, but does he think that his Cornish colleagues would agree?

§ Dr. Cable
All hon. Members who have spoken rightly advanced strong arguments for maintaining funding for their regions. The Government have guaranteed that that will be sustained under the new arrangements. Several of my hon. Friends say, as would my Cornish colleagues, that they want not only the quantity of money, but the quality of the programmes to be maintained. We have not yet received clear answers from the Government about how that will be maintained. I do not disagree with the hon. Lady or my Cornish colleagues on that matter.
727 There is a more fundamental question. The poorer areas and depressed regions of the European Union will have to cope without much help from European funding. Even if the European budget were expanded, the money would be a drop in the ocean compared with the economic needs of the depressed areas and poorer regions of Europe. They will have to adjust in other ways and that is why the overall economic framework must be right. There are two key elements to that.
Mr. Bolkestein, the Liberal Commissioner in Brussels, stressed the first element yesterday. It is the importance of the Lisbon approach, which essentially provides for a market mechanism to ensure a proper disciplined system for state aid, competition and the maintenance of the original principles of the Common Market.
Secondly, the poorer areas of Europe cannot be constrained in their application of tax policy. Taxation is not simply a British red line issue; it is about the future of Europe. The poorer countries in Europe must have the flexibility to vary their corporate tax rates. There is nothing wrong with tax competition, which is entirely healthy and should be embedded in the institutions of the European Union.

§ Mr. Hopkins
I agree with the hon. Gentleman but does he agree with me that it is right for those countries to retain their currencies so that they can secure appropriate parity and maintain competition in that way, too?

§ Dr. Cable
The hon. Gentleman knows that I perceive some merit in a common currency but he makes a clear point. Such a currency would increase the importance of the need for other forms of flexibility. That is essential not only for taxation but for regulation. Trying to impose uniform regulation can be damaging, especially in a monetary union. One of the most important elements in the treaty negotiation therefore relates to the terms of the protocol on subsidiarity. That should give maximum scope for national Governments to pursue independent approaches on regulation.

§ Mr. Prisk
Does that mean that the hon. Gentleman agrees with his Liberal Democrat Member of the European Parliament for the eastern region who has submitted to the Convention the proposal that the European Union should establish a system of its own revenue resources, which may include levying taxes and duties?

§ Dr. Cable
No, I do not agree with my colleague. I have disagreed with him publicly and privately on many occasions, not least on the issue that we are considering.
The hon. Gentleman has conveniently helped me on to my concluding point about whether there should be a European tax system. I believe that my colleague from the eastern region advocated that, but we do not. It is unnecessary because mechanisms for funding the European Union already exist. The third and fourth dimensions of own resources are perfectly adequate. The problem is the way in which the money is spent. It 728 should be spent in a disciplined way and the terms of the motion capture the essence of what we all agree should happen.

§ Ms Candy Atherton (Falmouth and Camborne) (Lab)
I am pleased to participate in the debate. It will not surprise hon. Members that I want to talk about Cornwall.

§ Mr. Luff
A fine county.

§ Ms Atherton
A very fine county, but one with some difficulties. Its gross domestic product is 59 per cent. of the European Union average. Everyone would agree that that is unacceptable for this country.
I shall say a little about the history of how we obtained objective 1 funding. When I was first elected in 1997, not much had been done to tackle the economic problems of the county, which was in slow decline. We had high unemployment and low wages. We still have low wages but unemployment has fallen. People and the community wanted to tackle the problems and we came together in a campaign to try to secure separation from Devon.
Standing alone, separate from Devon, is popular in Cornwall. However, it was difficult to achieve because the Commission was dead opposed to it on the ground of statistics. In its view, one should not separate geographical areas because it is then impossible to follow long-term statistical analysis. We had a campaign and when I went to sec our Prime Minister, he instructed our civil servants to make our case with the Commission. When, just a handful of weeks later, an agreement was reached that, statistically, we would be separated from Devon, we immediately stood out as a shining example of a community that needed objective 1 status and we started to receive the funding from 2000. That involved more than £300 million, plus public and private match funding.

§ Mr. Luff
The hon. Lady has already acknowledged my recognition of the fact that Cornwall is a fine county. However, if I heard her correctly just now, she seemed to be calling for the separation of Cornwall from Devon. How does that fit with the Government's plans for regional government for the south-west?

§ Ms Atherton
The hon. Gentleman misunderstands me. For Cornwall to qualify for objective 1 status, we had to be considered statistically on our gross domestic product. Devon's relative prosperity pulled us up above the 75 per cent. level of GDP, which meant that we did not qualify. Thanks to the Government, once the argument that I have described had been put to the Commission, we were able to stand alone and our relatively low GDP enabled us to obtain the objective 1 funding. As I have said, that involved about £300 million of European structural funds, plus match funding from the private and public sectors, including the Government. So the Government are putting money in through the European Commission as well as through match funding. Certain hon. Members on the Liberal Democrat Benches were convinced that that match funding would never materialise, but I am glad to say
729 that it has, and I am very grateful for it. We now have a number of projects in place, which I shall talk about later.
The funding has also opened the door to other pots of money. It was as though a curtain had fallen away from the eyes of civil servants and politicians in Whitehall, and a number of other programmes suddenly came together. The pots of money filled up to provide a sizeable amount with which to tackle our problems. One area in which we have used this money has been the combined universities in Cornwall Anyone who knows the county will know that our young people fly across the Tamar bridge, possibly never to be seen again until they retire. However, we need their ideas and their capacity to create new companies.
We had a fantasy about having a university in the county, prior to obtaining the objective 1 funding. Our fantasy involved a university simply landing near Penzance just like the Tardis. However, the fantasy was not funded, which meant that it had a serious problem. But, because we had our stand-alone pot of objective 1 money, Falmouth college of arts and other higher education providers in the county came together with me to develop the concept. A new campus was purchased and the first students will arrive at combined universities in Cornwall this September.
To deliver an idea—a dream—by planning, through the Commission and the British Government, and to have the first students arriving on time, to the day, is a tremendous achievement and I pay tribute to everyone who has taken part in the project. That all took place during the run up to the 2001 general election, when money was getting tight and Ministers were moving around. However, the appropriate Ministers were brought together and they put their hands in their pockets to get the match funding on to the table. They made this happen, and I have a real fear that that would not have been the case if those Ministers had not been brought together in that way. The graduates of the university will create new companies, which will create new jobs. They will be higher-level jobs than we have had in the past, which has to be good for the county.
We are also leading the way on broadband. Being at the periphery of the country means that infrastructure and communications are our most difficult problems. However, once someone has broadband, they are at the centre of the universe. Cornwall now leads the United Kingdom with broadband. By this time next year, any small or medium-sized enterprise in Cornwall that wants access to the internet, either by means of broadband or wireless, will have the opportunity to get it. That will be a huge step forward for any business working in the county.
That is why I have been so supportive of structural funds and I could go on to talk about the many other ways in which they have helped us. That pot of stand-alone money has enabled us to be creative, to think outside the box and to approach the Government for the appropriate match funding. I must be honest with Ministers: I am sympathetic to the case, and, clearly, I understand the economics in relation to why we want to renationalise, which is a nicer term than "repatriate", the structural funds money back to the United Kingdom. But I am concerned that we need to be able to think outside the box—not to come up with central 730 programmes that other parts of the country are following but innovative, new ideas that we want to work in Cornwall.
I ask Ministers to think creatively over the next few months. I will be supportive of their plans to, so to speak, get our money back. I accept that the Government have made a commitment to Cornwall way beyond any commitment that any previous Government have made to the county, but I am concerned that there will be a lapse in the couple of years after 2006, because we cannot plan now for what will happen in those two years. We cannot make planning applications in case things are not quite in place. I ask Ministers to consider how we can move forward quickly and efficiently to deliver for the county of Cornwall.
Once again, I am grateful to Ministers for their commitment to Cornwall. Our GDP and our need stand out, and I hope that Ministers will continue to work with us to improve the economic prospects of the whole county of Cornwall.

§ Mr. Peter Luff (Mid-Worcestershire) (Con)
I am slightly surprised by the relatively sparse attendance in the House this afternoon, particularly after the interesting results of the European elections which were declared at the weekend. Perhaps it is a similar situation to that scene in "Fawlty Towers" in which Basil Fawlty says, "Don't mention the war." Perhaps that is what we are trying not to do this afternoon.
This is a debate of huge importance, the significance of which I simply had not realised until I made the mistake of starting to read the documents available for the debate. In that context, I am grateful to you, Mr. Deputy Speaker, for your assistance in obtaining the omission from one of the key documents—that valuable piece of paper is now in my hands.
Having said that, to my absolute amazement, I must agree with every word of the Government motion— [Interruption.] It is not easy, but I am afraid that I must. I associate myself particularly with the following: the Government's efforts to refocus allocations within a budget of 1 per cent. of EU Gross National Income…and that the future European Union Budget should be reprioritised and refocused in line with the principles of subsidiarity and spending that adds value at the European Union level. Of course, I am freed from the obligation to speak about regional and cohesion policy, not because it is not important in British terms, as it is for counties such as Cornwall—my father-in-law comes from Cornwall, hence my love affair with the county. It is also important for the whole future of the enlargement project, which is supported on both sides of the House. The enlargement project is tremendously important, and it is tremendous news that the former Soviet countries are now part of the enlarged, democratic European Union, which we want to make a success, as we do future enlargements, as the process has not ended yet.
My part of the world, however, including the constituency of my neighbour, the Minister for Industry and the Regions, the right hon. Member for Redditch (Jacqui Smith), who will wind up the debate, does not benefit from regional policy funding, although we have pockets of poverty, as she and I would admit.

§ Mr. David Stewart
Does the hon. Gentleman share my view that it is not just important to help the poorest people in Europe but that there are great export opportunities for the UK to the 10 accession countries? It is a win-win: we help the poorest countries, but we also help UK enterprise.

§ Mr. Luff
That is absolutely true. I agree entirely with that comment. The spirit of consensus rules yet again. Many concerns have been expressed about outsourcing of service sector jobs to India, for example, but we enjoy a trade surplus with that country at present, because of economic success and dynamism and our success—which has not always been the case—in selling to that country.
The House owes a debt to the European Scrutiny Committee for its report—

§ Mr. Richard Bacon (South Norfolk) (Con)
Hear, hear.

§ Mr. Luff
I guess that my hon. Friend is a member of that Committee. I had forgotten. I repeat that we owe a debt, particularly to him. It is a useful report, particularly the second paragraph of the summary, which says it all: The new Financial Perspective will determine the overall revenue and expenditure of the EU and the expenditure on each category of EU activity for the seven years from 2007 to 2013. One of the most important jobs that the House does is agreeing expenditure, so this debate about the future development of the EU is one of the most important debates that we could have.
The report says: It will also largely determine the net contribution to the EU of each Member State, and the future of the UK's budget rebate. I do not intend to say anything about the rebate, except that I was delighted to hear the marvellous achievement of my right hon. and noble Friend Lady Thatcher so widely acknowledged throughout the House. I am sure she would be very pleased to hear Liberal Democrats and Labour Members praising her for that historic achievement. I am also delighted to hear of the Government's robust intention to defend the rebate in the face of the rather worrying proposals in the Commission's document.
According to the European Scrutiny Committee's report, As well as determining the shape of the EU's finances it —the new financial perspective—
will set the Commission's policy agenda. Two thirds of the document on which I want to concentrate, "Building our common Future", consists of a manifesto for the development of the European Union, while the remaining third is a bid for funding and management of that funding. We are therefore engaging in a debate of huge significance. The Committee concluded that the decision on the financial perspective was therefore one of the most crucial forthcoming EU decisions", and I entirely agree.
If we look at the missing page that you obtained for us through your good offices, Mr. Deputy Speaker, we 732 see that the Commission plans about a threefold increase in spending on Competitiveness for Growth and employment", a tiny reduction in spending on agriculture, and almost a threefold increase in spending on
Citizenship, freedom security and justice". It plans to spend half as much again on the EU as a global partner, and there is a planned increase of a third in administrative costs. I can imagine how both the Chancellor and the shadow Chancellor would feel about a proposal from any UK Department to increase its expenditure by a third over the next seven years. Overall, this is a total increase of 31 per cent. in real terms EU spending.
Tucked away in the document, and highlighted by the Committee's report, is possibly the most horrifying recommendation of all—a recommendation for a Euro-tax, to be levied by the EU on individual citizens of individual member states. It would be a relatively major and visible tax resource payable by EU citizens and/or economic operators —whatever they are. it is a lovely phrase. That could partly replace GNI contributions. Three routes are proposed for the securing of tax revenue: a tax on corporate income, a "genuine VAT resource"—in other words, a sales tax imposed at European level—or an energy tax. It is all right, we are assured, because In each case, the tax burden for citizens need not increase as the EU tax rate need not increase as the EU tax rate could be offset by an equivalent decrease in the rate accruing to the national budget in the same tax, or of the rates of other taxes. That means the EU becoming more and more like a state, a country in its own right, with its own flag, president and constitution and tax-raising powers. That is huge. I am delighted to hear that the Government are resisting what is, for me, a sticking point, but it is extraordinary that the idea has even surfaced in the document.
I made the mistake of reading the document. I think that every Member should be compelled to read it, because it would horrify most of them. The introduction gives us three hints about why the Commission is driving in this direction. I love this: To give Europe a Constitution is a powerful and symbolic act, but it is as yet unrealised. The European Union must continue down the path of integration, and avoid the trap of unwieldy inter-governmentalism.
Unwieldy inter-governmentalism! That is the view of co-operation between nation states: it is unwieldy and out of date, and we must have integration.
According to the second principle, Europe has not been doing terribly well economically compared with the United States. That, of course, is true. There is a paragraph on growth rates, and how much better the US has done than the EU-15. The Commission's solution is not the solution it should be proposing—deregulation. It says: Robust, coordinated and coherent action is needed to reverse this trend. We know what that means. It means more expenditure on intervention by the European Commission.
733 The third thing in the document hat takes my breath away is the idea that the Union's value added lies in transnational and Europe-wide action. Here, national authorities are ill-equipped to take into account the full benefits or costs of their actions. Effectiveness requires large critical masses beyond the reach of national governments alone, or in networking efforts made at national level. In other words, we always know better than the member states.
The document is quite extraordinary at every level. It includes this charming little comment: It is a question of political direction, to be made on the basis of a clear vision of what we want to do. These choices will determine whether the European Union and its Member States are able to achieve in practice what European people expect. I wonder whether the European Commission really knows what European people actually expect of it.

§ Mr. Hopkins
I strongly support what the hon. Gentleman is saying. I suggest that the idea that the European Union knows best is certainly not true of its international aid, which is inefficient and misdirected, whereas the international aid given by our Government is much more efficient and better directed.

§ Mr. Luff
Consensus is again the order of the day. I can only agree robustly with what the hon. Gentleman says. He is absolutely right, and that point gives the lie to the old argument that spending more is always automatically good. If we just repatriated our money that is spent by the European Union on humanitarian aid, and spent it ourselves, the poor of the developing world would be so much better off. I entirely agree with what the hon. Gentleman says, which enables me to remove a whole section of my speech. I am grateful to him for that, because I am already beginning to talk for too long.

§ Mr. David
To extend still further the consensus in the Chamber, may I commend the hon. Gentleman on his trenchant analysis of the European Commission? May I therefore take it that he will be supporting the draft European constitution, because one of its key elements is giving nation states more power over the Commission?

§ Mr. Luff
I think that you might get a little impatient, Mr. Deputy Speaker, if I started to speak on the European constitution. I would be the first to acknowledge that there are some good things in the European constitution, but I still think that we do not need it and that there are good things about other routes.
The document comments on other things that we need. It says: European citizenship must serve to guarantee concrete rights and duties, in particular, freedom, justice and security, and ensure access to basic public services at European level. The benefits of membership for citizens now extend beyond market freedoms, and these issues must be prioritised. In other words, the European Commission has to start to get its hands on the delivery of health, education and all the other fields that we thought were the preserve of national Governments.
734 There is also a plea for Europe to be a
strong global player. No one can question the importance of the role that Europe has to play in the world, starting from its responsibility vis-à-vis its neighbours…Be it development assistance"— which the hon. Member for Luton, North (Mr. Hopkins) was just talking about— trade policy, foreign and security policy or external aspects of other policies, the expectations for Europe are growing. Well, the European Commission might not hold that view quite so clearly if it studied the results of the European Parliament elections from all across Europe. This document is based on an extraordinarily outdated concept of what Europe is all about.
I could spend hours dissecting the document, because it is extraordinary. I shall have to be selective, but I shall not miss out the section on the three priorities for the next financial perspectives. This point, one of the most important in the whole document, is tucked away. The section begins: The Internal Market must be completed". That is absolutely right—there is no higher priority for the European Union than that, and we have not achieved it yet. Although it is years since we thought that we had achieved it, we still have not. The great thing about achieving the internal market is that it would hardly cost a penny. It would not require any increased expenditure. It is the single most important thing that we could do to make the European Union more effective for its members, and it would not cost a penny. There would be no need to increase expenditure from 1.24 per cent. of GNI—no need at all. We would not have to spend any money. The document then goes on about European citizenship and being a global partner as the other two priorities. I just disagree with that, and I think that my constituents, too, would disagree pretty strongly.
I turn to the question of improving the quality of education and training in the Union. Here it is in black and white: In view of these declining indicators"— that is, the performance of education systems throughout Europe—
there is an urgent need to speed up the pace of reform and modernisation of Europe's education and training systems. That is a bid by the European Commission to get into spending directly on education.
We then come to
A social policy agenda: Helping European society to anticipate and manage change". I shall need your guidance, Mr. Deputy Speaker, on a word that I am going to use to describe the following paragraph:
The Union needs to adapt, trigger and absorb change. By dynamically addressing challenges related to rapid change in international competitive conditions, the Social Policy Agenda is the Union's roadmap for policy and action in the employment and social sphere, as part of the overall Lisbon Strategy. Through the combination of legislation, the open method of coordination and social dialogue, and EU budget support, the agenda is instrumental in modernising the European social model. I think that there is a technical term for that, and I doubt whether it is parliamentary: it is bullshit. Such comments are extraordinary and this document is full of them.
735 Here is another such comment: The EU level is also the most appropriate place to successfully promote social dialogue, as foreseen by the Treaty. I disagree, whatever "social dialogue" is. That said, I can guess what it means and I do not like it one little bit. Indeed, here is what I thought it meant: The EU level is also the most appropriate place to successfully enhance"— another split infinitive, but never mind— the quality of industrial relations and promote social dialogue as foreseen by the Treaty. Aha! They are getting their hands on something else.
Fascinatingly, about a third of the budget—the common agricultural policy—merits only a page of this document. Of course, there is no mention at all of the really malign impact of that policy: the trade-distorting subsidies that do so much harm to the developing world.
I love this one: Freedom, Security and Justice are core values which constitute key components of the European model of society. Motherhood and apple pie in spades, but here is an interesting comment: Through the integration of the Charter of Fundamental Rights into the Constitutional Treaty the Union will have a legal obligation to ensure that fundamental rights are not just respected, but actively promoted as well. Is that a consequence of the document, which was compared to a children's comic by one Minister? We are invited to believe that the charter is now a major driver for increased expenditure by the European Union.

§ Mr. David Stewart
The hon. Gentleman has adopted a rather sarcastic tone in respect of some issues, but does he not agree that funding a European social fund, for example, does much to promote equal opportunities within the UK? Is that not a positive thing?

§ Mr. Luff
There are some good things that the European Union can do better than member states, and it should concentrate on those. It should not be making this extraordinary bid for a wide-ranging increase in its competences and spending programmes.
The hon. Member for Inverness, East, Nairn and Lochaber (Mr. Stewart) said that I was being sarcastic, but I shall really lay on the sarcasm with this one. Another goal is to Increase the rate of European films distributed outside their country of origin from the current 11 per cent. of the market to 20 per cent. in 2013, double the number of cinemas programming European films by 2010 and training 35,000 audiovisual professionals by 2013". Are they going to double the audiences going to see European films? I doubt that very much. In fact, I would rather that they doubled the number of cinemas showing Bollywood films, because that is the market currently growing in the UK.
This is one of the most extraordinary and alarming documents that I have ever read. I was going to quote from the section on European aid, but I shall not do so in view of the comments of the hon. Member for Luton, North. The prediction of what will happen if the EU keeps at 1 per cent. of gross national income I regard as 736 both ludicrous and sometimes beneficial. For example, one of the first things that the document states is that efforts in terms of external aid will be reduced. Excellent. If that is the cost of keeping to 1 per cent., the poor of the world will be able to cheer, as we deny the European Commission the extraordinary ambition that it demonstrates in this very frightening document.

§ Mr. Kelvin Hopkins (Luton, North) (Lab)
It is a great pleasure to participate in this debate, which is almost a love-in involving Members of all three main parties. Although I do not want to upset Members too much, I want to go slightly further than those who hinted at certain things but perhaps dared not say them. To a lesser extent, this debate has taken place in European Standing Committee B, of which I am a member, over the past seven years, so I have spoken on such matters a few times before. I therefore apologise if I repeat comments that others have already heard.
The Government talk about rigorously reassessing the EU budgetary arrangements and I entirely agree. Indeed, rigorous assessment is perhaps an understatement, in that fundamental reform would be more appropriate. I have always supported enlargement because I believed that it would promote and provoke a proper reassessment of what the European Union is about and should be about, and that it would make for sensible reforms. That is indeed what is happening now.
In my view, the budget has always been deeply flawed, primarily because of the common agricultural policy and its effects. The CAP has a perverse effect on fiscal transfers between member states, with richer nations benefiting and poorer nations being net contributors. Denmark, for example, which is one of the richest countries, has been a big net beneficiary of the CAP. That was really unnecessary. Ireland, at one time a less prosperous nation—now much more prosperous, I am glad to say—has sometimes benefitted to the tune of 5 per cent. of its gross domestic product because of fiscal transfers from the EU. That is the equivalent of more than £50 billion in Britain. Imagine the EU giving us a net £50 billion every year—it would certainly make our economy fly along. I am pleased that Ireland has benefited. The CAP and related budget arrangements are perverse, and it is time we had some fundamental reform. I think that that really means the abolition of the CAP.
There seems to be a consensus that we should repatriate or renationalise structural or regional funding to the member states. I agree, but in doing so, no region in Britain should lose out in any way. Every penny should be replaced by national funding. Replacing European funding With national funding, however, amounts to a net increase in Government spending and the only way of overcoming that would be to get rid of the perverse effects of the CAP, as I mentioned. If, in future, there are to be transfers between member states through EU arrangements, they should be based on the relative prosperity of the different nations so that richer nations contribute and the poorer nations receive net gains. That could be done on the simple basis of prosperity by standard amounts being paid in and paid out accordingly in a planned and calculated way.
That will not happen if we have the CAP, which I understand is to be gradually introduced for the new member states. I believe that the CAP should be 737 abolished and repatriated, as I said, and that we should look again into how we subsidise agriculture—if we subsidise it at all. I think that there is a case for some selective subsidies, but they should be chosen at member state level. I am sure that we would want Welsh hill farmers, for example, to be protected. [Interruption.] I see that the hon. Member for East Carmarthen and Dinefwr (Adam Price) agrees with that. Livestock farming is very beneficial for the environment, even in prosperous rural areas, but I do not believe that big subsidies should be made for agribusiness producers of wheat and sugar beet. We need to think very carefully before we subsidise those producers. I believe that we should reduce their level of subsidy, but it should be done at the national level.
In dealing with trade in agricultural products, we should resort more to negotiation with fellow member states and, indeed, across the world through the World Trade Organisation. Again, that can be done only if we abolish the CAP, which is outdated and was always a mistake. I was writing papers about how wrong the CAP was 30 years ago, and everything that has happened since has confirmed my view. We are now reaching a point where the whole world agrees that the CAP is nonsense and should be got rid of.
I was going to mention the EU aid budget, but I intervened on that point earlier. If we abolish the CAP, repatriate structural and regional spending, and repatriate the aid budget, what is left? Not very much, I would suggest. If that happens, the whole EU would become a very different animal. If we want an EU that is going to work and be agreeable and acceptable to all, it should be based on international social justice. That is what I suggested earlier in my speech, when I said that the budget should be geared more towards helping the poorer nations by the relatively greater contributions of the richer nations.
That would be a beneficial result of enlargement. It would bring Europe together and help the poorer nations to reach our living standards. Internally, of course, every nation would have its own regional policy spending and budgets in accordance with its own needs and political decisions. I entirely agree with hon. Members who have spoken about areas in receipt of some sort of regional aid that our Government should compensate them for every penny—indeed, every euro—that they might lose from the reform of the European budget.
I have not said very much, because other hon. Members have already said what needs saying. However, I am very pleased that the Government are challenging what the Commission says, which is profoundly wrong. If the Government follow the suggestions made by me and other hon. Members we will have a much more sensible Europe, and one that is much more popular with all its citizens.

§ Adam Price (East Carmarthen and Dinefwr) (PC)
It is always a pleasure to follow the hon. Member for Luton, North (Mr. Hopkins), whom I thank once again for his support for beleaguered Welsh hill farmers.
I shall concentrate on the third cohesion report and on regional policy. At a time when trust and confidence in politics and the EU is collapsing, I want to say some 738 good things about the Government—and about the European Commission, which has been castigated and caricatured by hon. Members of both left and right this afternoon.
I shall begin with some positive remarks about the Government. As the hon. Member for Twickenham (Dr. Cable) said, the debate is in part about the Government's domestic regional policy, which it is fair to say has acquired a higher profile over the past few years. For the first time, the Government are genuinely trying to address the regional economic disparities in the UK.
The Government are asking some of the right questions, although I do not know whether they have yet come up with the right answers. They have set themselves the ambitious goal of closing the GDP growth gap between the regions and nations of the UK. The policy levers do not exist at present to enable them to achieve that goal, but an interesting debate is going on in the Government. There is different mood music in the respective Departments of the Paymaster General and the Minister for Industry and the Regions. The divide may not be as great as that between the US State Department and the Pentagon over Iraq but, from afar, the slight divergence of emphasis and opinion is interesting to watch.
I do not want to suggest that either the Treasury or the Department of Trade and Industry are anything other than new Labour. However, the Treasury is possibly more neo-Keynesian in respect of regional policy, whereas the DTI is more neo-liberal or old-fashioned Thatcherite. The Treasury can therefore talk about an active industrial policy—I think that the Paymaster General used those words earlier—yet the Secretary of State for Trade and Industry has been trying to bury industrial policy over the past few years.
That is a slight digression, but it is relevant to the Government's proposals for repatriating regional economic policy. We look forward to seeing more detail on the Government's proposals for state aid. In the past, the Government have tried to roll back the state—at least in terms of state aid—across Europe, but now it is part of the package that the Government see a new role for state aid in their revived and rejuvenated regional policy.
European regional policy is one of the few European policies for which there is some hard evidence that it works. The third cohesion report presents the relevant data, which show that there is convergence among the original 15 EU member states. For example, between 1994 and 2001, the average annual GDP growth in those countries' objective 1 regions was 3 per cent., compared with an average of 2.5 per cent. across the EU. That is a strong performance over an eight-year period, and it suggests that European regional economic policy has worked.
However, the addendum that I want to add is that the policy has not worked so well that, all of a sudden, we need to get rid of it. The policy has worked especially well in the cohesion countries. As the hon. Member for Caerphilly (Mr. David) knows, those countries have access not only to the structural fund but to the cohesion fund as well. That fund is available only to member states that come below 90 per cent. of the EU average. There is an argument, to which I subscribe, that a 739 significant volume of funds has been transferred—along the lines suggested by the hon. Member for Luton, North—in an active policy of spatial redistribution across the EU, which has delivered an average annual GDP growth of 9 per cent. in the cohesion countries, especially Ireland, in the period to which I refer. European regional policy has been a success, and we have heard examples from Cornwall and elsewhere of successes in the UK. That is a justification for the level of increase in the budget for the structural funds—although I will not be drawn into saying that about the other funds. The data show that the policy works and that we should expand the budget, not only for the enlargement countries, but for those parts of western Europe that still have significant regional economic problems.
The Government have acknowledged the problems in the UK; the question now is which is the best mechanism to address them. Should we revert to a domestic regional policy or maintain the structural funds system for the UK regions? The European Scrutiny Committee rightly asked how we could measure the differential impact between the Government's proposals and the Commission's proposal. The Government have said that it is impossible to give accurate figures because of the imponderables that remain to be determined. I can make out the outlines of the Government's logic; the problem is that the proposals—from both the Commission and the Government—have been expressed in terms of a proportion of the existing levels of funds. In that case, it is possible to compare because we know the existing level of funding in those regions and the Government and the Commission propose different proportions for the transitional arrangements.
The Commission has produced a new category—the statistical effect category—to compensate regions in the UK for the effects of enlargement. If a region would have qualified for objective 1 funding after 2006 had enlargement not happened, it will be in that category. It will include west Wales and the valleys, where GDP per capita has fallen, relative to the original EU 15, since the determination of the last budget. Those regions have not improved economically, only relatively as a result of enlargement. The Commission proposes that those regions should have a cushion of up to 85 per cent. of the funding that they currently receive.

§ Mr. David Stewart
Is it the position of the hon. Gentleman's party that the UK should pay more than 1 per cent. of gross national income? Does he appreciate that, as a net contributor, we are paying twice?

§ Adam Price
I support the Commission's proposal to increase the level of funding for regional policy, but I cannot remember the exact figures. The hon. Gentleman is right, because the proposal is contingent on the Commission's proposals as a whole in the financial perspective. I support the case made by Commissioner Barnier to increase the regional budget, and that is clearly contingent on increases in the budget as a whole.
I want to find out about the impact of the different proposals. The Commission said that there would be transitional funding of up to 85 per cent., but the Government said that it would be 50 per cent., based on 740 the current arrangements agreed at the Berlin summit in 1999. We know from the comments of the hon. Member for Caerphilly what the current EU funding is for west Wales and the valleys—£1.3 billion over the programme period—so, in a rough calculation, the Commission's proposals would give us, after 2007, a bit less than £1 billion while the Government's proposals would give us £650 million. That is a major difference. We would be losing out to the tune of about £350 million or £400 million.

§ Mr. David
I hear the argument that the hon. Gentleman is making, but what the European Commission is saying is hypothetical, because there is no budget.

§ Adam Price
I do not understand the logic of the hon. Gentleman's argument. Whatever the budget figures, the Commission is saying that its guarantee will be equal to 85 per cent. of transitional funding, whereas the Government's guarantee is 50 per cent. There is a simple solution: why do not the Government tell us that they will guarantee a transitional funding cushion of 85 per cent. because they believe that objective 1 regions need that level of funding? As those regions have seen no improvement in then economic position relative to the EU 15 and are losing out due to enlargement, why do not the Government tell us that 85 per cent. is a reasonable level of transitional support? There is no reason for their not making that commitment under their proposals.
How would the Government channel the funds, especially in relation to Wales, Scotland and Northern Ireland? Another dimension that the hon. Member for Caerphilly has been assiduous in raising is how the proposals relate to the Barnett formula. As some hon. Members will be aware, the match funding component in Wales was, in the jargon, Barnett-plus: it was additional to the moneys provided through the Welsh block, generated through the Barnett formula. It was over and above the moneys automatically given to Wales through increases in the comparable budgets in England.
If one factors into the equation the Barnett-plus element, the Government's proposals are even worse for Wales. The response that the Secretary of State for Trade and Industry gave the hon. Member for Caerphilly in Committee was clear: deviation from the Barnett formula would not be continued under the Government's proposals. That could mean an additional loss of about £200 million to Wales.

§ Mr. David
I thank the hon. Gentleman for giving way again. He was referring to the minutes of the Select Committee, but he should also acknowledge that, in response to my point the Secretary of State said that it was not really her portfolio.

§ Adam Price
Perhaps I should be generous to the Secretary of State as she is not in the Chamber. We can forgive her for not being an expert in the arcane workings of the Barnett formula, but the issue is fundamental so I urge her to get souped up fairly quickly. There are several problems about using the Barnett formula in this context, one of which is a matter of principle. If one uses the Barnett formula to decide 741 levels of regional development funding, there is no mechanism for varying the level between the nations of the UK based on their economic performance.
The Barnett formula is an automatic mechanism that responds purely and simply to increases in relevant budgets in England. For example, if the Welsh economic position were to deteriorate further, there would be no ready mechanism—certainly, the Barnett formula would not provide one—to reflect that fact in additional funding for Wales, whereas European regional aid responds to clearly understood, published, hard-and-fast criteria. That is a problem, as is the fact that no mechanism would be provided directly for Barnett-plus additional funding, so I urge the Secretary of State for Trade and Industry to consider that issue.

§ Ms Atherton
Can the hon. Gentleman explain why the people of Cornwall should contribute to the Welsh Barnett formula when the GDP of Wales is higher than Cornwall's?

§ Adam Price
I entirely sympathise with the hon. Lady: I want to scrap the Barnett formula It should have been scrapped 20 years ago; it should have lasted for only a year. It does not deliver to my nation, to her nation or to many of England's regions. It should be scrapped and replaced by a needs-based formula, irrespective of the Government's final proposals on regional economic policy.
Finally, I return to the guarantee. The hon. Member for Caerphilly also pressed the Secretary of State for Trade and Industry on how she could bind a future Conservative Government. I am sorry that the hon. Member for Hertford and Stortford (Mr. Prisk) did not feel minded to give way to me, because I would have asked him whether he would agree to sign up to the Government's seven-year guarantee. That is a serious issue. Under European regional aid, when the criteria and eligibility rules are determined, we know that we have security of funding for seven years. We do not have that same sense of security under domestic policy. There is always the possibility that the Government will change to a party that has never supported regional policy.
The hon. Member for Caerphilly said that he trusted the British Government more to know the local economic needs of our communities. He may trust this British Government, but would he trust a Conservative British Government? We know from our bitter experience—do we not?—that in the 1990s, when the Conservative party was dismantling the tools of domestic regional economic policy, there was only one game in town for many of our communities: European regional aid, and we were thankful for it. If it had not been for that aid, the devastation wrought by the Conservative Government under Mrs. Thatcher would have been even worse. What future security would we have if we renationalised domestic regional policy and a right-wing Conservative Government were returned at some point in the future? That is an honest question, and Labour Members need to address it—perhaps the Minister will do so in her closing remarks.

§ Mr. David
I thank the hon. Gentleman for giving way, as he has referred to me several times. I said that I trust this Government, and I did not trust the last 742 Government, but I confirm to some extent the point that he makes about the long-term commitment. I hope that the Government are able to negotiate a long-term commitment to their policies, so that we can match the long-term perspective that the Commission is presenting.

§ Adam Price
That gives rise to the question, "How can we frame that long-term commitment?" No Government can bind a future Government in terms of economic policy or anything else, because of the sovereignty of this place. I have more faith in a European Union that has demonstrated social solidarity across the EU in the past. I believe that it should be helped to continue to demonstrate that policy of solidarity in the future.

§ The Minister for Industry and the Regions (Jacqui Smith)
We have had an engaging and wide-ranging debate. As many Members have commented, a major bout of consensus has broken out, which I largely welcome given that it is a consensus around the Government's motion. For the avoidance of doubt, I clarify that we have accepted the Opposition amendment, and that does no more than strengthen the consensus.

§ Mr. Prisk
There was a hint of uncertainty, so I am very grateful to the Minister for confirming that the Government have accepted the official Opposition's amendment.

§ Jacqui Smith
I am glad that there is not only consensus but a common understanding.
I thank the Select Committee on European Scrutiny for its important report and for giving us the opportunity to debate the issue today. My neighbour, the hon. Member for Mid-Worcestershire (Mr. Luffy, was right to declare it to be a significant and important debate for the future of the EU and for our approach to regional policy. The hon. Members for Twickenham (Dr. Cable) and for East Carmarthen and Dinefwr (Adam Price) and my hon. Friend the Member for Falmouth and Camborne (Ms Atherton) focused at least part of their contributions on the important and significant issue of regional policy. Having focused our criticisms on the EU's approach to regional policy, it is important to put on record the Government's extremely strong and passionate commitment to a strong regional policy. It is at the heart of our efforts to achieve high and stable levels of growth and employment, ensuring that economic prosperity reaches every part of the country and the nations of the UK.
For too long, too many nations and regions of the UK have been allowed to fall behind; for too long, there have been huge differences in prosperity within the regions; and for too long, too many people have been left out, with their talents and ability to contribute to the prosperity of the UK wasted. We have rejected the failed policies of the past and developed a new framework for regional development, so that every nation and region of the UK can perform to its full potential.
The determination to tackle regional disparities is reflected in our public service agreement target—a target shared by the Department of Trade and Industry, 743 the Office of the Deputy Prime Minister and the Treasury—to reduce the persistent gap in growth rates between the English regions. To do that, we have significantly increased spending on regional policy across the UK, focusing resources on the drivers of productivity, such as skills, enterprise, infrastructure and the development of new technology, which were identified by my right hon. Friend the Paymaster General in her opening remarks.
We have gone further than that, because regional policy will be effective only if it genuinely responds to local needs. That is why we have devolved power to Scotland and Wales, ensuring that decisions are taken democratically and by elected representatives. That is why we are legislating so that the English regions can choose to elect their own regional assemblies, and why we have established regional development agencies to act as a catalyst for regional regeneration while strengthening the role of local authorities in encouraging regional growth. We can therefore now boast of a dynamic UK regional policy, with—and this is important in the context of concerns that hon. Members have expressed about their regions—three quarters of public spending on regional development coming from domestic sources. Only a quarter comes from structural funds.
EU regional policy remains important to us, which explains our determination to push for effective reform in the forthcoming negotiations. I shall return to several issues surrounding the reform in a minute. The context for the reform of EU regional policy is the overall reform that is needed to the EC budget as a whole. That is why, as my right hon. Friend the Paymaster General spelled out in her opening remarks, we are pushing for a reform of the budget that will deliver a fair deal for UK and EU tax payers, and I think that many hon. Members welcome that objective. One of our key priorities will be to keep within a limit of EC budget spending of 1 per cent. of EU gross national income.
We will also take opportunities to reform further the common agricultural policy within the spending limits agreed. The hon. Member for Twickenham asked for more detail about our approach on sugar. It builds on the significant progress that we have made as an advocate for the reform of the common agricultural policy, and we are determined to press on with that. On the expenditure side of the equation, the UK is pressing for a radical reform of the sugar regime to provide a market-based simplified approach that will be in line with our broader trade and development objectives. On the revenue side, the own resources decision lays down four sources of Community revenue, including sugar levies. Any change to sugar levies as a result of reform that was not offset by savings elsewhere would be offset by adjusting other sources to meet the Union's budgetary requirements.
We want to focus spending on a smaller number of EU initiatives with demonstrable added value, and hon. Members made good contributions to the discussion on that today. I strongly agreed with my hon. Friend the Member for Caerphilly (Mr. David), who used his not inconsiderable experience of Europe to highlight some 744 of the areas in which proposals put forward by the Commission would probably not add value. He also highlighted areas in which more value might be added. Although the hon. Member for Mid-Worcestershire adopted a more sceptical approach towards Europe than usual, he also said that too many proposals fail to demonstrate clearly either the effective use of resources or added value through European spending.
Our final objective within the overall budget reform is to strengthen support for the external objectives of the EU and the UK while retaining the flexibility to cope with evolving needs and crises. The hon. Member for Hertford and Stortford (Mr. Prisk) talked about the Lisbon agenda and emphasised the need to continue with economic reform. Economic reform is one of the UK's priorities for Europe and, as other hon. Members pointed out, it does not always necessitate large amounts of spending. We want member states and the Community to make more progress on labour market reform, enterprise and innovation, and external trade openness. The prospects for progress are boosted by a run of presidencies held by countries that are in favour of reform: Ireland, the Netherlands, Luxembourg and ourselves. We will certainly work carefully with those countries during that run of presidencies. The mid-term review of the Lisbon agenda gives us the opportunity to ensure that we focus our efforts on delivering economic reform. As the hon. Member for Twickenham said, such reform is important so that we achieve our objective of economic growth, development and regeneration throughout the whole UK.

§ Mr. Prisk
The Paymaster General and, indeed, the Financial Secretary are on record as saying that the EU budget should ensure sound financial management and budget discipline. Given that for nine years the Commission's accounts have not been audited, and there is no statement of assurance, how will the Government achieve their policies? What specific plans do they have to apply pressure so that we can have a budget that we can trust?

§ Jacqui Smith
Measures to increase the effectiveness of EU spending and the quality of EU finances through better financial management and the tackling of fraud and waste have continued to improve since 2003. In particular, we welcome the Commission's proposal to link administration expenditure with operational expenditure, as that will create a better activity-based approach to expenditure, although costs must not increase at the expense of policy delivery. We therefore share the hon. Gentleman's objectives of ensuring that spending is effective and that financial measures are in place to make sure that that is the case.

§ Mr. Prisk
We would certainly want to continue the consensual approach that has characterised our debate by trying to ensure that the accounts matter. I fully accept that it is difficult to turn words into practical action, but without genuine leverage I am doubtful, as are many members of the public whom we represent, whether, after seven years of asking the Commission to change its approach, progress has been made. Why does 745 the Minister believe that her policies will make any difference this year, and does she believe that next year's budget will be audited?

§ Jacqui Smith
Progress has already been made in Commissioner Kinnock's proposals, which I outlined earlier. Of course, it is a difficult challenge, but a programme of reform is in place and we are beginning to see progress.

§ Mr. Luff
In her dialogue with other EU member states, how much support has the Minister noticed for the ambitious programme set out in the document that I discussed in my speech? On page 27 of "Building our common future", for example, the EU talks about an attempt to saddle the Union with a set of goals and then deny it the resources required". Does the Minister believe that there is an attempt to saddle the EU with a set of goals, or is the Commission wishing those goals on itself?

§ Jacqui Smith
To answer the first part of the hon. Gentleman's question, there is considerable support, as represented by the letter to President Prodi from our Prime Minister and the Prime Ministers of France, Germany, Austria and the Netherlands—the majority of net contributors to the EU budget, who share the objective of achieving EU goals while focusing on a budgetary limit of 1 per cent of gross national income. We may not share all the reform objectives of those member states, but they are a strong group, determined to limit EU spending.

§ Mr. David Stewart
Does my right hon. Friend share my view that it is important that state aid rules are applied consistently across Europe?

§ Jacqui Smith
Yes, I do. Several hon. Members have touched on state aid, and we need consistent state aid rules across Europe because excessive state aid, as my right hon. Friend the Paymaster General pointed out, prevents us from having a level playing field and can distort competition. However, that must be linked to the flexibility needed to enable us to focus regional and other spending on initiatives that will drive up productivity in our regions. My hon. Friend the Member for Caerphilly (Mr. David) mentioned the struggle to get clearance for regional venture capital funding. What we need in the system is sufficient flexibility to be able to focus on such serious contributions to tackling market failure and addressing regional development needs. We also need a system that ensures a level playing field, for the good of our business and consumers across the whole of Europe.
On our EU regional policy objectives, I have set the budget context within which we are pressing for a radical reform of EU regional policy in order to focus the EU's finite resources on key priorities, while also providing nations and regions with the flexibility to deliver projects that genuinely reflect local needs. Many hon. Members press the case for their constituencies with me as a Minister, but there are few, if any, who are more able advocates of their constituency than my hon. Friend the Member for Falmouth and Camborne. She 746 was right to emphasise the need for creativity in the way in which we think about the development of projects and spending.
If the Government's proposals for the reform of structural funds were implemented, we would want to build on the strengths of existing objective 1 programmes in aspects such as multi-annual programming, partnerships and sharing of best practice. We would also want to build on our current devolved and decentralised arrangements so that our nations and regions have the flexibility, as my hon. Friend suggested, to be creative and to deliver innovative projects that reflect local needs.
As is apparent from the debate today, we have serious concerns about some of the Commission's proposals. Its approach is dependent on an unaffordable expansion in the EU budget, promising money to everyone from a pot that does not exist. Not only are we promised jam tomorrow, but we are promised it from a jam pot that has not even been cast yet. That creates some of the difficulties underlying the questions posed by hon. Members about the comparisons between UK and EU proposals, some of which I shall deal with in a moment in relation to the guarantee.
The Commission's proposals fail to focus on the poorest member states or to ensure that EU funding adds value in comparison with national measures. Under the UK's proposals, member states would agree to high-level objectives for regional policy. We still believe there is a role for the European Council to set the objectives for regional policy. We are not saying that Europe does not have a role with respect to regional policy, but the limited financial resources should be focused on the poorest members, where EU funding is likely to have the greatest added value and, as my hon. Friend the Member for Inverness, East, Nairn and Lochaber (Mr. Stewart) pointed out, is also likely to have value for the UK by promoting economic development and getting to the core of what cohesion and structural funding should be about—that is, enabling us to develop growth in the poorest EU member states, where it is most needed.
The hon. Member for East Carmarthen and Dinefwr seemed to suggest that we did not support that approach. It is precisely in order to ensure such cohesion that we want to focus support on the poorest member states. The scatter approach proposed by the Commission in the third cohesion report leads to the position where, despite the economic discrepancies between the older and the newer member states, the resources are divided 50:50, with 50 per cent. of the resources continuing to go to the richer member states. In our reform we must ensure that resources are better focused.
None of our proposals would mean a reduction in our support for regional development. On the contrary, we have guaranteed that if our proposals were adopted, we would increase domestic regional spending in order to pursue our ambitious programmes for economic regeneration. We spelled out in the details of our guarantee how we could use that to avoid some of the cliff edges in support that my hon. Friend the Member for Falmouth and Camborne and others highlighted as a concern.
747 The hon. Member for Hertford and Stortford asked what would happen to the guarantee if the reform proposals were not implemented in full. The Government would be able to offer their guarantee to the UK regions if their proposals for structural funds reform were implemented in full within a budget of 1 per cent. of EU gross national income. An expansion in the EU budget would increase UK contributions, bearing in mind that we spend €1.6 for every €1 that we get back. In those circumstances, we would have to assess the budgetary implications for the UK and the level of domestic regional funding that we would be able to provide.

§ Mr. Prisk
The Minister is trying to provide a degree of clarity. She said that total spending could be maintained if the UK's proposals were not fully accepted, but what is the spatial dimension? In other words, what does it mean in reality? Does she mean that objective 1 areas in, for example, the Camborne and Falmouth area—I say it that way around for personal reasons—will be maintained or that the overall pot will be maintained? All hon. Members would find it helpful if she clarified that.

§ Jacqui Smith
It will be important to consider the way in which we deliver those resources. This guarantee is unprecedented. It provides some certainty in relation to the cliff-edge issue and our continued commitment to regional policy. It also goes some way towards answering the hon. Member for East Carmarthen and Dinefwr, who asked what would happen in the event of a Conservative Government. The nature and methodology of the guarantee, as well as the fact that previous Governments have maintained guarantees from one to another, would make it pretty hard, even for a Conservative Government imposing the cuts proposed by the Conservative party, to go back on it. I am sure that having pushed me so hard today, the hon. Member for Hertford and Stortford would not dare to do so were he to find himself in a ministerial position.
Hon. Members questioned the negotiation process. It is fair to say that the UK has focused minds on the need for radical reform. Indeed, the Commission has already adopted key aspects of our approach. We welcome its proposals for the Council to set the strategic orientation of EU regional policy and its commitment to develop more flexible mechanisms for the delivery of projects—although, as my hon. Friend the Member for Caerphilly argued, we need to align regional policy with regional and national priorities and to get away from the stifling effects of Commission bureaucracy on structural funds projects.
748 We are at an early stage in the reform process, but we have a considerable amount of support for our proposals. We have strong support from the Netherlands, Sweden, Denmark. Germany, France and Austria, which agree on the need for a smaller structural and cohesion funds budget and a better focus on new member states. Furthermore, the new member states have joined us in questioning the generous funding that would go to richer member states—including Poland, Slovakia, Slovenia, Hungary and the Czech Republic—under the Commission's proposals. Although the negotiations have some way to go, there is a strong view, first, that the Commission's proposals do not deliver what is needed; and secondly, that the radical proposals put forward by the UK require further consideration. I assure hon. Members that we will not only take the tough approach the is required, but build on the support that we have received to ensure that we make the necessary progress.
This debate has enabled us to clarify the Government's objectives as we take forward negotiations on the future of Europe's budget and regional policy.
Unlike some others in the past week, we can appreciate and will argue for the benefits of our membership of the EU for our jobs, trade, prosperity and security. However, that will not be achieved by an unrealistic budget expansion when we rightly expect fiscal discipline in member states. It will be achieved by focusing EU spending where it can demonstrably make a difference and provide genuine solidarity and economic growth and by ensuring that the UK Government can further fund our commitment to strong economic growth and regeneration in the regions and countries of the UK.
We shall continue to argue for that reform package, confident that it is in the interests of the UK and the EU. I urge hon. Members to support the motion, as amended.
Amendment agreed to.
Main Question, as amended, agreed to.
Resolved,
That this House takes note of European Union documents No. 6232/04, Commission Communication: Building our common future: Policy challenges and Budgetary means of the Enlarged Union 2007–2013, and No. COM(04) 107, Commission Communication: "Third report on economic and social cohesion"; supports the Government's efforts to refocus allocations within a budget of 1 per cent. of EU Gross National Income in support of the European Union's goals, with structural funding focused on the poorest member states; and in particular, supports the Government's view that the Commission's overall proposals are unrealistic and unacceptable, that its structural funds proposals are inconsistent with the United Kingdom's objectives for reform, and that the future European Union Budget should be reprioritised and refocused in line with the principles of subsidiarity and spending that adds value at the European Union level and calls on the Government to set out its principles and plans for those objectives and how it will achieve them.