The Financial Secretary to the Treasury (Mr David Gauke)
I beg to move, That the Bill be now read a Second time.
This is a short but important Bill. Let me begin by explaining the background to it. A little over two years ago, at the February 2013 European Council in Brussels, the Prime Minister secured an historic deal. On the expenditure side, it meant that the EU budget was cut in real terms for the first time, and on the revenue side, it protected our rebate.
As Members will recall, under the financing arrangement that was agreed in 2005 and is currently in force, the then United Kingdom Government gave away part of the UK rebate. That has had, and will continue to have, an impact on the UK’s contribution to the EU budget. The European Commission estimated the cost at £6.6 billion over the previous seven-year financial framework, and in future it will cost us about £2 billion a year.
Kelvin Hopkins (Luton North) (Lab)
I was one of those who complained bitterly about the supposed renegotiation of the British rebate, which was actually a giveaway. What is the cumulative cost, and will the Government seek to reverse the position that was negotiated in 2005?
Mr Gauke
As I have said, the estimated cost over the previous seven years was £6.6 billion, and in future it will be about £2 billion a year. I understand the point that the hon. Gentleman is making: he want us to clear up yet another mess that was created by the last Government, although I acknowledge that he was as disappointed by his Government as we were. As for what the UK Government can do about the financial position, let me explain what we did in the 2013 negotiations. Whereas the last Government had agreed to an 8% increase in the spending ceiling, we proceeded with an agenda that was in the UK’s interests. This time, the two sensible things that we could do to protect the British taxpayer were to get the overall budget down and to protect our rebate, and that is precisely what we achieved.
The agreement that the Prime Minister secured back in 2013 was good for Europe and good for the United Kingdom. At the time, some argued that it was not possible, and that the interests of the UK were in some way incompatible with the wider aims of the European Union, but the Government showed them that they were wrong.
John Redwood (Wokingham) (Con)
Does the Bill not endorse a system that takes £12 billion of our taxpayers’ money and spends it elsewhere on the continent, while we receive not a penny of benefit? If the British people voted “out”, they could presumably be given a £12 billion tax cut to celebrate our leaving the European Union.
Mr Gauke
My right hon. Friend has taken me in the direction of the wider issue of our EU membership. As became clear this week, the people of the United Kingdom will have an opportunity to vote on that, but this is the system that applies while we are members of the European Union. My right hon. Friend may wish to present his argument during a future debate, but what cannot be in doubt is that the Prime Minister’s achievement during the 2013 negotiations constituted a huge improvement on the record of the last Government. It protected the rebate, and it ensured, for the first time, that we were able to reduce the overall expenditure of the EU over the multi-annual financial framework period.
Barbara Keeley
The hon. Gentleman is very kind. I just wonder whether he intends to mention the debate in the House and the votes, particularly by Labour Members, that gave the Prime Minister such a strong negotiating position and played an important part in strengthening his hand at that time. Will the hon. Gentleman acknowledge that?
Mr Gauke
It would be a bit rich for the Labour party to claim this success as its own. We have a record of a Conservative Prime Minister who was able to protect the rebate in full as it stood, and also managed to reduce EU expenditure. That is in stark contrast to the record the previous time this process was undertaken in 2005, when part of our rebate was surrendered at significant cost, as I have already set out.
Mr Peter Bone (Wellingborough) (Con)
Does my hon. Friend remember that at that time the House was sold a pup on the basis that Mr Blair said reform of the common agricultural policy would mean it would be cost-neutral, which turned out to be completely false?
Stephen Gethins (North East Fife) (SNP)
The issue of the CAP has just been raised. By 2019 Scotland’s pillar one per hectare payment rate will be the lowest in the EU. Will the Minister ask the Secretary of State for the full pillar one convergence uplift that was received, as was called for by the Scottish Government and supported across the parties in the Scottish Parliament?
Mr Gauke
The Conservative-led Government have a very good record in protecting the interests of all parts of the United Kingdom. Indeed, in terms of some of the changes we might have seen in the structural funds, we ensured all parts of the UK were treated fairly, which would not otherwise have been the case. So all I would say to the hon. Gentleman is that of course the Government are determined to protect the interests of all parts of the UK, and, looking at the longer term future of the EU, the CAP does need the type of reform that was once promised and not properly delivered by the last Labour Government.
Mr Gauke
Let me make a little progress.
This Bill relates only to agreement reached on the revenue side of the EU budget. This is an area that receives much less interest, but is no less important—nor any less of a success for the UK—than the cut to the EU budget. I would like, however, to first remind hon. Members of the details of the deal reached on expenditure, before moving on to revenue, the nub of the Bill.
When others argued that the EU would never reform, and certainly would not cut its budget, we argued that a cut in the EU budget was the right thing to do, especially at a time when so many countries had had to make difficult decisions in their own budgets. We argued that EU spending should be focused on where it could provide real growth, in areas such as high-value research and development, and tertiary education—from which Britain’s universities are particularly well-placed to benefit. We made sure that the UK would not be overly disadvantaged by reductions in spending: so, for instance, we ensured that structural funds would continue to flow to our less well-off regions. Above all, we argued from the point of the view of the British taxpayer, who expects and deserves good value for money—and I should add that the British taxpayer is not unique in this respect. So the seven-year EU budget deal—2014 to 2020—secured by the Prime Minister represents a real-terms cut to the payments limit to €908 billion in 2011 prices. Overall spending on the CAP over this period will fall by 13% compared with the 2007-13 EU budget period. At the same time, spending on research and development and other pro-growth investment will now account for 13%, a 4% increase on the previous budget. That is a good deal for Britain, a good deal for the taxpayer, and very different from the previous time round.
Kelvin Hopkins
Returning to the issue of the structural fund income to Britain, would it not be easier if we had control of those funds? We could allocate them better, and we would be better off by not having to contribute to the budget. Would it not be more sensible to have regional funds repatriated to Britain, so our Government can decide what and where to spend?
Stephen Gethins
Since the Minister struggled with my first question, I will ask him another, this time on pillar two. If Scotland is getting such a fair deal, why will Scotland’s pillar two per hectare rate remain the lowest in the EU at about €12?
Mr Gauke
The deal Scotland gets includes support from the structural funds which have been protected as a consequence of decisions made by the UK Government in the last Parliament.
Turning to the deal secured on the revenue side, as hon. Members may be aware, the system by which EU member states finance the annual EU budget is set out in EU legislation known as the own resources decision—ORD for short. At the 2013 February Council, there was strong pressure from some member states, the Commission and the European Parliament to reform the way member states finance the EU budget. These included proposals to introduce a financial transaction tax and do away with the UK rebate, or at least change the way it works.
The Prime Minister stood his ground and made it clear that the UK would not agree to such proposals, nor agree to anything that changed the way our rebate worked. It was a specific objective for the UK that this new financing system would require no new own resources or EU-wide taxes to finance EU expenditure, and no change to the UK rebate, and that is precisely what we achieved.
The political agreement at the 2013 February European Council was accurately reflected in the financing arrangements which all EU member states agreed unanimously at a meeting of the Council of Ministers in May 2014. Under the agreement, which this Bill will implement, the Prime Minister protected what is left of the UK rebate, and this is maintained without any change throughout the life of this agreement.
The agreement also ensures there will be no new types of member state contributions and no new taxes to finance EU spending over this period. The new ORD does not make any changes to the way that the EU budget is financed. There are some changes in the detail of the ORD compared with the previous one, however. For example, it reintroduces reductions in the GNI-based contributions of the Netherlands and Sweden, and introduces small reductions in these contributions for Denmark and Austria. The UK will contribute to these small corrections, which will mean an additional £16 million in contributions from the UK per year compared to the last ORD; that is around 0.1% of our total gross contribution in 2014. Moreover, this will be largely offset by changes in other corrections.
John Redwood
I congratulate the Prime Minister and the Minister on defending Britain’s interests against a far worse settlement, but is it not also the case that under the pre-existing agreements if Britain grows more quickly than the euroland, which it is doing and appears that it will carry on doing, we will get caned by having to pay more tax?
Mr Gauke
Part of the calculation of member states’ contributions is based on the size of their economy. That means that bigger economies pay more and smaller ones pay less. As an economy becomes relatively bigger, it makes a bigger contribution. That is the factual situation; that is how it works.
I referred earlier to the corrections and the small reductions in the contributions from Denmark and Austria. The UK has always supported the principle of budgetary corrections set out at the 1984 Fontainebleau European Council, which gave us our rebate. In the absence of any meaningful reform on the expenditure side of the budget, we believe that those member states that make disproportionately large net contributions to the budget in relation to their prosperity, such as the UK, should receive corrections.
Mr Jacob Rees-Mogg (North East Somerset) (Con)
Further to the point raised by my right hon. Friend the Member for Wokingham (John Redwood), will the Minister explain whether there has been any change as a result of the recalculation of gross national income as the European Union has moved from the European system of accounts known as ESA95 to the later ESA2010, which I believe includes more of the black market? Has that move had the effect of making our economy bigger?
Mr Gauke
That is not a matter that is related to the Bill. The own resources decision uses the same formula for this financial framework as it did for the previous one. The revisions to GNI to which my hon. Friend refers are a separate matter. The element relating to the hidden economy has on occasions been somewhat overstated in this debate, but yes, there was a correction of our GNI estimates and that did require an additional sum. He will be aware of how this Government negotiated to ensure that we did not have to pay that sum up front—we were given much more time—and that the rebate applied to it.
Mr Rees-Mogg
I would be grateful if the Minister could clarify that this own resources decision is based on ESA95, as the last one was, rather than on ESA2010, which has been adopted for other purposes.
Mr Gauke
The own resources decision—the ORD—contains an element that is based on GNI. There may be different ways of calculating the GNI as it is updated. This is not related to the Bill, however. The formula remains essentially the same, and the element that comes from GNI has not changed, although there may be changes to the way in which the GNI works. Indeed, there are changes on an annual basis, because there are revisions to the number.
This new ORD requires the approval of each member state, in accordance with their own constitutional requirements, before it can come into force. The Bill will therefore give UK approval to the Council decision. The passing of the Bill will be the final action necessary in delivering the deal secured by the Prime Minister in 2013. As a result of the deal, EU spending was cut in real terms and UK contributions are forecast to be lower in every year compared with the final year of the Government’s seven-year deal, by on average around £1.3 billion. In addition, our rebate, which is worth around £5 billion per year, is protected. This agreement is in our national interest. It represents a good deal for the taxpayer now and over the coming years.
I would like to draw the House’s attention to what the Prime Minister said in 2013. After the EU budget negotiations, he said:
“Working with allies, we took real steps towards reform in the European Union.”—[Official Report, 11 February 2013; Vol. 558, c. 571.]
Hon. Members will need no reminding that reforming the European Union is one of the key objectives of this Government. The Prime Minister has already had constructive talks with EU leaders on how best to address the UK’s concerns about how the EU is run. These concerns are not unique to the UK. Many in Europe agree with us that the EU is too uncompetitive, too democratically unaccountable and too inflexible to the concerns of citizens in its member states. They agree with us that reform is needed, and the Prime Minister, in turn, is confident that he can and will succeed in negotiating to reform the European Union and our relationship with it.
In February 2013, we saw the positive results of working with partners to achieve real change in Europe. We saw what can be done when we are tough, positive and determined in negotiations with our European partners. Our vision of an open, prosperous Europe can be achieved only on the back of financial discipline. That was the principle on which we negotiated in 2013, and that is a principle we will continue to apply. The agreement that will be implemented by the Bill will be good for Britain and good for Europe, too. I commend it to the House.
The Economic Secretary to the Treasury (Harriett Baldwin)
What a pleasure it is to see you in the Chair, Madam Deputy Speaker, and to respond on behalf of the Government to the debate on the European Union (Finance) Bill. I welcome the hon. Member for Wirral South (Alison McGovern) to her position as shadow Economic Secretary.
We have had a good-humoured debate today on this important topic. I have noticed that a large number of former university professors chose to speak in the debate. I welcome the eight new Members who made their maiden speeches during the debate. As my opposite number pointed out, they have been shrewd—they know that Thursday afternoon business on a Bill that takes up all of one page and has general cross-party support is an excellent opportunity to enjoy less stricture from Madam Deputy Speaker in respect of a time limit.
We were privileged to hear a range of maiden speeches, first from the hon. Member for East Lothian (George Kerevan), who shocked us by revealing that he already has his bus pass. He tempted us all with the information that his vegetable garden is ambitious and painted a delightful picture of East Lothian. My grandmother, Flora Maclean Macleod Morison, was born in Dunbar in his constituency, so he will forgive me if I take an entirely different view from him of our United Kingdom, but I enjoyed his maiden speech very much none the less.
We then had the pleasure of hearing from my hon. Friend the Member for Tonbridge and Malling (Tom Tugendhat), who emphasised the fact that his interest in European finance was related to the fact that his wife is French. He took us on a very interesting tour of his constituency that involved Wimbledon strawberries. He also spoke of his valuable and important tours of Iraq and Afghanistan, for which the nation is deeply grateful.
We heard from my hon. Friend the Member for South Ribble (Seema Kennedy) who, I think it is fair to say, is the first person of Iranian-Irish heritage to serve in this place. She took us back to the wars of the roses. The atmosphere seemed to get quite heated on the Conservative Benches at times during the afternoon, but my hon. Friend made a very funny speech and took us on a metaphorical open-top bus tour in a Leyland bus around South Ribble. The House was alarmed to hear that she reversed into her first constituent. We would all like to hear in her subsequent contributions what happened to that constituent. I was left worrying about what happened next.
We had an excellent speech from the hon. Member for Glenrothes (Peter Grant), who complemented the strawberries from Tonbridge and Malling with some Pimm’s from Glenrothes to add to our summer delights. We also heard from the hon. Member for Ealing Central and Acton (Dr Huq), who has been not only a university professor but, I understand, a DJ. She took us around the musical highlights of Ealing Central and Acton. She clearly knows her area extremely well from having lived there for so long, and she paid a well deserved tribute to her excellent predecessors, Angie Bray and Sir George Young. I only regret that Sir George Young’s letter to her when she was 18 failed to persuade her of the virtues of voting Conservative, but a place is reserved for her, should she ever wish to cross the Floor.
We heard a remarkable speech from my hon. Friend the new Member for Corby (Tom Pursglove), who enchanted us with his description of some of his perhaps less successful outings on the cricket pitch. I think it fair to say that he is already one of the most famous new Members, as his name has been mentioned on numerous occasions by his constituency champion, our hon. Friend the Member for Wellingborough (Mr Bone). We are delighted to meet him in the flesh. He was elected as the youngest councillor in the country in 2007, which we in Malvern Hills were slightly annoyed about, as we had only the second youngest. None the less, I congratulate him on being here so early in his life and look forward to his being here for many years to come.
We then heard from my hon. Friend the Member for Richmond (Yorks) (Rishi Sunak), who has a very tough act to follow. Not only has his predecessor left a lasting legacy in this nation’s politics by ensuring that we kept the pound and remained strong in our approach to a wide range of foreign policy issues, but he turned up at his advice surgeries in a Harrier jet—a tough act to follow indeed, but the new Member for Richmond (Yorks) clearly shares the oratory, wit and intelligence of his predecessor. I am sure that his speech today gave us the first inkling of the great contribution he will make.
Today, the House has also had a picture painted for us of a spa. What could be nicer on a Thursday afternoon in the House of Commons than to hear about the city of Bath and its place in European tourism? It was an enchanting picture of an historic and famous place. My hon. Friend the Member for Bath (Ben Howlett) shared his pride in the fact—we all agree with him on the great news—that, after 23 years, Bath is once again a blue city. He told us about the innovative and prosperous place that he represents. He, too, will be a great champion for his area in the years to come.
A stable, prosperous society is possible only if the Government spend citizens’ money wisely. We have before us a Bill that is an eloquent rebuttal to all those who claim that we cannot get a better European settlement. Back in 2013, people said we could never do something as ambitious as cutting the EU budget—it was unheard of. But we worked with our partners, we negotiated hard and we did not give in, and that work paid off handsomely. The seven-year deal we secured represents the first ever real-terms cut to the EU budget, at the same time as protecting our hard-won rebate. That is what happens when we stand our ground, fight hard against unwelcome proposals and defend the interests of the British taxpayer. That is exactly the sort of leadership that is needed in Europe.
Barbara Keeley
I want to ask the hon. Lady a question that is important for the next stage of the Bill. Does she think that “standing our ground” will be extended to what the Labour party has suggested and Labour Members have talked about today, which is cutting the CAP and funding for agriculture even further and spending more on growth and jobs? Does she think that that switch of priorities is possible?
Harriett Baldwin
The hon. Lady mentioned that earlier and I was going to get to that point in a moment, but yes, we do accept that expenditure on the CAP is still too high both in absolute terms and as a proportion of the overall budget. As she will know, this settlement reduces the amount we spend on the CAP by 13%, but as the Prime Minister said at the time of the deal, reform of EU spending is a long-term project. I will say more later in my speech.
Before I reply to points made in the debate, let me remind the House what the Bill covers and what it does not cover. It relates to the mechanism by which member states finance the EU budget. The mechanism was agreed unanimously by member states in 2014, in a Council decision that fully and accurately reflects the historic deal that the Prime Minister secured. The Bill therefore gives UK approval to that Council decision, finalising the Prime Minister’s historic deal in 2013, which the Government worked hard to achieve and which received widespread praise from both Houses as delivering a good deal for taxpayers.
The hon. Member for Worsley and Eccles South made a number of points, including on the common agricultural policy and the overall enthusiasm her party now feels for reform of the European Union. We welcome that new-found enthusiasm, but I encourage her to induct into that feeling her colleagues in the European Parliament, who play a vital role every year by scrutinising the European budget. I look forward to her being able to engage with them and ensure that there is a good deal of scrutiny, and not only on the points she raised about the common agricultural policy, but on the payment gap, because clearly the Commission has committed to publishing more frequently its analysis on payment forecasts. We welcome the greatly enhanced level of information on the budget but recognise that there is still a great deal more to do.
Barbara Keeley
It is worth saying for the record that in the latest round of CAP reforms, covering the six-year period from 2014 to 2020, Labour MEPs voted against the final outcome, because we believe that the reforms were not far-reaching enough. The Minister mentioned talking to those MEPs, but they have already voted against it.
Harriett Baldwin
As I said, I welcome the hon. Lady’s European colleagues’ new-found enthusiasm for rigour and reform in the European Union, and I look forward to working closely with them to ensure that happens.
My hon. Friend the Member for Daventry (Chris Heaton-Harris) made an excellent speech that revealed his deep knowledge of the subject. As a former MEP who sat on the Committee that scrutinised the European budget, he has been assiduous in his scrutiny of this legislation—no doubt the Whips will have noted his enthusiasm to take part when the Bill goes to Committee. He asked a range of questions about the ESA reporting and the accuracy of the EU budget. The UK agrees that more can be done to improve compliance, including simplifying the rules that member states have to comply with to release their funds. We believe that the Prime Minister’s deal on the multi-annual financial framework shows that EU spending can be improved, but that will require a strong UK voice to be heard.
George Kerevan
Again, does the Minister understand that the OBR analysis shows that in 2020 the net contributions in cash terms from the UK will be similar to what they are now? When the Prime Minister negotiated a reduction in the EU budget, it was a reduction in the global budget, not in the British contribution in cash terms.
Harriett Baldwin
I accept that the OBR has published figures that clearly show that there is a real-terms reduction in the overall envelope for the settlement period.
My hon. Friend the Member for Daventry also asked about the additional costs compared with the existing decision and any offsetting benefits. He raised a number of technical points about the VAT-based contributions, which are calculated by applying a call rate to a hypothetical harmonised VAT base—are not we glad we have him in this House, knowing all the information and all the right questions to ask on the details of the financial settlement? He also asked about the impact of the switch from ESA 95 to ESA 2010. It was taken into account in the own resources decision, but it does affect all countries’ GNI, so the effect on the contribution depends on how all countries’ GNI is revised. For the UK the key determinant of contributions is, in fact, the VAT base, thanks to our rebate, which the Labour party did not succeed in giving away fully in the early 2000s. Changes in the UK’s GNI are corrected in the rebate calculation.
The hon. Member for Luton North (Kelvin Hopkins) mentioned a number of negotiating red lines that he has, although he is in a slightly different position. He asked what are the Prime Minister’s red lines. The Prime Minister has clearly set out areas where he wants change, including reforming welfare to reduce the incentives that have encouraged such mass migration from Europe; increasing economic competitiveness to create jobs and growth for hard-working families; and protecting Britain’s interests outside the euro. They also include halting the constant flow of powers to Brussels, including by ensuring a stronger role for national Parliaments, and dealing with the concept of ever-closer union. That may be what some others want, but it is not for us.
In 2010, this Government took the tough decisions that were needed to pull this country back from the brink. We can have a stable, prosperous society only if a Government spend their citizens’ money carefully, and it is right that we took that approach to the European level of government as well.
Harriett Baldwin
I would be delighted to confirm that. When we took office in 2010, the deficit was the largest in our peacetime history, at well over 10%. It has more than halved over the past five years and will be eliminated during this Parliament.
Alison McGovern
The Minister says that the deficit has halved. Will she confirm the Government’s pledge in 2010?
Harriett Baldwin
The deficit halved—more than halved—over the course of the previous Parliament. Is the hon. Lady now arguing that she would like to have cut spending more? I have not heard that from Labour Members in this Chamber over the past five years. I have heard constant bids for more borrowing, more spending and more taxation, and nothing at all about reducing the deficit.
Alison McGovern
The Minister challenges me on what I would pledge. I did not write the Chancellor’s emergency Budget that set the Government on the wrong course. So let me ask her this: how did the pledge go to get debt falling, not rising, for most of the previous Parliament?
Harriett Baldwin
I must be living in a parallel universe. I have walked through the opposite Lobby from the hon. Lady on numerous occasions when we have taken the tough decisions on spending that we needed to take in order to clear up the mess that her mentor, Mr Gordon Brown, left behind.
In the negotiations on the European budget in 2013 we achieved real, historic change. We got a great deal for the United Kingdom, we proved that we can achieve reform in Europe, and we protected taxpayers’ interests. That historic agreement will be formalised with the passing of this Bill, and I commend it to the House.
Question put and agreed to.
Bill accordingly read a Second time.
European Union (Finance) Bill (Programme)
Motion made, and Question put forthwith (Standing Order No. 83A(7),
That the following provisions shall apply to the European Union (Finance) Bill:
Committal
(1) The Bill shall be committed to a Committee of the whole House.
Proceedings in Committee, on Consideration and Third Reading
(2) Proceedings in Committee, any proceedings on Consideration and proceedings on Third Reading shall be completed at one day’s sitting.
(3) Proceedings in Committee and any proceedings on Consideration shall (so far as not previously concluded) be brought to a conclusion one hour before the moment of interruption on the day on which those proceedings are commenced.
(4) Proceedings on Third Reading shall (so far as not previously concluded) be brought to a conclusion at the moment of interruption on that day.
(5) Standing Order No. 83B (Programming committees) shall not apply to proceedings in Committee and on Consideration and Third Reading.
Other proceedings
(6) Any other proceedings on the Bill (including any proceedings on consideration of any message from the Lords) may be programmed.—(Margot James.)
European Union (Finance) Bill (Money)
Queen’s recommendation signified.
Motion made, and Question put forthwith (Standing Order No. 52(1)(a)),
That, for the purposes of any Act resulting from the European Union (Finance) Bill, it is expedient to authorise the charging on, and payment out of, the Consolidated Fund or the National Loans Fund of any sums which, by virtue of the amendment of the European Communities Act 1972 made by that Act, fall to be charged on or paid out of either of those Funds.—(Margot James.)