Lord Ashton of Hyde (Con)
My Lords, this is a short Bill but an important one. Its purpose is to enable the United Kingdom to implement the new Own Resources Decision—ORD for short—the legislation that governs the system by which the EU budget is financed. Clause 1 adds the new ORD to the list of previous Own Resources Decisions recognised under the European Communities Act 1972, thus giving it effect under the UK law. When passed, the Bill will become the European Union (Finance) Act 2015, superseding the European Communities (Finance) Act 2008, which approved the previous ORD. I am glad to see the noble Lord, Lord Davies of Oldham, in his place since it was he who, seven years and five months ago, took through the previous finance Act in 2008. Clause 2 simply cites this Act as the European Union (Finance) Act 2015 and repeals the European Communities (Finance) Act 2008.
The new ORD was agreed unanimously by the Council of Ministers in May 2014. This came as a result of the historic seven-year EU budget deal secured by the Prime Minister in 2013. In 2005, the last time a seven-year EU budget was agreed, the then UK Government agreed to an 8% increase in the spending ceiling and gave away part of the UK rebate. In 2013, by contrast, the EU budget was cut in real terms for the first time, with our rebate protected.
On the expenditure side, we ensured that within a smaller budget, expenditure was reoriented towards areas of expenditure that can provide real growth—areas such as high-value research and development, and tertiary education. Spending on research and development and other pro-growth investment will now account for 13% of the total budget, a 4% increase on the previous budget. At the same time, overall spending on the common agricultural policy will fall by 13% compared to the 2007 to 2013 period.
However, the Bill relates only to the agreement reached on the revenue side of the EU budget. In 2013 there was strong pressure from some member states, the Commission and the European Parliament to reform the way the EU budget is financed, including proposals to introduce a financial transaction tax and do away with the UK rebate, or at least change the way it works. It was a specific objective for the UK that the new financing system would require no new own resources or EU-wide taxes to finance EU spending, and no change to the UK rebate.
This is precisely what was achieved in the political agreement reached in February 2013, and was accurately reflected in the new ORD. Under that agreement, which the 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 that 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, however, some changes in the detail of the ORD compared to the previous one. For example, it reintroduces reductions in the GNI-based contributions of the Netherlands and Sweden, while also introducing small reductions in these contributions for Denmark and Austria. The UK will contribute to these small corrections, which would mean an additional £16 million contribution from the UK per year compared to the last ORD. To put this in context, this is around 0.1% of our total gross contribution in 2014. Moreover, this will be largely offset by changes in other corrections.
Noble Lords will recall that 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 member states who make disproportionately large net contributions to the budget in relation to their prosperity, such as the UK, should receive corrections.
This new ORD now requires the approval of each member state, in accordance with its own constitutional requirements, before it can come into force. The Bill before us will therefore give UK approval to that 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 that deal: EU spending was cut in real terms; UK contributions are forecast to be lower in every year compared to the final year of the Government’s seven-year deal, by on average around £1.3 billion; and our rebate, which is worth around £5 billion per year, is protected. This agreement represents a good deal for the taxpayer now and over the coming years, and I commend it to the House. I beg to move.
Lord Davies of Oldham (Lab)
My Lords, I thank the Minister for his introduction to the Bill, which has attracted widespread attention among noble Lords, as we see from the speakers’ list today. However, that does not detract from the significance of the measure or from our party’s support for the Bill, which I will indicate in a moment. Following yesterday’s debate on financial regulation in Europe, it is certainly a pleasure to get another opportunity to contribute to the important discussion about how the UK can play a constructive role within the European Union. Today, as in yesterday’s debate, we focus on somewhat technical, but nevertheless very important, EU regulation.
As the Minister so clearly laid out in his opening remarks, the Bill gives effect to the new financing system of the European Union, which will fund the latest spending framework agreed by the European Council in February 2013, and in so doing will give parliamentary approval to the Own Resources Decision from 2014 to 2020 relating to the multiannual financial framework—the MFF. It is therefore an important landmark in the development of a European position.
Of course, we do not oppose the Bill in principle, but there are ways in which it could have been improved, which I shall set out as best as I can. I pay tribute to the efforts of my colleagues in the other place, who all identified possible improvements, to which the Government did not become particularly attached. We might have a slightly better response today, although noble Lords will recognise that this is a money Bill, so there is no question of the legislation being amended at this point. Nevertheless, it is important to clear the ground of what the argument is and chart the way forward in European budgetary procedures.
We welcome the cut to the EU budget that was agreed several years ago. The EU could not possibly have continued to increase its budgetary demands on member states when every state, in responding to the crisis of the world recession, was cutting its own budget. Of course, the UK Government were implementing cuts in public spending and squeezing family budgets, and today’s Budget indicates that there is precious little let-up in that respect. As I am sure the Minister will recall, it was Labour votes in the previous October, during the debate in the other place on this very issue, which gave the Prime Minister a clear mandate to call for reduced budgetary demands.
The backdrop to today’s debate is a Budget presented a short time ago to the other place, and it certainly draws into focus the issue of priorities and what a responsible, sensible and compassionate Government could have done to manage the country’s finances better. I think we will hear a lot about priorities over the coming weeks, months and years. They reveal what matters to a Government and what is at the top of their to-do list, and it is equally true that for the Community this Bill is part of that issue today.
How we and our European partners decide to spend the budget tends to send out important signals about intent and ambition regarding what we want to achieve. That is why we are pleased that there has been a modest increase in funds for growth, for infrastructure, for research and development and for innovation. However, as I argued in yesterday’s debate, we have to do more to ensure that the UK is driving this agenda in Europe. Out of the €6.3 billion of EU funding allocated to the UK in 2013, only 23% was spending on jobs and growth, compared with 63% on agriculture. Over the decades, not a great deal has changed in that regard.
At Second Reading in the other place, the Economic Secretary to the Treasury said that she accepted that expenditure on the CAP,
“is still too high both in absolute terms and as a proportion of the overall budget”.—[Official Report, Commons, 11/6/15; col. 1426.]
I emphasise how much this side of the House agrees with that. Only a quarter of the commitment to the EU’s smart and inclusive growth priority is spent on competitiveness in jobs and growth, while three-quarters is spent on the EU’s cohesion policies, including structural funds. So there is not that necessary impetus towards jobs and extending employment opportunities which, sadly, we need. We still need to focus on young people who are unemployed and underemployed, and that is true in this country, although we recognise that the figures for a number of other European member states are even more dramatic in terms of the problems facing young people in getting jobs. There is also a modest increase in EU research development. It will be recognised that the question of science and technology in the European Union was raised by my noble friend Lord Hunt, and I know that we need to press very hard on development there too.
Along with ensuring that priorities are gradually refocused, we are also keen to ensure that a review of EU budget appropriations is conducted by the European Commission, specifically the growing and worrying gap between commitments and payments, and whether, in the longer term, alternative arrangements might offer improved value and enhanced budgetary control. I should think that not a single Member of your Lordships’ House is not in favour of enhanced budgetary control of European Union expenditure.
It is therefore welcome to hear that Kristalina Georgieva, the Minister responsible as the new Budget Commissioner, is looking at some of these issues in her recent “budget for results” initiative. I understand that our Minister cannot pre-empt what will be in that report or any conclusions it might reach, but will he at least tell the House whether we can expect that report to be published before the referendum? How often will a review of this nature take place? We believe that it should be kept under regular review, not least to ensure that the gap between commitments and payments is kept under rigorous control. Currently, as agreed in February 2013, €960 billion will be spent on commitments and €908 billion on payments. The gap has crept up from an average of 2.6% to the current 5.4%, and is projected to rise to 5.7% by 2020. This is a worrying feature of EU finances and I hope that the Minister will reflect this anxiety and the determination of the Government to keep a very close eye on this crucial issue in the near future.
We want to control budgets, not drive them up. The budget report in 2010 found that current rules for the EU budget make it slow to react to unforeseen events, while too many complexities hinder its efficiency and transparency. I think we can all say, “Hear, hear” to that.
Not only do we want greater accountability and transparency in the budgetary process, it is also crucial, particularly in the coming months, that this way of working is applied to all aspects of the European Union. It is of particular significance to this country, where we are going to ask our fellow citizens to engage in a referendum after the Prime Minister has committed his approaches to Europe to effect what changes he can. It surely behoves us to spread an understanding of the EU budget as widely as we can. Our electorate are scandalously underinformed at this time, and I do not see how we can conduct an intelligent debate about the future of the UK’s role in the European Union unless clear facts on budgetary expenditure and receipts are before the electorate. This could include inviting EU budget representatives to appear before the European Scrutiny Committee. I am not undermining the work that the committee does, but we are all proud of the excellent record of our own scrutiny committee on European legislation and its work will be important in the next 18 months to two years in preparing for the referendum, whenever it comes.
We all recognise that this is a week of tumultuous events for the EU—events that still have not reached full definition. The situation that we find ourselves in with the EU budget—with the EU’s complexity, slowness to react and difficulty in balancing priorities that we think important—means it is clear to all that it is past the time when it needs to change. Let us balance this with a belief that the best way to bring about change is to be a constructive and committed partner in the EU budgetary process and the European Union. I hope the Minister will confirm that he has introduced the Bill today in that context. We of course wish the Bill well.
Lord Ashton of Hyde
My Lords, I am grateful to the noble Lord, Lord Davies, who has responded to this brief debate for Her Majesty’s Opposition. The Bill reminds us that, by working with partners, a better European settlement is possible. The revenue side of the budget 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.
This Bill is the culmination of a two-year process. In 2013, the Prime Minister negotiated a deal for the multiannual financial framework which involved no new categories of own resources and no new taxes, and kept our rebate intact. For the first time, he achieved a cut in the multiannual financial framework.
Since then, there has been scrutiny—this pertains to what the noble Lord, Lord Davies, talked about—by the European Parliament and by the scrutiny committees of both Houses of this Parliament, not to mention Statements and Questions in both Houses. The Council of Ministers agreed this ORD unanimously in May last year. On 23 June, the House of Commons passed this Bill and it finally falls to this House to give the Bill a Second Reading.
The noble Lord mentioned the constructive role that he hopes the Government will play in the EU. I can assure him that we will do so. He welcomed the cut in the overall budget and in particular the reallocation of money from the common agricultural policy to the structural funds. It is not as much as we wanted—13%—but the money went to the growth funds, which I think we all agree are a good thing. Within the common agricultural policy as well, we reallocated some money from Pillar 1 to Pillar 2, from subsidies to rural growth funds.
The noble Lord, Lord Davies, could not resist referring to the Budget and how we should manage the finances better, which is somewhat strange considering that, in the context of this Bill, the annual contribution doubled under the last MFF. His party gave away the rebate, which has cost this country €9 billion and a further €2 billion per annum.
The noble Lord asked whether we were driving the agenda in Europe. We are certainly able, and would like, to take an active part in Europe. We will pay attention to the five presidents’ group report and to the high-level group. I agree with him that we should move to growth and I think that the new Commission is pursuing much more of a growth agenda. We will certainly support that and we agree with it.
On research and development, I again agree with the noble Lord. It is worth noting that the Horizon 2020 project received a 38% increase in this MFF and British universities are particularly suited to take advantage of that fund. We also support Vice-President Georgieva’s better spending agenda, but I am afraid that I cannot tell the noble Lord when that report will be published. If I find out, I will certainly write to him and let him know.
On the noble Lord’s comments about being uninformed on the budget, I think we can all agree that it deserves closer scrutiny. There is a huge concern across Europe that we should spend a lot of time trying to identify the structural weaknesses, and we should definitely increase scrutiny. He mentioned that EU officials should be summoned to the scrutiny committee of your Lordships’ House. Sir William Cash explicitly mentioned in the House of Commons that the Commons committee already can summon EU officials. I agree that the EU Scrutiny Committee should also be able to.
The overall message we are giving with this ORD is that if we are tightening our belt at home, we should not spend more through the EU; and we are not, thanks to the Prime Minister’s historic deal. Within the smaller overall MFF, expenditure has been reoriented toward areas that provide higher value for money to the UK taxpayer—high-value research and development, universities and other pro-growth investment. The Government’s task, on which I know this House will hold us to account, is to deliver on that deal.
We strongly welcome Vice-President Georgieva’s budget—and I have just had some information. The first working-level meeting will take place in September. The initiative aims to develop a more performance-oriented budget which delivers tangible results. We have held a discussion with the Commission and offered technical assistance. The precise timing and scope of the review is not yet known, but rest assured that we will push for maximum value for money in the context of this review.
In 2013, we achieved real, historic change. We got a good deal for the United Kingdom. We proved that we can achieve reform in Europe and we protected our interests. This historic agreement will be formalised with the passing of the Bill, which I commend to the House. I ask that the House give the Bill a Second Reading.
Bill read a second time. Committee negatived. Standing Order 46 having been dispensed with, the Bill was read a third time and passed.