European Budgets 2014 to 2020

Chris Leslie Excerpts

Tuesday 8th November 2011 Commons Chamber

[Chris Leslie (Nottingham East) (Lab/Co-op)]

The Minister started the debate by referring to today’s news about the eurozone crisis. Despite the failures of all leaders at the G20 summit, including the Prime Minister, and the continued failure of the eurozone to put flesh on the bones with regard to the dimensions of the European financial stability facility and the role of the European Central Bank, we hope that some leadership will eventually emerge across the European stage to get to grips with the problem. I am sure that the Minister will want to take back the message from both sides of the House that far sturdier action is needed on these issues.

It is important that the House recognise the difference between the issues we would like to discuss today and the specific issue addressed by the motion. The Minister referred to the Council of Ministers’ proposal in the summer for a real-terms freeze in the EU’s annual budget for 2012—in other words, a cash rise of over 2%—yet the European Parliament voted on 26 October to back a package even higher than the Commission’s proposal for a 4.9% increase. Labour Members of the European Parliament voted against the package, which would have amounted to an increase of more than 5%. We were prepared to support only a real-terms freeze in the budget.

I am told that there will now be a 21-day negotiation period among the three EU institutions. If the 2012 budget is not passed by December, it will be worked out on a monthly basis, based on 2011 levels. We believe that the proposal to increase the budget by more than 5% will strike most people as unjustified and wrong-headed. The last time we saw the Government negotiate an annual budget, the Prime Minister started by promising a freeze but ended up claiming that an increase was a victory. This time he needs to do better and must not support another inflation-busting rise in the EU budget.

[Greg Hands (Chelsea and Fulham) (Con)]

What about the rebate?

[Chris Leslie]

I will come to that in a moment.

If that means the Government need to stand firm for the full 21-day negotiating period, so be it. The UK should not allow the 2012 budget to rise beyond a real-terms freeze.

With regard to the snappily titled “Multiannual Financial Framework 2014-2020”, we rarely have an opportunity to debate a subject while the Chancellor is talking about it at an ECOFIN meeting, so this is a useful sign that Parliament is in tune with the issues of the day. Defining the main budget priorities over the seven-year period is a process that began in 1986 but was changed in the Lisbon treaty so that there was greater involvement for the European Parliament. It is important to explore the detail, but in our view the notion that there should be any significant overall increase in expenditure is perverse, given the strictures being placed on mainstream public investment projects at home. The Government must ensure that they deliver on their rhetoric in the motion and secure a much better deal than the one currently on the table.

There are two crucial areas on which the Government need to focus: the Commission’s proposal for new revenue powers and the UK rebate. With regard to the Commission’s proposals to change what it calls its “own resources” method of calculating the income it received from each member state, it is suggesting two new direct revenue streams. The first is a top-slice process for domestic VAT revenues, which I would like to ask the Minister about specifically. I am very sceptical about the proposal and would be grateful if he addressed it when summing up, because I do not think he touched on it adequately in his opening comments. Will he tell the House what proportion of our domestic VAT would be diverted to EU institutions if the change was proceeded with? The Commission seemed to suggest that it is a replacement for the VAT element of the funding formula used to calculate contributions from each member state, but how would the existing arrangements and the new arrangements compare?

With regard to the Commission’s proposal for a new EU financial transaction tax, can we at least be clear that it twists the notion of a Robin Hood tax so wide of the mark that it is barely recognisable from the global FTT, which has received so much support from charities, campaigners and leading economists worldwide? Revenues from any FTT must surely be destined for jobs, growth and carbon reduction at home and in the developing world. Pouring those revenues into the EU budget or EU bail-out funds instead would be the wrong thing to do and totally contrary to the spirit of a genuine Robin Hood tax. Instead, the starting point ought to be the proposal that Labour put forward at the 2009 G20 summit, which is that all countries should agree to work together to establish a tax, set at a fraction of 1%, that could be levied on financial transactions, millions of which happen in the City everyday. We want to see a financial transaction tax—but one that is implemented with the widest possible international agreement.

[Mr MacShane]

In 1995 I moved an amendment to the Finance Bill proposing exactly what my hon. Friend suggests, but an hon. Friend who later became the Chancellor of the Exchequer and is now my right hon. Friend the Member for Edinburgh South West (Mr Darling) wrote through it with red ink, “No new taxes”, so the idea died the death some 15 years ago. I agree with my hon. Friend the Member for Nottingham East (Chris Leslie), but let us not make the best the enemy of the good. If we get this thing going, we are getting something going that will help people. Waiting for everybody in the world to sign up to it will involve a very long wait.

[Chris Leslie]

I understand my right hon. Friend’s frustrations, but I really do not think that the proposal on the table from the Commission would achieve the outcomes that he or I seek. We have to make concerted efforts to broker a deal where any FTT applies in any of the world’s big financial centres, all of which by the way have much to gain from a new and reliable revenue stream that supports jobs, growth and the developing world.

The Commission’s proposal falls short, especially because of its intended destination for the revenue, but I think that the difference my right hon. Friend seeks is this: we felt that there was a real window of opportunity to steer the agenda on a financial transaction tax and to persuade other countries that it was something seriously worth considering, but our Chancellor is out there at the ECOFIN meeting today, resisting under all circumstances. Indeed, he wrote a private letter to bankers the other day in which he indicated that he was not in favour of it at all—even though that contradicts some of his statements in this place. He is wrong to block wider discussion among the G20 and beyond.

The BBC’s Nick Robinson reported this lunchtime that our Chancellor asked what was the point in even having a conversation about the financial transaction tax and, apparently, whether it was

“the best way to spend our time”.

It is important that we address those issues, because the Government’s weak and defeatist attitude is an abdication of leadership and a total abandonment of the gains made for the cause at the G20 meeting in 2009. It is time that Britain stepped up to the plate and showed the leadership needed to broker a better deal by being open to the idea that it is possible to win the argument for a different approach. That is why we call on the Government to engage internationally—beyond the EU proposals alone.

The second major proposal in this multi-annual financial framework is for the Commission to change the correction mechanisms for countries that are the most significant net contributors to the EU. In other words, it proposes to end the UK’s permanent rebate. The rebate returns about two thirds of the difference between the UK’s contribution to the EU and the money we receive back. Let us be absolutely clear: the Commission’s proposals are totally unacceptable. Of all the 27 countries, only Germany is a higher net contributor to the EU budget than the UK, and we have the lowest per capita receipts from it. The common agricultural policy is a far bigger distortion of the EU budget than any correction mechanism such as the UK rebate.

This is a key test for the Prime Minister. He needs to put up a strong defence of our rebate if the language that he uses here in the House is to be matched by his deeds in those negotiations.

[Mr Redwood]

Will the hon. Gentleman give way?

[Chris Leslie]

Everybody will be watching closely, including the right hon. Gentleman, to whom I am happy to give way.

[Mr Redwood]

What promises did the previous Prime Minister but one receive when he gave away a chunk of our rebate? I thought we were promised a reduction in agricultural spending, which would be very welcome.

[Chris Leslie]

I was not a Member at the time to which the right hon. Gentleman refers, but it is true that there have been changes to the UK rebate, although not to the majority of it. My understanding is that, in terms of money returned, the total amount of rebate has actually gone up, with €5.8 billion in the previous MFF round compared with €2.8 billion before, so the rebate is still a very significant gain for the UK.

There were changes to the common agricultural policy, although—I accept—not as many as people would have liked, but until we have further proposals from the Commission on reforming the common agricultural policy I am certainly not going to get into the business of urging the Minister to change the UK rebate. It is very important that the Government put up a defence of the current position and, indeed, try harder to engage with further proposals on the CAP. That is by far the bigger distortion. We need to pursue a stronger reform agenda and to have a CAP reform that is fairer to small farmers but does not lavish as much on wealthier players in the wealthiest countries. We need to tackle that anomaly as it is an outdated relic.

I am grateful to Business for New Europe’s pamphlet entitled “Rethinking the EU Budget,” which suggests some very important changes to EU competitiveness deficiencies, such as boosting research and development. It is also important that the Minister address the deficiencies in the structural funds. Few of those are helping to boost growth, when they ought to be getting investment moving into the economy. Above all, the MFF ought to contain far greater emphasis on a strategy for jobs and growth, where we know the Government have a blind spot.

The Commission and the European Parliament also need reminding that, without growth, we cannot solve the debt crisis, the banking crisis or the jobs crisis. Energy infrastructure projects, high-speed broadband and transport link improvements could all be brought forward within the MFF envelope and prioritised to boost employment and economic activity. [Interruption.] The Minister shouts from a sedentary position that that involves more spending, but we are talking about within the limitations of the budget. We do not wish to see the increases proposed by the Commission. The Minister should be out there arguing for a proper strategy for growth, and his failure to do so betrays Ministers’ and the Treasury’s blind spot on these issues.

The motion before us tonight talks tough on some of these issues and we will not oppose it, but it is important that this time Ministers do not flunk the tests when they get into the negotiations.

[Several hon. Members]

rose—

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[Stephen Williams (Bristol West) (LD)]

I am glad to have the opportunity to speak, especially after that generous build-up. We are having a curious discussion. We have had many European Union discussions in the past few months, and I cannot recall my hon. Friend the Financial Secretary being received with such warm accolade on every occasion as he has been on this one. I am sure that must have cheered him. We saw the curious alliance of Conservative Eurosceptics and Labour Eurosceptics when there was discussion of the possible demise of the eurozone. However, on this issue we might actually have tri-party agreement. May I assure my hon. Friend the Member for Wellingborough (Mr Bone), even though I am a Europhile within the Liberal Democrats—that phrase must make him shudder—that my party has usually been at the forefront of calling for reform from within the European Union? We do that because we want the European Union to work. We want it to be a success and we are certainly not blind to its shortcomings.

[Chris Leslie]

Will the hon. Gentleman therefore confirm that Fiona Hall, the leader of the UK Lib Dems in the European Parliament, posted an article on 15 July that said:

“It’s time to consign the UK rebate to history, along with the rest of Thatcherism”?

[Stephen Williams]

That is not a position of this coalition Government at Westminster. As a good democrat, the hon. Gentleman will recognise that decisions that we make in local councils or in the European Parliament, where people have their own electoral mandates, do not bind parliamentarians in this House. That is the way in which our democracy works and we take a different stance on the matter here.

The European Commission has asked for a 5% budget increase, from €966 billion to just over €1 trillion, for the second half of this decade. Most of our constituents would find it extraordinary that a request is being made for the EU budget to wax while people in every member state are having to endure the waning of their budgets. It was right that last December five large net contributors to the EU budget—the UK, Germany, France, the Netherlands and Finland—called for a freeze in the EU budget for the second half of this decade. I would like the Minister to tell us whether the Government are seeking a cash freeze or a real-terms freeze.

Whatever the level of the budget, it certainly is a budget in drastic need of reform. The common agricultural policy still accounts for more than 45% of the European Union’s spending, whereas research and development accounts for only 6.7%. The Commission is actually proposing a switch between those budgets, but that switch is made possible only by the Commission’s call for a larger budget. It is simply ludicrous for the European Union to continue to have agriculture as its largest area of expenditure, rather than the industries of the future—industries where the UK is well placed. We are currently the largest recipient of EU funds for research and development, and that is the budget that should be expanded. The priority for the United Kingdom coalition Government should be to negotiate a major shift within the EU budget and certainly within the existing level of resources. To clarify the issue for the hon. Member for Nottingham East (Chris Leslie), I say that our budget rebate should remain while the EU budget remains in its current unreformed and out-of-date state.

On sources of revenue for the European Union, I share the sentiments expressed by the Opposition Front-Bench team that it would not be right for the EU to take on the personality of a federal state and have taxes paid directly to it, whether that be VAT or the proposed financial transactions tax. There is a very good case for a financial transactions tax being levied once we can have international agreement among the global financial centres, many of which lie outside the European Union, but there is no case at all for the European Union itself to pinch that money, which the people who have campaigned for the Robin Hood tax have earmarked for other purposes. May I reassure my colleagues that the Government are right to call for a freeze in existing EU budgets? However, they should also vigorously press the case for reform.