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European Council

Volume 517: debated on Monday 1 November 2010

With permission, Mr Speaker, I should like to make a statement.

Clearly the whole country has been focused this weekend on the terrorist threat, and the Home Secretary will make a full statement after this. However, I want to put on record my thanks, and the thanks of everyone in this House, to all those involved in the international police and intelligence operation, whose efforts clearly prevented the terrorists from killing and maiming many innocent people, whether here or elsewhere in the world. The fact that the device was being carried from Yemen to the United Arab Emirates, Germany and Britain, en route to America, shows the interest of the whole world in coming together to deal with this. While we are rightly engaged in Afghanistan to deny the terrorists there, the threat from the Arabian peninsula, and from Yemen in particular, has grown. So as well as the immediate steps, which the Home Secretary will outline, it is clear that we must take every possible step to work with our partners in the Arab world to cut out the terrorist cancer that lurks in the Arabian peninsula.

Let me turn to last week’s European Council. The Council’s main business was going to be economic governance in the light of the serious problems that the eurozone has faced. However, I was clear that we could not talk about the need for fiscal rigour in the EU’s member states without also talking about the need for fiscal rigour in the EU budget, both next year and for the future, so we ensured that the EU budget was also on the agenda. Let me go through both issues. First, on the budget for 2011, from the outset in May, we wanted a freeze. We pressed for a freeze, and in July we voted for a freeze, seeking to block the 2.9% proposed by the presidency. Finland, Sweden, Denmark, the Netherlands, the Czech Republic and Austria all voted with us. Unfortunately, we were just short of the numbers needed for a blocking minority, so in August the Council agreed a 2.9% increase.

Then in October, the matter went to the European Parliament, which voted for around a 6% increase. That was the frankly outrageous proposal with which we were confronted at this European Council. Now, normally what happens in these situations is that you take the position of the EU Council and that of the EU Parliament, and there is a negotiation that ends up splitting the difference. Indeed, that is precisely what happened last year. So before the Council started, we began building an alliance to take a different approach and to insist on the 2.9%. I made phone calls to my counterparts in Sweden, France and Germany, among others, and then continued to press the case during the Council. Twelve other Heads of State took that approach, and we issued a joint letter that makes it clear that a 6% increase is

“especially unacceptable at a time when we are having to take difficult decisions at national level to control public expenditure”.

Furthermore, the joint letter goes on to say that

“we are clear that we cannot accept any more than”

the 2.9% increase being proposed by the Council.

Let me explain what this means. Either the Council and the Parliament now have to agree to the 2.9%, or there will be deadlock, in which case the EU will have to live on a repeat of last year's budget settlement handed out in twelfths over the next 12 months, an outcome that we would be perfectly content with. Next, and more importantly, Britain secured a significant breakthrough on a fundamental principle for the longer term. As well as the individual budget negotiations for 2011, 2012 and 2013, there is also a big negotiation about to happen for the future funding of the EU over the period between 2014 and 2020. We clearly want to do all we can to make the negotiations go the right way, and what we agreed at the Council was, I think, a big step forward. The European Commission was wholly opposed to it, but the Council agreed that

“at the same time as fiscal discipline is reinforced in the European Union, it is essential that the European Union budget and the forthcoming multi-annual Financial Framework reflect the consolidation efforts being made by Member States to bring deficit and debt onto a more sustainable path.”

So from now on, the EU budget must reflect what we are doing in our own countries, and it is quite apparent that almost every country in Europe, like us, is seeing very tough spending settlements.

This new principle applies to the 2012 and 2013 budgets, and to the crucial 2014 to 2020 EU spending framework. Just as countries have had to change their financial plans because of the crisis, so the EU must change its financial plans too. Mr Speaker, if you look at the published conclusions and language on the budget, they formed a prominent part even though it was not originally on the agenda. I think this is an important step forward.

In my discussions with Chancellor Merkel at the weekend, we agreed to take forward some joint work to bring some transparency to the EU budget––salaries, allowances, grants. This work has just not been done properly in the past, and it is about time that citizens of the EU knew what the EU spends its money on. That is the spotlight that needs to be shone, and that is what we propose to do.

On economic governance, there are basically two issues. First, there is Herman Van Rompuy’s report from the taskforce on economic governance. This was set up after the sovereign debt crisis, and my right hon. Friend the Chancellor and the Treasury have been fully involved. Secondly, there is the additional proposal made by the Germans, and in principle agreed by the Council, for a limited treaty amendment focusing on putting the EU’s temporary bail-out mechanism on to a permanent basis. Let me take each in turn. In Van Rompuy's report, there are some sensible proposals. For example, the eurozone clearly needs reinforced fiscal discipline to ensure its stability, and the crisis has shown that in a global economy early warning is clearly needed about imbalances between different countries.

Let me be clear on one point about which there has been some debate: the question of surveillance. All member states, including the UK, have participated in surveillance for more than a decade. This is not a new framework. The report is clear, and the current framework remains broadly valid, but needs to be applied in a better and more consistent way. The report proposes new sanctions, but we have ensured that no sanctions, either existing or new, will apply to the UK. The report could not be clearer. It says that

“strengthened enforcement measures need to be implemented for all EU Member States, except the UK as a consequence of Protocol 15 of the Treaty”.

That is our opt-out. It kept us out of the single currency; it kept us out of sanctions under the Maastricht treaty; and we have ensured that it keeps us out of any sanctions in the future.

In addition to the issue of sanctions, a number of other concerns have been raised. Let me try to address each of them head on. First, will we have to present our budget to Europe before this House? No. Secondly, will we have to give Europe access to information for budgetary surveillance that is not similarly shared with organisations such as the International Monetary Fund or is publicly available on the internet? Again, the answer is no. Thirdly, will powers over our budget be transferred from Westminster to Brussels? Again, no.

I turn to the proposal mentioned in the Council’s conclusions for limited treaty amendment. We have established that any possible future treaty change, should it occur, would not affect the UK, and I would not agree to it if it did. The proposal to put the temporary bail-out mechanism on a permanent footing is important for the eurozone, and eurozone stability is important for the UK. Nearly half our trade is with the eurozone, and London is Europe’s international financial centre.

Let me be clear. Throughout this process, I have been focused on our national interest, and it is in our national interest that the eurozone should sort itself out. It is in our national interest that Europe should avoid being paralysed by another debt crisis, as it was with Greece in May, and it is absolutely in our national interest that Britain should not be drawn into having to help with any future bail-out. That is what we have secured.

Let me turn briefly to the other business of the Council. On the G20, the Council discussed its priorities for the upcoming summit in Seoul. Again, our interests are clear. As an open trading nation, we want progress on Doha. This has been going for nearly a decade, and 2011 should be the year when we try to achieve a deal. We believe that the world has suffered from economic imbalances, so we want countries with fiscal deficits to deal with them, and countries with trade surpluses to look at structural and currency reforms. We recognise the importance of strengthening global financial stability, and that is why we support the recent Basel agreement on stronger banking regulations. We also want global institutions to be reformed to reflect the growth of emerging powers, so we will see through the work that my right hon. Friend the Chancellor has led on the reform of IMF votes and board seats. Finally, on Cancun, we are committed to making progress towards a legally binding United Nations agreement.

I believe that this Council demonstrates that it is perfectly possible to deliver for our national interest while protecting our national sovereignty. Tomorrow, the British and French Governments will sign new defence and security co-operation treaties, which will be laid before Parliament in the usual way. This follows the same principle: partnership, yes; giving away sovereignty, no. At this Council, Britain helped Europe to take the first vital steps towards bringing its finances under control. We prevented a crazy 6% rise in the EU budget next year, we ensured that the budget would reflect domestic spending cuts in all future years, and we protected the UK taxpayer from having to bail out eurozone countries that get themselves into trouble. There is a long way to go, but we have made a strong start. I commend this statement to the House.

May I thank the Prime Minister for his statement? I also thank him for the briefing statement that he gave me on Saturday on the developments following the discovery of explosive materials, including those at East Midlands airport. I join him in thanking the security services, the police and others for the work that they do to protect innocent people here and abroad. I also want to assure him that he has the full support of the Opposition in his efforts to tackle terrorism and keep the nation safe.

On Europe, Labour Members think that it is in the national interest for Britain to be strongly engaged in Europe on issues from terrorism to climate change, and from the global economy to human trafficking. We all know that the Prime Minister is in a slightly tricky predicament on Europe. He has his old friends and his new friends on the Front Bench. I want to tell him very sincerely that we are here to help him. We know that he held some pretty strong views on Europe in the past, but we are willing to ignore his previous convictions, just as long as he is as well.

Let me start with the Council’s conclusions on economic governance. We welcome any sensible proposals for greater co-operation to ensure economic stability across Europe. In principle, we also welcome the idea of putting in place clear arrangements for providing help to eurozone countries that get into trouble, rather than relying on an ad hoc approach. The Prime Minister is also right to say that eurozone countries should take financial responsibility when those circumstances arise. He was right to say in his statement that these new arrangements would not apply to Britain, but they might affect Britain. We have an interest in stability in the eurozone but also in supporting growth in what is our largest export market. Can he therefore assure the House that, as well as protecting Britain from those provisions, he will engage in discussions to ensure that the right balance is struck between the need for stability and the need for growth in the eurozone?

In the context of these reforms, I do not think the Prime Minister made it clear in his statement whether, if proposals are made for treaty change as a result of the amendments, he is prepared to accept the changes without a referendum. He used to imply that if treaty change were ever back on the table, he would have a referendum, but he seems to have abandoned that position. Will he confirm that that is the case?

The Prime Minister also used to imply that he would use the opportunity of treaty change to bring back the British opt-out on employment and social legislation. I think that is a pledge he made for this Parliament. Labour Members do not believe that this is a necessary or sensible course of action. He was silent on this issue during his statement. Can we therefore assume that his previous red lines on this issue were not raised by him at any time in these negotiations, and can he confirm that he does not intend to raise these red lines—or what were his red lines—in the coming months in the context of any possible treaty changes that might take place? Again, we will support him if he takes the right course.

Secondly, on the G20 summit in Seoul, which will discuss the prospects for the world economy, the Prime Minister will know that an increase in trade accounts for almost half of the growth forecast that the Office for Budget Responsibility predicts for the United Kingdom next year. Can I ask what discussions were had at the European Council about the uncertainty in the world economy and how Europe plans to do its bit to ensure that economic demand is sustained?

Thirdly, on the Cancun conference on climate change, I have to say—I think the Prime Minister will agree—that the prospects do not look bright for completing the unfinished work of Copenhagen. May I urge him on to show greater leadership on this issue—[Interruption.] Leadership, which is not just about some huskies, but is real leadership on this issue. Can he say what he will be doing personally to advance a deal on finance, which is a crucial precondition of progress and a key objective of the Cancun summit?

Let me turn next to the EU budget. The Prime Minister has offered what we might call an interesting version of events. He confirmed that, in August, the 2.9% increase was put forward by the Council of Ministers and 20 countries voted for that—Britain was not one of them; it voted against that. The Prime Minister tells us in his statement today that “before the Council started, we began building an alliance to take a different approach”—different from the Parliament—“and insist on 2.9%”. The question I ask the right hon. Gentleman is when he took that view. On 20 October, he told this House:

“We have called for a cash freeze in the size of the EU budget for 2011 and we are working hard to make this case across Europe.”—[Official Report, 20 October 2010; Vol. 516, c. 938.]

He was not saying that 2.9% had been agreed and that he had lowered his sights; he was telling us that he was still working for a freeze. Three days later he repeated this to the Daily Mail—a reliable source:

“We need to start working on trying to keep next year's budget down. It should be a freeze or a cut.”

That was his position at that time. So I have a simple question: when did the Prime Minister change his position on this issue? He certainly did not tell the House; he certainly did not tell the Daily Mail—and one would have thought that he would have kept it informed. As far as we can gather, it was sleeves rolled up, full steam ahead and when it came to 2.9%, it was “fight them on the beaches”. Now the Prime Minister has said that he changed his position.

Now, the Prime Minister has agreed to 2.9%. What does he say about something he originally voted against? One would have thought that he might be slightly sheepish about this—but not a bit of it! He actually says that he has “succeeded quite spectacularly”. If that is his view of spectacular success, I would hate to see what happens when things go wrong in his negotiations in Brussels.

What about the letter that the Prime Minster brandished as having been signed by 13 member states, supporting 2.9%? I do not think that is a spectacular success. Twenty countries were supporting 2.9% in August, so this is seven fewer countries than were originally supporting that increase. The only big difference is that Britain, which used to be against the 2.9% increase, is now for it. Let me say to the Prime Minister, in words that my grandmother might have used, that I admire his chutzpah on this issue. Is not the truth about it that he wished he could come back and say, “No, no, no,” but in his case, it is a bit more like, “No, maybe, oh, go on then, have your 2.9% after all”?

What is the deeper truth about the Prime Minister’s position? I have to say that I am disappointed in him, because he has fallen back into his old ways. It is more ludicrous grandstanding on Europe, which ends up proving futile and fooling no one. The Prime Minister said that he would provide for a referendum on Lisbon if there was an opportunity; he has abandoned that position. He said that he would repatriate powers; he has abandoned that position. He said that he would obtain a freeze in the EU budget; he has abandoned that position.

The Prime Minister has obviously not learned the lesson, because he left the summit bragging again, saying that he was a Euroscpetic. When will he recognise that anti-European bluster and PR are no substitute for a decent, engaged European policy? He should be leading the way on climate change, signing the directive on human trafficking, and working with European Governments to sustain demand in the global economy. The Prime Minister may have abandoned some of his previous convictions, but his rehabilitation on Europe has a long way to go.

If mine was chutzpah, that was brass neck.

The right hon. Gentleman asked how I was getting on with my new friends and my old friends. Let me put it in a way that he may understand: we are just one big happy family. It is brotherly love on this side of the House; it really is. The problem is that we are living with the decision of the right hon. Gentleman’s old friend, Tony Blair, who gave away £8 billion of rebate and received nothing in return.

The right hon. Gentleman asked whether we would ensure stability in the eurozone. Of course we want to do that, as I said in my statement. He said that this did not affect Britain in terms of the treaty change, and he was quite right about that. He asked whether this should lead to a referendum. The point is that we are not passing any powers from Britain to Brussels: this limited treaty change does not affect the United Kingdom. However, I cannot take a lecture on referendums from someone who could have provided a referendum on the Lisbon treaty, but failed to do so.

The right hon. Gentleman asked what we were getting in return. We are getting progress on the budget, which we never saw in a month of Sundays under a Labour Government. Let me say something about the issue of the budget, and the points that he made. Let us contrast the position now with what happened last year under a Labour Government. Last year under a Labour Government—[Interruption.] It is very instructive to look at what happened last year and what happened this year.

Last year the European Council voted for a 3.8% increase. The Labour Government supported it. The European Parliament proposed a 9.8% increase. The Council then agreed a 6% increase, and the Labour Government supported it. That is the difference between last year and this year. Last year we had a feeble Government who would not stand up for Britain; this time we have a Government who will.

Order. A great many Members wish to catch my eye, and there is another important statement to follow, followed by business that I suspect will be of considerable interest to the House. Brevity from Back Benchers and Front Benchers alike is essential.

As it appears that the treaties of the European Union can be changed on the insistence of a German Chancellor, is it possible to give a British Prime Minister the same opportunities, thus enabling him to give his country the pledge of the referendum that was promised to them? Is that so, or not?

If there were any prospect of a passage of power from Britain to Brussels, we should have a referendum. That is not just my word: we are going to legislate to put it into place. But the question that we must answer here—this goes directly to what my right hon. Friend has said—is, “What is it in Britain’s national interest to try to insist on at this time?” In my view it is the budget, and the amount of money that goes from Britain to Brussels, into which we should be putting our efforts. That is what I did, and that is what I am going to go on doing.

May I welcome the Prime Minister to the club of Euro-pragmatism? He has said nothing today with which I can greatly disagree. Will he answer two questions, however? First, will he confirm that if the final budget deal is above 2.9%, Britain will not seek to veto it? Secondly, will the proposed treaty change happen under the so-called passerelle clause of the Lisbon treaty?

I thank the right hon. Gentleman for his endorsement—wherever they come from, they are always welcome. The point about the budget approach is that 13 countries have put their signature to a letter saying they will not accept anything over 2.9%. They will, I believe, all stick to their word, and we will insist on this so that we either get 2.9%, agreed between Parliament and the Council, or we get deadlock, in which case the budget is frozen at last year’s level.

The final decisions on the proposed treaty change will be taken at the December summit. That is likely to be under the simplified revision procedure so there is not a parliamentary convention. The key point here is to be absolutely clear that this is going to be a few lines that are about putting in place what is a temporary bail-out mechanism and making it a permanent bail-out mechanism. The key point for the House to hold on to is that this does not affect the UK, except inasmuch as we want the eurozone to sort itself out.

Given today’s lunchtime praise of the Prime Minister by Miles Templeman of the Institute of Directors, and in particular his observation that the Prime Minister’s greater European sensitivity, which the IOD welcomed, must be down to the presence of Liberal Democrats in his coalition Government, may I assure the Prime Minister, speaking as one long-standing pro-European now to another, that as long as he maintains such constructive engagement he will deserve, and I am sure will receive, solid support?

Said without a hint of mischief. I believe the national interest right now is all about—[Interruption.] I heard that, I say to whoever said the G word. The national interest is about restricting our contributions to the EU. We are making difficult decisions here, and that is what we should be pushing for in Europe. What was encouraging about this European Council was what a strong alliance we could build with others at the same time as protecting ourselves by preventing any of this treaty change from having an effect on the UK.

The Prime Minister says that from now on the EU budget must reflect what we are doing in our own countries, so can he give us a cast-iron guarantee that in 2012, 2013 and thereafter there will be cuts to the EU budget, or can he use more reassuring words?

What I can say to the right hon. Gentleman is that, for the first time, the European Council’s conclusions set out the new principle that increases or changes to the EU budget should reflect what we are doing in our nation states. That has never been put in place before, which is why the Commission opposed it so much. The principle is that what is happening across Europe must be reflected in the EU budget; that is the key. I will be pressing for the best possible outcome in 2012 and 2013, and as Britain is a net contributor the best possible outcome for us is that we do not make these increases in our net contribution.

Does the Prime Minister agree that the experience of the Labour Government in respect of the European budget was a failure to reconcile net income with gross habits, and will he also confirm that his success in putting together this blocking coalition will save the British taxpayer half a billion pounds?

My right hon. and learned Friend is absolutely right. Every percentage increase we save is equivalent to well over £100 million. The failure there has been—for a long time, frankly—over this issue is twofold: a failure to take the budget issue seriously enough and, secondly, a failure to have transparency and therefore to have the information about the EU budget out there so that citizens in Europe can really complain about the inflated salaries and allowances. Let me give just one example: civil servants who have been in Brussels for 30 years are still paid generous expatriate allowances. That is the sort of excess that we have got to deal with.

The Prime Minister seems to have great faith in protocol 15. I also noted that he did not really answer the question asked by my right hon. Friend the Member for Rotherham (Mr MacShane), and I am beginning to wonder something: has the Prime Minister ever actually read the Lisbon treaty from page one to page—to the end. If so, when?

One of the many contributions to public life that my right hon. and learned Friend the Member for Rushcliffe (Mr Clarke) made after making that remark is that all future Front Benchers, probably on either side of the House, will carefully read every treaty and get to the end.

Given that response, will the Prime Minister confirm that the presidency conclusions, to which he has referred, do in fact endorse the EU taskforce report, which clearly states that there will be “a new legal framework” for further surveillance and powers for economic governance, which cover both the eurozone and the EU, including us, and, moreover, that any EU treaty imposes legal rights and obligations on all the member states? Why, therefore, did my right hon. Friend reckon that, together, these do not affect the UK, that

“it isn’t going to make any difference to us”

and that, on that basis, there would be, as he put it, no referendum?

This is a very serious point and we probably require a longer exchange than is possible from the Dispatch Box. I say to my hon. Friend, who follows this very closely, that we have to differentiate between two important things—the first is the Van Rompuy report and the second is the very limited treaty change that is being proposed by the Germans and now, in principle, endorsed by the Council—because the treaty change is really focused simply on the issue of putting a temporary bail-out mechanism on to a permanent basis.

On the Van Rompuy report, the paragraph to which my hon. Friend refers is paragraph 34, which talks about “macro-economic surveillance”—something that has happened for more than 10 years in the European Union. It is defined in paragraph 35, and paragraph 39 is very clear that the sanctions it talks about refer only to euro area members. I would also draw his attention to paragraph 4, which states that all of this is looked at

“within the existing legal framework of the European Union.”

That is important. The other paragraph that I think is vitally important is paragraph 18, which says—I quoted it earlier—that

“strengthened enforcement measures need to be implemented for all EU Member States, except the UK as a consequence of Protocol 15 of the Treaty”.

That is what gives us the protection. We read these things very carefully.

May I congratulate the Prime Minister on his consistency? In 2005, he won the leadership of his party by being the most Eurosceptic candidate; in 2007, he made a very clear commitment to hold a referendum on the Lisbon treaty; and now he has capitulated on his previous position of a freeze. Can I take it that public sector workers facing a freeze will now get a 2.9% increase?

The hon. Gentleman, who is very experienced in this House, has clearly not met my right hon. Friend the Defence Secretary. I am sure that I can arrange for them to spend some quality time together.

I congratulate the Prime Minister on playing a very difficult hand at the summit. Does he agree that seeing off the European Parliament’s budget, securing our opt-out on economic governance and ensuring that future budgets will reflect a nation’s spending cuts all adds up to a good day’s work?

May I thank my hon. Friend? I do think this principle that what happens in terms of the EU budget should reflect what happens to member states’ budgets is an important principle. Of course, as we speak today, it is just words in a conclusions text, but many of the things that my hon. Friends and I have worried about over the years have been words in a conclusions text—a little opening that people who want more and more of the European Union push their force through. We have now got a wedge, if you like, that we can push on at all subsequent negotiations: that the European Council has accepted that what is good for nation states is good for the European Union’s budget.

What discussions did the Prime Minister have with the Council on convergence funding and what are the implications of the budgetary settlement on that funding?

We did not have detailed conversations about the elements of the budget. Clearly those countries that are net recipients were opposed to what I was proposing, and obviously the tighter the budget, the less money there is for the things within that budget, but within the budget we should always fight for a good deal and we should also make sure that depressed parts of the UK get access to that money. But when you look at what the European Parliament was putting forward for its 6%, you find that it included, for instance, a massive amount more for dairy farming, so it was not actually connected to getting the European economy moving.

What sort of world are MEPs living in? At a time when everybody else is tightening their belts, these people are awarding themselves ever more generous allowances and salaries, despite the fact that most people do not even know who they are. Will my right hon. Friend suggest to his friends on the Council that we export IPSA the—Independent Parliamentary Standards Authority—to the European Parliament?

That is an idea of pure genius. I am not sure that even the brilliant simultaneous translation that is available would really enable me to explain IPSA in all its complexities. There is a serious point, however, and this is where transparency matters. I remember, when the whole problem of allowances, pay, pensions and everything broke in this place, looking again at the European Parliament’s rules. They are not transparent enough and we need to sort that out. As I say, when it comes to the European budget, transparency, which is going to be a great weapon in local government and central Government, can be such a weapon in Europe, too.

The Prime Minister, of course, will not have been able to see the faces of his colleagues behind him when he made his statement. In terms of the big happy family that he commands, does he think that he still has the support of the majority of Conservative MPs?

Instead of the passing satisfaction that might be gained from a “toys out of pram” approach, is not my right hon. Friend’s achievement the fact that we have a first pragmatic step towards getting a grip on the EU budget, and will other steps follow?

It is important that we build alliances for what we are trying to achieve. I would say to all my right hon. and hon. Friends that there are many things that we do not like about the European Union’s development and many things that we would like to change. We must pick our battles and our fights. The important battle to have is the one over the budget and it is important to try to build alliances for that. There is strong support from other countries—not just the donor countries but those that are making difficult decisions at home and recognise that it is simply insupportable to see one budget going up and up when they are having to cut things back in their domestic economies.

At what we now know as the Prime Minister’s “delicious” press conference, he questioned the number of BBC correspondents sent over to report on his triumph. Who did he want to send home the most—Nick Robinson or Michael Crick?

I probably should not have used the word “delicious”. I was just making the point, as we were talking about cuts, that the BBC seemed to be extremely well represented. I do not think that Nick Robinson was there, but it is always a joy to see Michael Crick.

On the defence relationship with France to which my right hon. Friend referred, is he aware that I have forgiven the French for taking off the head of my great-great-great-great grandfather at Trafalgar? Does he agree that the treaty that he will be signing tomorrow with President Sarkozy needs to contain real concrete arrangements to improve defence co-operation between our two countries?

I am extremely glad that my right hon. Friend has forgiven the French, as I think he is joining me for lunch with President Sarkozy tomorrow—it might have been a little bit frosty. This is important, because Britain and France share a real interest. We have similarly sized and structured armed forces, we both have a nuclear deterrent and we both want to enhance our sovereign capability while being more efficient at the same time. This treaty will set out that in many areas—such as the A400M, the future strategic tanker aircraft, the issue of carriers and more besides—we can work together and enhance our capabilities while saving money at the same time.

Local democracy in this country is facing 28% cuts over the next four years. That would be a good starting point, I think, as a target for the EU budget. What level does the Prime Minister think that the EU budget should be set at, ideally?

Obviously, we had to do the best we could with the 2011 budget. We now have the issues of 2012 and 2013 before we go into the 2014-2020 perspective. Many countries will be arguing for increases—the recipient countries will fight very hard for them and the European Commission, which always wants to see greater competences and more powers, will fight for them. Those of us who are doing the paying will have to unite and fight very hard. The better we can do in 2012 and 2013, the lower the baseline we will work off for the 2014-2020 perspective. That is where we will be pushing extremely hard.

It is some 16 years since the European Court of Auditors last signed off the accounts. In welcoming our right hon. and noble Friend Baroness Thatcher’s return to home and health this afternoon, may I invite the Prime Minister to consult her regarding what instrument he could use in place of the handbag to sort out this mess?

I am sure that the whole House will welcome Baroness Thatcher’s better health and return from hospital. The deal she achieved at Fontainebleau all those years ago has saved this country £88 billion and it will be extremely important to defend that abatement as we go into the 2014-2020 negotiation. I am sure that she will be looking carefully to make sure that her legacy is assured.

After such a miserable failure on the budget freeze, did the Prime Minister console himself by thanking the Italians for building British ships such as the Queen Elizabeth or by congratulating the Germans on winning a contract to occupy the channel tunnel? How much time did he spend hawking around Royal Mail to his new European pals?

The answer is no, I did not do any of that. I am not quite sure what point the hon. Gentleman is making. Trade between European countries is extremely worth while: just as we sell important goods and services to Germany and France, so they sell to us. I would have thought that even he and the dinosaurs opposite would think that was a good thing.

I thank my right hon. Friend for his statement. Given that the proposed treaty change apparently will not affect the UK in any way, should we not simply leave it to the countries in the eurozone, which will be affected, to sign any new treaty? Should we not keep out of it?

My hon. Friend makes a fair point, but I think the best option for the UK, because this is a very limited treaty change about making this temporary mechanism permanent and because it is in Britain’s interests, as we do not want a eurozone that goes kaput and we do not want to have to join in bail-outs—that is what this is about—it is better that it takes place through existing operations. Also, as I said in the statement, we have to bear in mind the role of London and Britain as a key financial centre. That will be strengthened by what is being done rather than by any alternative.

The Prime Minister’s visit to Brussels cost British taxpayers £450 million or so. Where is that money coming from, and would it not have been better spent on avoiding some of the cuts in services for ordinary hard-working families that his Government are putting through?

If we had taken the approach of the previous Government, we would have just said, “Never mind the increase suggested by the Council or the increase suggested by the Parliament, let’s just let them come to some sort of deal and Britain will cough up,” but we said, “No, let’s restrict this to the very minimum it could be.” That is not an approach that the previous Government took, but I am proud to say it is one that we took.

As one pro-European who has concerns about the European Union to another, may I ask the Prime Minister whether the real problem with the budget is the £17.5 billion extra that we are going to pay over the next four years because that lot opposite gave up Mrs Thatcher’s rebate?

My hon. Friend is absolutely right. In the negotiations in 2005, we were told repeatedly in the House by Tony Blair, standing here at the Dispatch Box, that he would consider giving up the rebate only if he got a proper deal on common agricultural policy reform. Do hon. Members remember that? In the end, all we got was a review of the CAP. That teaches us the very important lesson that we have to halt it.

Did the Prime Minister get a chance to discuss with any of the leaders privately or publicly the ludicrous European Union embassies being set up all over the world at huge expense? Does he realise that the public do not want that, but want well-staffed British embassies? Can we do anything about it, and is there any chance of a referendum in the next five years on whether we stay in or go out?

I do not believe in an in-out referendum, for many reasons. I think we are better off in the European Union—we have to fight our corner very hard—but I would grant a referendum if there were any proposed transfer of powers from Westminster to Brussels. On the European External Action Service, the hon. Lady knows that we opposed the Lisbon treaty, that we thought the creation of the EEAS was a mistake and that we have pushed as hard as we can within Europe to keep its costs under control. There is an argument that because of the combination of the previous High Representative and Foreign Minister roles, the posts and the budget should cost less, and we push that case as hard as we can.

As another of the Prime Minister’s new friends, may I remind him that in 2010 family life takes many different forms in this country? May I also commend his pragmatism in relation to defence co-operation with the French, which he no doubt discussed with President Sarkozy over the weekend? If it is successful in conventional co-operation, what are the prospects for similar co-operation in nuclear matters?

I think there are prospects for our working together in this area, not least the French investment in civil nuclear power that is going to take place in the UK. There are opportunities, which we will be talking about tomorrow. In terms of the broader family, I do not quite know what my right hon. and learned Friend would be—a wise uncle, I suppose, to give me good advice. I seriously believe that the link-up with the French over defence is in the long-term interests of both our countries. To those who worry that this might in some way lead to European armies, I say that is not the point. The point is to enhance sovereign capability by two like-minded countries being able to work together.

Following on from the Prime Minister’s answer to his hon. Friend the Member for Stone (Mr Cash) in which he explained very carefully why he fully understands and justifies the use of the Lisbon treaty for modifications, can he explain to us exactly what type of modifications or changes he would want to have a referendum on? Exactly what transfers of power would he want to put to the country in a referendum?

The hon. Lady asks a reasonable question. The Bill that we will be looking at will say that there should be a referendum on any transfer of power—a proper transfer of competence. As a general principle, the House should not give away powers it has without asking the people who put us here first. That is the principle that we should adopt. I do not want us to give any further powers from Britain to Brussels, so I am not proposing that we should. Further to answer the hon. Member for Vauxhall (Kate Hoey), I am not anticipating us having a referendum, because I do not want to see that transfer of powers. What is being proposed by the Germans and will be finally agreed at the December Council, yes, is a transfer of powers for countries in the eurozone. It definitely means that as well as having the euro, they will have more co-ordination of their economic policy, and punishments if they do not do certain things. That, to me, is perfectly logical if they are in the euro. It was one of the reasons why I did not want to join the euro in the first place and why, as long as I am Prime Minister, we will not do so.

Does the Prime Minister accept that it is welcome, if unusual, to see so many Heads of State supporting a British Prime Minister on an issue on which the European Parliament takes a different view? Does he agree that perhaps there is a role for national Parliaments, which, right across Europe, are facing difficult economic decisions, to support these Heads of State, including, of course, the Prime Minister, because it is right—

—the Head of Government, I said. It is right that the EU’s budget should reflect the means of the countries that are in the EU.

I hope the former Europe Minister, the hon. Member for Rhondda (Chris Bryant), will stay calm. My hon. Friend the Member for North East Hertfordshire (Mr Heald) makes a good point. Part of the problem in the past has been that other member states have not been as focused on the budget and the impact on their own publics as they are now. They are focused on it now because they all have to make difficult decisions. When we sit round the European Council table, we are often discussing what we are having to do with public sector pay, pensions or other difficult decisions, so there is a common interest which the Parliaments of Europe can help remind their Governments about.

It is clear that a number of member states are unlikely to be able to sustain their membership of the euro for the long term. They are already suffering serious internal economic damage, some requiring external fiscal transfers, and other countries may be in the same position in the not-too-distant future. Was there any talk, privately or otherwise, of the possibility of member states leaving the euro, so making it work better?

I do not believe that will happen, but what was interesting about this European Council is that there is quite an existential debate taking place within the eurozone about what it means to be a member of the euro. There is a very strong push by the Germans, who obviously feel that they have had to bail out the Greeks, that they have to have tighter rules for members of the eurozone, and there are very great worries on the part of some countries about the sanctions that could be applied to them. This is a debate that was inevitable when there is one currency and many countries and they are having to give up some of their sovereignty to make that single currency work. It is perfectly logical for eurozone members. It reinforces in my mind that they are right to do that, but we are right not to be part of it.

May I say to the Prime Minister how refreshing it was, after 13 years of inactivity and disinterest in this area, to see a British Prime Minister fighting for a reduction in the size of the EU budget and for better value for money for British taxpayers? Can he confirm that he now has two potential vetoes—first, on the limited treaty change on economic governance, and, secondly, on the EU budget for the next period, 2014 to 2020—and that they can be used independently of each other?

My hon. Friend is entirely right. Britain does have leverage, influence and an impact in these negotiations. The question that we have to answer is, what can we achieve that is most in the national interest. I do not want to make promises that I cannot keep or to set goals that are impossible, but action on the budget and the future financing is where we should exert our influence.

When it comes to treaty change, there would be a stronger argument for pursuing treaty changes of our own if what was now being suggested were a wider treaty change. It is not; it is a relatively limited change that makes the temporary mechanism permanent. We will see the full details of it in December, and we will be able to be involved in its negotiation, as my hon. Friend says.

Has the Prime Minister made any calculation of how many new teachers, nurses or police officers could have been employed with the 2.9% increase that he has conceded to the EU?

I have to say to the hon. Lady that one constructive thing that she and other Opposition Members could do is to talk to their Members of the European Parliament. They had the chance to vote for a freeze in the budget, and they did not do that. So, it is all very well hon. Members standing up and saying how much more Britain is going to have to pay, but their MEPs are doing nothing to help in that argument.

Has the Prime Minister had the chance to discuss security co-operation with the German Chancellor in the light of the increased bomb threats?

Yes. I did have that conversation, because the German Chancellor stayed at Chequers over the weekend, and we discussed a range of those issues. Obviously the aeroplane in question, having left Yemen, had landed in Germany and then in Britain before it was due to go on to the United States. That reminds us of how interconnected we are, so the British and the Germans, quite close together, made the announcement about not receiving packages and parcels from Yemen. My right hon. Friend the Home Secretary will be giving further details in a moment or two, when she makes her statement.

Let me get this right. The Prime Minister failed to put together a blocking minority in July, and he did not even manage to get the Polish on board, despite the fact that the Polish Foreign Secretary was in the Bullingdon club with him at Oxford. He failed to put together a blocking minority, he let the matter go through in August, he tried again at the beginning of last week, he failed—and then he proclaims himself the great saviour of this country. How can it possibly be a success until he comes back to this country with a guarantee from the French that they intend to cut the common agricultural policy?

The difference between the hon. Gentleman and me is that when we were both at Oxford he was a member of the Conservative association and I was not.

The Prime Minister quite rightly says that London is the financial heart of Europe. The chief executive of the London stock exchange, a Frenchman, has warned of the harm that European legislation can do to the vital alternative investment market. Can the Prime Minister reassure the House that that will not happen?

My hon. Friend makes an extremely good point, and it goes to the heart of the point that my hon. Friend the Member for Daventry (Chris Heaton-Harris) made. When the Chancellor of the Exchequer, the Financial Secretary to the Treasury, I and others negotiate in Europe, I am extremely conscious of the fact that some of the directives coming out of the European Commission on alternative investments, such as the Larosière proposals on finance, have the potential to do great damage to the UK, and we do have to make sure that we use our negotiating muscle on the things that make the most difference to us. That is very important. Rather than focusing on things that might sound good from this Dispatch Box, let us focus on the things that make a difference to the great businesses of our country.

In the light of the estimated 20,000 job losses among police officers in this country, how many officers does the Prime Minister think could be employed by the 2.9% increase that he has conceded?

I have a message for the Whips: you need to hand out more than one question; it is always better if there is a choice. But I think that I answered it earlier.

I congratulate the Prime Minister on once again showing real leadership in Europe. Drawing on the comments made by the Leader of the Opposition a moment ago, we all want to be fully involved at the heart of Europe and in partnership with it, but that does not mean that we have to roll over and have our bellies tickled every time a proposal comes forward.

I am on only my third European Council, and they are rather more frequent than they used to be, but I do not think it is impossible to combine a strong defence of the national interest with building alliances. Everyone round that European Council table recognises that we actually do all have interests that we have to try to protect on our own as well as making sure that we are making the right decisions for the 27.

Given that negotiations on the budget are continuing with the European Parliament, will the Prime Minister give us one of his famous cast-iron guarantees that his Government will not accept an increase above 2.9%?

The point I can make is that 13 Heads of Government or Heads of State signed a letter saying they would not accept more than 2.9%, so it is not just my word but the word of all those leaders who have said that this should not be accepted. That is the best thing that we could do, and it gives a real chance of either achieving 2.9% or, possibly even better, a deadlock which would mean a freeze for next year.

Given the extent of belt tightening in this country, does my right hon. Friend believe that now is the right time to get the EU’s accounts fully and independently audited in order to reduce waste and fraud, and will he push for that?

My hon. Friend makes a good point. The first thing we are going to do is the initiative on transparency and openness to try to draw greater attention to what the European Union spends its money on. We will find that some of the spending—spending on science projects and the like—may be worth while, but I am convinced that there is a lot of waste that could be cut out if we had the transparency that we are applying to our own budget back here in the UK.

May I congratulate my right hon. Friend on clearly standing up for Britain’s interests? On the parts of the Van Rompuy report that set in place new mechanisms that clearly concern the United Kingdom, even though it is a non-eurozone member, will my right hon. Friend bear in mind the inevitable pattern of EU history whereby any grant of power is followed by demands for more and more power, as surely as night follows day?

My hon. Friend makes an extremely good point. I can tell him that the Chancellor and I, in undertaking these negotiations, are acutely conscious that you have to watch the language that is being proposed by others in the European Council and keep asking whether it is setting some future trap for the UK Government. I have to say that I think the language in the Van Rompuy report about its not affecting Britain in terms of sanctions is extremely clear.

There is one other point I would make, which is about the opt-out that was negotiated from the Maastricht treaty. That opt-out has worked well. Yes, there is surveillance in terms of economic policy—that has happened for 10 years—but frankly, it has not forced us into doing anything we did not want to do. Just as that opt-out has held good, we have now renewed and refreshed it for this fresh group of challenges that have come towards us.

May I congratulate my right hon. old Friend on his excellent statement—[Interruption] Well, having some friends, that is—and ask him if he is aware of any member of the British delegation to the European Parliament who voted for the higher budget increase, and if so, will he name and shame them?

What I can say is that when there was a motion in the European Parliament to support a freeze, 12 out of 13—I think it was—Labour MEPs voted against that, so they had the opportunity to stand up for what some of their colleagues have stood up for today, and they failed to do it.

In the light of my right hon. Friend’s opening remarks and his comments on his bilateral with the German Chancellor, does he agree that Britain is very well placed to lead the transition in Europe towards the era of information-age terrorism, especially as we have GCHQ, and as his new National Security Council has made such a strong commitment to more spending against cyber warfare?

My hon. Friend makes a very good point. Prime Ministers and Ministers often praise the security services, and it is good to put on the record the very hard work that people at GCHQ in Cheltenham do; they are among the best in the world at what they do. That gives us an opportunity to combat this new threat of cyber terror and cyber attacks that affects not just our defences but many, many businesses in our country. There is a chance to have some real leadership in this respect, and other countries, including France and Germany, are coming to us wanting to work with us in combating cyber threats because of the investment we are managing to put in.

The cost of the new European diplomatic corps will eat up on its own the entire net contribution from this country, both this year and going forward. What did my right hon. Friend say to Baroness Ashton about the ballooning costs of that organisation, and what was her response?

I know that my right hon. Friend the Foreign Secretary has had this conversation, and I have discussed the issue as well. While we opposed the European External Action Service—we did not want it to be created in the first place—the Lisbon treaty, sadly, is now a fact we have to live with. But because what were two roles are combined into the role that Baroness Ashton fills, there should be opportunities for some cost savings. Actually, the European Parliament has offices around the world, and we think there is a real opportunity to rationalise that and ensure that it keeps its cost under control.