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European Council

Volume 721: debated on Tuesday 2 November 2010


My Lords, I hope that it is now convenient to repeat a Statement that was made in another place by the Prime Minister yesterday afternoon. The reason for the delay was to give this House the maximum amount of time to discuss the comprehensive spending review, an opportunity that was taken up by many of your Lordships.

“With Permission, Mr Speaker, I would 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, but I want to put on record my thanks for 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 UAE to Germany to Britain en route to America shows the interest of the whole world in coming together to deal with this and, 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 that 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. This Council’s main business was going to be economic governance in the light of the serious problems that the eurozone has faced. But I was clear that we would 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. The first is the budget for 2011. From the outset in May, we wanted a freeze. We pressed for a freeze. In July, we voted for a freeze seeking to block the 2.9 per cent proposed by the presidency. Finland, Sweden, Denmark, the Netherlands, the Czech Republic and Austria all voted with us. Unfortunately, together we were just short of the numbers needed for a blocking minority. So, in August, the Council agreed a 2.9 per cent increase.

In October, that went to the European Parliament, which voted for around a 6 per cent increase. This was the frankly outrageous proposal with which we were confronted at this European Council. What normally happens in these situations is that you take the position of the EU Council and the position of the EU Parliament and negotiate, which ends in 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 insist on 2.9 per cent. I made phone calls to my counterparts in Sweden, France and Germany, among others, and continued to press the case during the Council. Twelve other heads of government agreed with me. We issued a joint letter, which makes it clear that a 6 per cent 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 per cent increase being proposed by the Council.

Let me explain what this means. Either the Council and Parliament now have to agree to 2.9 per cent 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 with which we would be perfectly content.

Next, and more important, 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 make sure that all these negotiations go the right way and what we agreed at the Council was 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’.

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 is seeing very tough spending settlements. This new principle applies to the 2012 and 2013 budgets and 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.

If you look at the published conclusions, you see that language on the budget formed a very prominent part, even though it was never originally on the agenda. I think that this is an important step forward. In my discussion with Chancellor Merkel at the weekend, we agreed to take forward some joint work to bring some transparency to the EU budget—salaries, allowances and grants. This work has just not been done properly. It is about time that the citizens of the EU knew what the EU spends its money on. This is the spotlight that needs to be shone and that is exactly what we are going to do.

On economic governance, there are two issues. First, there is Herman van Rompuy’s report from the task force on economic governance, which was set up after the sovereign debt crisis. My right honourable 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 treaty amendment focusing on putting the EU’s temporary bailout mechanism on to a permanent basis. Let me take each in turn.

On van Rompuy’s report, there are some sensible proposals. For example, the eurozone clearly needs reinforced fiscal discipline to ensure its stability. The crisis has shown that in a global economy you need early warning 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 that 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 concerns have been raised. Let me 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 IMF or publicly available on the internet? No. Thirdly, will powers over our Budget be transferred from Westminster to Brussels? No.

Turning to the proposal mentioned in the Council conclusions for limited treaty amendment, we have established that any possible future treaty change, should it occur, would not affect the UK and I will not agree to it if it does. The proposal to put the temporary bailout mechanism on a permanent footing is important for the eurozone. 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. It is in our national interest that the eurozone sorts itself out. It is in our national interest that Europe avoids being paralysed by another debt crisis, as it was with Greece in May, and it is absolutely in our national interest that Britain is not drawn into having to help with any future bailout. This 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. We are an open trading nation and we want progress on Doha. This has been going for nearly a decade and 2011 is the year when we must try to achieve a deal. We believe that the world has suffered from economic imbalances. We want countries with fiscal deficits to deal with them and countries with trade surpluses over time 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 reformed to reflect the growth of emerging powers, so we will see through the work that my right honourable friend the Chancellor has led on reform of IMF votes and board seats. Finally, on Cancun, we are committed to making progress towards a legally binding UN agreement.

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. These follow the same principle: partnership, yes, but giving away sovereignty, no. At this Council, Britain helped Europe to take the first vital steps in bringing its finances under control. We prevented a crazy 6 per cent rise in the EU budget next year. We made sure that the budget reflects 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”.

My Lords, that concludes the Statement.

My Lords, I thank the Leader of the House for repeating the Statement made yesterday by the Prime Minister in the other place on the conclusions of the European summit last week. Europe is indeed an important issue for this country and we know how vital it is for our economy, for trade and for jobs. But we on this side of the House recognise that it is a difficult issue for the Benches opposite because not only are they divided on the issue itself, they are doubly divided. On Europe, the Liberal Democrats are fundamentally opposed to the formal position of the Conservative Party, as the debates in this House showed so clearly when we took through the Bill to put in place the Lisbon treaty. The Liberal Democrats stood shoulder to shoulder with this party on the Bill and on Europe, to the fury of the Conservative Party, now their partners in government. However, the splitting does not end there because Europe is still a fault line within the Conservative Party itself—a party which can combine the noble Lord, Lord Tebbit, at one end of the spectrum on Europe, and in the other House the Member for Rushcliffe, the right honourable Ken Clarke, at the other end of the spectrum. It is, indeed, a remarkable containment, even if the party has to keep them in separate Houses of Parliament to do it.

I pay tribute to the skill of the Prime Minister in keeping the lid on these divisions by the simple stratagem of not talking about the issue of Europe at all. Strange, then, that the Prime Minister should so carelessly abandon this tactic in the way he dealt with last week’s European Council, especially on the question of the EU budget. Far from remaining silent he talked. Indeed, he talked and he talked and he talked. He talked about how outrageous some proposals were and about what needed to be done—clearly much to the puzzlement of other European leaders. They had not realised that they were there to debate the EU budget, principally because they, like the Prime Minster, knew that it had all been settled in August and that therefore there was nothing else to talk about. However, that did not stop the Prime Minister because he mostly talked about the historic triumph he had managed to bring about.

When people talk quite as much as the Prime Minister did about what he, and he alone, had achieved, it tends to make most people count the political spoons. We, on these Benches, do not think that the Prime Minister came back from the summit with quite as full a canteen of cutlery as he implied. Can the Leader of the House confirm that, rather than his being instrumental in holding down the EU Council to a budget increase of 2.9 per cent as the Prime Minister in effect claimed, the Council of Ministers had agreed this increase back in August? I ask the Leader of the House to address this question specifically. Can he confirm that at that time some 20 EU countries voted for that level of increase and that the letter on the budget, about which the Prime Minister showed off so fulsomely, was signed by fewer countries than had voted for the budget in August—13 in all as opposed to the original 20—and that the Prime Minister lost support rather than gained it? Can the Leader of the House confirm that, having voted to oppose the increase of 2.9 per cent in August, the Prime Minister now supports an increase in the EU budget of 2.9 per cent and that this is a clear U-turn? Many in this House, including those on the Benches opposite, know that in trying to talk up as his own achievement something that had already been long agreed, the Prime Minister was transparently and inadequately attempting to appease the Eurosceptic right in the Conservative Party. They know, too, that such posturing not only fools no one but is ultimately damaging to Britain’s credibility in Europe.

I turn now to the question of treaty amendments. The Conservative Party tried in vain during the passage of the Lisbon treaty Bill to attack this party on the issue of a referendum. However much it tries to scream and shout about it, this party’s position on a referendum was clear: we said that we would hold a referendum on a new constitution for the EU and that, because Lisbon was a further treaty like Amsterdam and Maastricht, it was not a constitution and so it was appropriate for Parliament to consider it just as it had done with Amsterdam and Maastricht. Indeed, when we debated this matter and voted on it, a majority in this House understood that point clearly.

In response, the Conservative Party made two promises: it promised to hold a referendum on Lisbon and it promised to hold a referendum if there were, as it likes to put it, any further transfers of power from Britain to Brussels. We know that the Conservative Party has already explicitly broken its promise on Lisbon because there was no referendum. We now see the Conservative Government—I am sorry, the coalition Government—apparently in the process of breaking that second promise by walking away from the pledge to hold a referendum on any so-called transfer of powers. Can the Leader of the House confirm that proposals for change to the Lisbon treaty are likely? Can he confirm that proposals for treaty change will flow from the conclusions of this summit? Can he confirm that if such proposals are made for treaty change, the Government will put these proposals to a referendum of the British people? Can he confirm that if it does not, the Conservative Party will indeed have broken the second promise it has made to the British people on these issues?

I suspect that the EU leaders who attended last week’s summit would be astonished at these being the issues debated in your Lordships' House today and the other place yesterday. They will have thought that they were at a very different summit, one which was about economic governance, sustainable growth and climate change. All are hugely important issues which were almost entirely eclipsed by the rhetoric which the Prime Minister indulged in. I recognise that the Leader of the House touched on them in the Statement repeated today, but they were not the issues about which the Prime Minister was boasting last week.

On the first issue, economic governance, we welcome sensible proposals for greater co-operation to secure economic stability across Europe. In principle, we also welcome the idea of putting in place clear arrangements for providing help to eurozone countries which get into difficulty, rather than relying on a more informal, ad hoc approach. However, we also believe that the right balance needs to be struck between the need for stability and the need for growth in the eurozone.

With regard to the forthcoming G20 summit in Seoul, on the prospects for the world economy, the Leader of the House will know that an increase in trade accounts for almost half the growth that the Office for Budgetary Responsibility forecasts for the UK next year. We shall see whether that prediction is maintained when the OBR brings forward its updated forecast on 29 November. In advance of that, will the Leader inform the House what discussions were had at the European Council on uncertainty in the world economy and what part Europe can play in helping ensure that economic demand is sustained?

Thirdly, on the forthcoming Cancun conference on climate change, the prospects do not look bright for completing the unfinished work of the Copenhagen conference. Will the Leader set out in greater detail than was given in the cursory mention of Cancun in the Statement what the Government will do to advance a deal on finance, which is both a precondition of progress and an essential objective for Cancun?

For the Benches opposite, Europe remains an awkward and embarrassing issue in different ways and for different reasons. But that awkwardness cannot be brushed aside by the bluster which the Prime Minister so unfortunately engaged in last week. Everyone in this country whose job, contract or business depends on Europe knows how important an issue Europe is. It is too important for the political posturing that we saw from the Government last week. We need sensible discussion and proper engagement on Europe from this Government for the benefit of Britain and of Europe. On these Benches, we all hope that the posture on Europe that the Prime Minister tried to strike last week will be a singular folly rather than a sustained strategy. Once is more than enough. The parties opposite cannot heal their divisions on Europe, but no one will be convinced by their attempts to camouflage them. Distraction is not a strategy; proper engagement is. We look to the Government in future to pursue it.

My Lords, I must congratulate the Leader of the Opposition on having almost comprehensively misunderstood everything that the Prime Minister was trying to do and the way that he went about doing it. I would have hoped, with 24 hours to read the Statement and the exchanges in another place, that she might have made rather a different speech, congratulating my right honourable friend on his achievements.

The noble Baroness teases us for being divided and strives to put a wedge between the Conservative Party—indeed, within the Conservative Party—and our coalition partners, the Liberal Democrats. I assure her that we of course have healthy discussions about a variety of matters to do with Europe, but there is no difference of opinion on this Statement and the direction of travel that the United Kingdom is taking on Europe.

I shall try to answer some of the noble Baroness’s specific questions about the Statement. It is true that the Council agreed in August that there should be an increase of 2.9 per cent in the EU budget. I have to say to the House that this was not our preferred option; we believe that there should have been a freeze. Given that we are not only freezing but seeking a reduction in public expenditure in the United Kingdom, we thought that it was wrong that Europe should spend more money and that 2.9 per cent was too much. However, between August and now, the European Parliament, supported by the noble Baroness’s friends—Labour MEPs did not seek to oppose it—voted for a 6 per cent increase. Therefore, we were very keen to ensure that if we could not rest at nil increase, we could agree at no increase above 2.9 per cent. That is the achievement and the agreement that we have struck with many of our partners—enough of our partners to make sure that that is what will happen.

On the treaty change, I was impressed that the noble Baroness should mention Labour's broken promise on the referendum on the Lisbon treaty. We have only to re-examine the manifesto of 2005, promising to the British people a referendum—a promise which was cruelly broken—to see what was undoubtedly one of the reasons why Labour did so badly in May 2010. The Conservative Party promised a referendum on Lisbon if it were not ratified, but it was ratified, and therefore there would be no referendum.

The noble Baroness asked a really good question—and I do not mean that patronisingly; it was a good question, because it goes to the heart of our position on Europe. It was about the transfer of power. We have a strongly held view and policy that any future transfer of power from the United Kingdom Parliament to Europe should be subject to a referendum. The noble Baroness asked if we believe that the current position is that there is a state transfer of power. We do not. If there were to be a treaty change which meant that there was a transfer of power from the United Kingdom to the European Union then, yes, we would seek a referendum.

The noble Baroness also asked questions about debates on uncertainty in the world economy and on the Doha trade round. I have nothing to add to what was mentioned in the Statement. A series of international meetings is taking place over the next few weeks—in the G20, for instance—where all those matters will no doubt be discussed, and I shall report back in due course to the House.

My Lords, I thank my noble friend for repeating the Statement made in the other place by the Prime Minister and wish to associate myself and those on these Benches with the words of appreciation to the security services for the protection of the people of this country and elsewhere from the terrorist attack launched from the Yemen.

Turning to Europe, does my noble friend accept that the outcome of the important European Council meeting held early in this coalition Government has demonstrated that those of us in the coalition who are Euro-enthusiasts—I count myself one of them—are not so starry eyed about the European Union that we do not believe that it must be held firmly to account, especially on spending, and that it must share in the relative austerity being experienced by member states and their citizens? The Prime Minister has striven to do that. Does my noble friend also agree that those in the coalition who are more Eurosceptic—the Prime Minister declared himself one of those—also see that a successful European Union and an economically secure eurozone are strongly in the national interest of this country? They are not a matter of disinterest, still less of a threat, but a matter of vital national interest to this country, and so to be followed through with enthusiasm and positive engagement—which, again, I believe that the Prime Minister did on this occasion.

Does my noble friend further agree that not only in the context of the European Union but otherwise directly—we will come to this later in the afternoon— there are opportunities for direct co-operation on a bilateral basis between European Union countries, such as the proposed co-operation between Britain and France, which we on these Benches also strongly welcome?

I think that the whole House will agree—and if not, they should do—that he spoke with tremendous good sense in support of the Statement and of the Prime Minister. Of course, there are others in this House—in both Houses—who have a division of view between Euro-enthusiasts and Eurosceptics. However, that need not divide us on the broad direction that we should remain part of the European Union and that we should argue for change internally, which is what we have been doing in the past week in laying out a very clear framework for budgetary change over the next 10 years. We will be at the forefront of making those arguments. Following on from what my noble friend said, we are not alone in this or isolated in Europe in wanting a proper budgetary discipline. The noble Lords opposite had an opportunity, over the past 10 years, to get this right and spectacularly failed to do so.

My Lords, on the EU budget for 2011, I thank the noble Lord the Leader of the House for making it clear in the Statement not only that the European Council will not accept more than 2.9 per cent but that if the Parliament and the Council do not agree, there will be no increase at all. I think that would apply not only to EU policies but to the expense rates, travel allowances and things of that kind in the European institutions. Under the provisional twelfths regime, money at this year’s level—but no more—will be available on a month-by-month basis. In view of this, will the noble Lord the Leader of the House keep the House informed on the discussions between the Council and the European Parliament so that we know whether, from 1 January, there will be an increase of 2.9 per cent or a zero increase?

My Lords, the noble Lord, Lord Williamson, brings a wealth of experience to the House and real knowledge of the workings of the European Commission and European Parliament. What he outlined is entirely correct; if there is no agreement to the 2.9 per cent then there is agreement on no increase at all. The current spending pattern would be rolled over to next year and it would be paid on a monthly basis—it would be divided by 12 and paid out on those terms. It also includes all expenditure: expenses, allowances, salaries and so forth. We would greatly welcome that result and it would be very nice to hear from the noble Lords opposite whether they would welcome it too.

My Lords, is my noble friend aware that I had the pleasure of being seated at dinner last week next to our right honourable friend Mr Kenneth Clarke but that he did not talk to me, whereas the Chancellor of the Exchequer, who was opposite, was quite chatty? I particularly enjoyed a long conversation with our coalition partner the Viscount Thurso, who is of course a Member of the House of Commons.

It is immensely interesting to hear of my noble friend’s dining partners and the conversations that he had. I hope that he will update us regularly.

My Lords, the Statement is in two parts. Might I ask a question about each? On the terrorist incident, perhaps the noble Lord could explain why the Prime Minister was not informed about the terrorist threat at East Midlands Airport until lunchtime on Saturday, when it became quite clear yesterday, in the answers given by the noble Baroness, Lady Neville-Jones, that other Ministers in the Cabinet knew some hours earlier. I hope that he can explain that to us.

Turning to the European Council, I noticed with great interest that the noble Lord read over it very quickly, without his customary emphasis. He was, of course, trying to divert us from some of its content. First, we have it quite clearly in the Statement that,

“we voted for a freeze seeking to block the 2.9 per cent”.

But then a few sentences later, it says:

“So before the Council started we began building an alliance to take a different approach and insist on 2.9”.

We had the spectacle of our Prime Minister almost trying to deceive the people of this country by standing on the steps of the Council and claiming that he was going in there to fight for a zero increase when, as we now know from his Statement, he had before going into the Council meeting tried to build an alliance for 2.9 per cent. Does he think it an honest way of dealing with Parliament and the British people to try to pretend that he was fighting for a freeze on the one hand when, before he went in to fight for it, he was already seeking an alliance to support 2.9 per cent?

Will the noble Lord concede that if he really wants to get to grips with budget discipline, he should not be arguing just about the size of the budget? It would be helpful if he and his Government took a lead in supporting some of the ideas that came from members of the budgetary control committee—including me when I was there—to start introducing a serious attempt at zero-based budgeting, so that you look at budget lines afresh each year rather than just looking at the budget as it was and adding a bit more to it. That would be a serious attempt at budget discipline.

My Lords, I cannot help the noble Lord on his question about the terrorist incident. I am sorry that he did not have the opportunity to ask my noble friend yesterday when she made the Statement.

I do not know what the noble Lord has been dreaming about on the role of the Prime Minister, the 2.9 per cent, when it was agreed and so on. I am utterly clear that unless the Prime Minister had taken a firm stand on the 2.9 per cent, we could well have seen what happened before—it happened last year when the Labour Government were in charge—where the negotiation between the Council and the Parliament ended up with a middle way, a sort of halfway house between the two figures. We wanted to avoid that; we wanted to ensure that not one extra pound should be spent, and that is what has happened. I also note that the noble Lord would have been perfectly happy to have signed up to 6 per cent. That is what most of his colleagues did in the European Council, and it is of course the cost that has increased exponentially over the past few years.

As for the question on budget discipline, we are trying to give direction and budget discipline to the European Union by sticking out for the agreement of 2.9 per cent.

My Lords, does my noble friend the Leader of the House recall that almost the last act performed by Mr Blair before he stepped down as Prime Minister was to sell this country down the river by surrendering, for nothing in return, a large and growing part of the UK rebate that had been negotiated by my noble friend Lady Thatcher? There were unworthy thoughts that he may have been interested in the job as president of the European Union at the time; I am sure that could not have been the reason, but certainly he got nothing whatever in return. Will my noble friend, who is such an ornament of the present Government, give an undertaking that this Government will not surrender any of what remains of the British rebate?

My Lords, anyone would think that I had planted that question with my noble friend, but he will readily confirm that I did not. He is correct on both counts: not only did the former Prime Minister, Mr Blair, surrender a large part of our rebate—worth, I think, some £8 billion—and get absolutely nothing in return, but I can give a firm commitment that under this Government no more of the rebate will be handed back.

My Lords, mention is made in the Statement of a military treaty between France and our country. When will we be likely to get the detail of such a treaty? My thoughts go to the fact that every service man and woman in this country gives allegiance to Her Majesty the Queen, but it could be that those commanding them do not give such an oath of allegiance.

My Lords, the noble Lord, Lord Martin, asks a good question. It is not that I am trying to duck out of it, but my noble friend Lord Astor of Hever will be repeating a Statement at a convenient moment after 4.30 pm, and I am sure that he will be able to give the noble Lord an answer.

My Lords, I put two brief questions to the noble Lord the Leader of the House. We now know that from now on the EU budget must reflect what we are doing in our own countries. Let us suppose that the debt and deficit position in this country and others in Europe is put back on a sustainable path. Would that mean that a Conservative or a Conservative/Liberal Democrat Government would continue to oppose any increase in the budget, although the situation had changed?

My second question concerns the bailout. We are told that it is,

“absolutely in our national interest that Britain is not drawn into having to help with any future bailout”.

You do not have to be outside the eurozone to share that ambition, but is it not inconsistent with the preceding sentence, which is:

“It is in our national interest that Europe avoids being paralysed by another debt crisis as it was with Greece in May”?

God forbid that the United Kingdom should ever find itself in the same position as Greece, but if it did would it mean that the Government would be ideologically and firmly opposed to anybody helping us out?

My Lords, on the second question, if a tragedy occurred and we needed to be bailed out—as we have been in the past, sometimes—there is no reason why we should not go to the IMF. That is what the IMF is for. I think the point behind the noble Lord’s first question was that if we were in a different position and budgetary environment, would we be ideologically opposed ever to seeing an increase in the budget? Some of us would be very opposed to seeing an increase in the EU budget when there are still so many uncertainties and inefficiencies built into the process of budget-making, grant-making and handing out money. We would like to see a comprehensive review of how this money is spent so that there is firm control by member states and the Commission over how it is all done.

My Lords, an undertaking was given that the setting up of the European External Action Service would be revenue-neutral. Have the strongest representations been made to the noble Baroness, Lady Ashton, that the overall overrun that has been announced is quite unacceptable and, if one looks at some of the expenses now contemplated by the European External Action Service, clearly avoidable? If representations are not made about this clear breach of faith, I shall be very disappointed in Her Majesty’s Government.

My Lords, my noble friend is right that certain considerations were discussed at the passage of the Lisbon treaty. Indeed, as a party, we rather opposed the setting up of the External Action Service. However, it is a fact that it is being set up. The noble Baroness, Lady Ashton, is in charge. It needs to be supported. As part of our general opposition to increase in expenditure, we have made several points about the EU budget. I am not aware that we have specifically raised the EAS annual budget, which will be £5.8 billion—a substantial amount of money. However, we hope that as it is rolled out it will be to the benefit of not just the European Commission but the member states of the European Union.

My Lords, there is a connection between the first and second parts of the Prime Minister’s Statement. While any genuine attempt to reduce waste and inefficiency in the European Union’s institutions will be welcomed by all of us, can the Government guarantee that the work of the European Union in development activity, peacebuilding and peacekeeping—which will contribute to our security as well as that of the developing world—will not be affected by the decisions that were made last week in Brussels?

My Lords, I think I can give the noble Lord that assurance. He knows that the Government have given an absolute priority to meeting the target of spending 0.7 per cent of gross national income on overseas aid by 2013. We remain committed to that. We wish to work closely with our European partners so that they also achieve that target. Therefore, I see no reason why there should be any slippage in that aim.

My Lords, this is a very short question. The House will be aware that the EU budget has not been approved by the Court of Auditors for 14 years. With the help of the noble Lord, Lord Tomlinson, who knows more about this than I, we raised this matter with the Government in May. I have not, alas, seen the paperwork. That is not the fault of the Government; they have to negotiate with other powers. I have tabled a Question for Short Debate on whether the grounds on which the Court of Auditors has not approved the budget for 14 years should be examined. That will be a matter for the House in due course.

My Lords, my noble friend said he had a short question, but it is a huge subject. I look forward to his debate. It is completely unacceptable that the European Court of Auditors has not been able to sign off the EU accounts. I understand that the majority of the errors are not due to fraud but to the sheer complexity of the rules and regulations. We need to address the root cause and press for simplification of EU financial management alongside reform of the budget itself.

My Lords, I wish to ask the noble Lord about economic governance and the German Chancellor’s proposal to revise the treaty. Why are the Government agreeing to that? Can any country now propose changes to the treaty? Will he assure me that the Government will indeed have a referendum if there is any change in the treaty at all?

My Lords, on economic governance, we take very seriously the stability of the eurozone. Some 40 per cent of our exports go into the eurozone and 50 per cent of our exports go to the EU, so it is a massively important market to us and financial stability is important. However, we maintain two things: first, we would rather not see a change in the treaty; and, secondly, we would rather not see any change involving a transfer of powers from the UK to the EU. We are not certain that a treaty amendment is required, but if it is and we are assured that there is no such transfer of powers, a referendum in this country would be unnecessary. If there were a transfer of powers, we would not agree to it.