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Grand Committee

Volume 737: debated on Tuesday 19 June 2012

Grand Committee

Tuesday, 19 June 2012.

European Union Committee: Multiannual Financial Framework

Motion to Take Note

Moved by

That the Grand Committee takes note of the reports of the European Union Committee on the multiannual financial framework 2014-2020 (13th and 34th Reports, Session 2010-12, HL Papers 125 and 297).

My Lords, this Motion invites the Committee to take note of two reports of your Lordships’ European Union Committee, which I now chair, regarding the European Union’s multiannual financial framework, or MFF for short. These reports were published as the Commission produced its overarching framework for the MFF for 2014 to 2020, and following the Commission’s detailed proposals. These proposals are complex but at heart this is a simple, and hugely important, debate. It is about how much money the EU should spend, what it should spend money on and how that spending should be funded.

I should like to begin by thanking my predecessor, the noble Lord, Lord Roper, and the committee members who worked on these two inquiries. Each of our specialist sub-committees examined in detail the spending proposals within its remit, so these two short reports distil a massive amount of research and deliberation. It is indeed a privilege to introduce this timely debate on such a vital topic.

At a time of rapid and wrenching change in the European Union and the euro area, the MFF matters more than ever. The committee is following closely events in the eurozone, but short-term action to stem the current crisis must be consistent with the EU’s long-term objectives. The most crucial of these are enhanced competitiveness to support economic growth, based on a fully functioning single market, and greater value for money spent at European level.

Of course, these reports recognise other important factors in deciding where the EU’s money is spent: for example, the principles of cohesion and solidarity and the importance of environmental action. Yet these must be fitted into a budget of financial restraint and considered on an objective basis. Such an important budget should not contain fudged political deals, but should be transparent about where money is being prioritised, and why.

There are a number of difficulties with the MFF as it has been proposed. There needs to be more restraint, and we call for the next MFF to be no higher in real terms than the current one, which will end in December 2013. Equally important, however, is that this limited budget is spent wisely and directed to where it will do the most good. In our view it is disappointing that the Commission’s proposals contain largely cosmetic changes to the current distribution of spending. Economic circumstances have changed radically; so, too, should strategic budget plans.

In practical terms, the proposed MFF lacks transparency in calculation. Noble Lords will be familiar with the problem of comparing apples and pears. They will also note that there is no systematic resource accounting in it. Anyone reading the Commission’s very lengthy set of proposals, or indeed the Government’s responses, would struggle with the mixed use of real terms and current prices. The overall size of the MFF, and the way each year’s budget increases, are based on out-of-date calculations of gross national income and out-of-date growth forecasts. I submit that more up-to-date figures must be used in negotiations so that a realistic budget can be set. We call for sensible restraint based on accurate figures.

A particular difficulty in such a volatile economic climate is the length of the MFF itself. We would prefer a five-year framework, which could be made consistent or congruent with the European Parliament’s political term, offering some real democratic accountability on the strategic budget. Europe’s economic climate may look very different in five years’ time, and there is no imperative that demands a seven-year MFF.

In any case, long-term projects, such as the Galileo project, do not fit into a seven-year term either. The Commission’s proposed solution, which we oppose, has been to take large-scale or unpredictable projects such as Galileo and ITER out of the MFF entirely, calling them off-budget expenditures. Member states will still have to pay for these, just as they will pay for everything else, but they are not counted as part of the MFF when the Commission talks about the size of its budget. This is not good financial sense; the MFF must be negotiated with the same rigour as a proper business plan. Taking major spending lines off-budget will weaken accountability and reduce transparency. Instead, we would prefer to see more flexibility introduced within and between budget lines so that the MFF can offer a more agile growth agenda.

What of the MFF’s five major headings? Many members of our sub-committees are going to speak in this debate, so I will not speak for too long on the specific programmes that they scrutinised. However, I would like to say a little on the committee’s main conclusions on each heading. Heading 1, “Smart and Inclusive Growth”, is a complicated heading taking up almost half of the MFF. It contains several big programmes, such as cohesion funding, the new cross-border infrastructure programme Connecting Europe, and the new Horizon 2020 programme that will fund research and innovation.

The committee supported much of what was proposed for this heading. Cohesion funding can offer an important counterbalance to stringent austerity, which might have an undesirable impact on vital civil society programmes. It can also, if appropriately targeted, facilitate growth in weak regions, which is vital in the present climate. I am sure that the noble Lord, Lord Harrison, will speak in more depth about the work of his committee on cohesion funds.

The committee also supported efforts to boost research and innovation via Horizon 2020. If implemented correctly, this new programme offers benefits over the current structure with a single set of rules and fewer controls and audits to reduce bureaucracy in the research field. It also offers a more joined-up approach to ensuring that research progresses through the innovation cycle and into the marketplace, so that innovation does not stall. These measures will foster innovation in SMEs, which are vital for Europe’s growth.

Connecting Europe is an ambitious infrastructure programme covering energy, transport and tele- communications. Although EU-level action is important in these areas, the committee questioned whether such a large budget was really necessary for the programme. We recommend a strategic review to ensure that EU spending is secondary to market investment and that only projects that offer real added value are taken forward. I am sure that the noble Baroness, Lady Young of Hornsey, will speak to some of the other programmes in heading 1, such as ERASMUS for All and Creative Europe. However, as an introductory and personal remark, I say that these are important proposals that are sometimes overlooked owing to their smaller size. These programmes can support growth by promoting lifelong learning and supporting the creative and cultural industries in the EU.

The committee found the proposals for heading 2, “Sustainable Growth”, more unsatisfactory. The bulk of this heading is taken up by the common agricultural policy; I remind the House of my personal interest in this area, as a farmer and landowner. The Commission’s proposals reduce only slightly the proportion of the MFF being spent on the CAP. Evolutionary change offers the best path to sustained reform, but the committee strongly disagreed with the semi-status quo that we feel is on offer. The new CAP proposals include the greening of Pillar 1 payments. The committee was sceptical about whether the proposals would deliver the intended environmental benefits. Instead, we supported greater funding for Pillar 2, which will target the challenges of biodiversity and climate change. I know the noble Lord, Lord Carter of Coles, will say more on this.

Regarding heading 3, “Citizenship, freedom, security and justice”, the committee urged that the EU’s growing responsibilities under justice and home affairs should not be ignored. We disagreed with the Government’s suggestion that the budget for this heading should not rise above that over the previous financial framework. We proposed instead funding that matched 2013 expenditure in real terms. This would offer support for the EU’s increasing activity. The noble Lord, Lord Hannay of Chiswick, will have more to say on this heading, I am sure.

Heading 4, “Global Europe”, funds pre-accession instruments and many others, such as the instrument for the promotion of democracy and human rights worldwide. The noble Lord, Lord Teverson, chairman of our sub-committee on external affairs, will lead our discussion on this heading. However, overall the committee supported the funding and increased flexibility that was proposed. We also called for the European External Action Service to have a separate, ring-fenced budget to improve accountability. Perhaps the Minister will tell the Committee whether he thinks this will be possible when negotiations are finalised.

Finally, there is heading 5, “Administration”, which is often in the headlines. The Commission proposes to keep spending in the next MFF level with spending during this MFF. The Commission is also proposing revisions to the staff regulations, which dictate 65% of the spending in this heading, although they are not technically part of the MFF. The committee recognised the Commission’s efforts to bring the EU’s administrative costs more in line with those of member states. However, it agreed with the Government that more should be done to reflect the difficult decisions being taken at national level. I would be grateful if the Minister could update the House on the progress of negotiations over the staff regulations.

I should also mention another aspect of the Commission’s proposals that has been prominent in the news: the financing of the EU budget, particularly the proposals for a financial transaction tax. We concluded that no case had been made for an FTT. The proposal is unsuitable because it would fall disproportionately on a minority of member states, such as the UK, and because it cannot be linked to any genuine EU policy objectives. The committee also questioned whether a VAT-based own resource was appropriate, either as proposed, or in its current form.

The committee also objected strongly to the proposals to eliminate the UK’s permanent abatement and to replace all current correction mechanisms, of which there are many, with lump-sum payments. It cannot be overemphasised that these mechanisms are designed for a purpose: to correct unfairness in member states’ net outcomes. For the UK, such imbalance is particularly owing to the CAP. I hope the Minister will confirm that the UK is strongly opposed to these proposed changes.

Two key themes run through these reports: first, all EU spending must support growth and competitiveness. Secondly, today’s economic crisis is no excuse for ill considered or profligate spending, but reinforces the need for sound underpinnings for work aimed at recovery. The MFF is still very much under negotiation by the Council. The Danish presidency has prepared a “negotiating box” that will be carried forward by the Cypriot presidency. The first major discussion of the MFF will be at the Council meetings on 28 and 29 June. It is therefore important for the House to debate and give its input on these issues so the Minister and the Government are able to take the House’s views into account as negotiations progress. I look forward to the contributions from noble Lords. I hope the Minister will be able to update the House as much as he is able on the Government’s position regarding the Danes’ negotiating box, the alliances being forged with other member states and the way forward at the next Council meeting. I beg to move.

My Lords, as chairman of the Agriculture, Fisheries, Environment and—now—Energy Sub-Committee of the EU Select Committee, I will focus my remarks on the aspects of the MFF that relate to agriculture, fisheries and the environment. Since they account for more than 40% of the EU budget, it is a significant matter. I shall also stray into the important areas of research, development and innovation. I declare an interest as a farmer and landowner.

In its consideration of the proposed MFF, the sub-committee was clear that, in the light of current economic challenges, new approaches were required. It is a matter of strong regret that the opportunity to introduce them appears to have been missed. The risk of even greater disruption to the European economy cannot be ignored. Were this to materialise, long-standing budgetary models such as the CAP could become obsolete overnight.

The proposals to reform the common agricultural policy, for which the framework is set by the MFF, fall far short of the commitment to radical change that is needed. We consider that the commissioners missed the opportunity to introduce new approaches. There is a sense that the Commission is sometimes rather like a dog watching television. It can see it but it does not quite get it. We need to see these changes brought forward to reform the whole programme. Simply, we favour a reduction in the overall agricultural budget and, within that smaller budget, a redistribution of funding away from direct payments towards environmental protection and sustainable innovation.

There are three specific areas where we see a need for greater emphasis. The first is that of agricultural research. We are pleased to note the very positive proposal to double the funding to €5.1 billion, which will make a significant difference. However, set in the context of the total Pillar 1 payments—the direct payment of €280 billion in the period—it is still relatively modest.

Secondly, we should like to see much greater emphasis on rural development, the diversification of the rural economy and a much more ambitious transfer of funds from Pillar 1 to Pillar 2. One key aspect of Pillar 2 is the funding of farm advice, which has not been done very well in England recently. On the other hand, it is comforting that other parts of the UK have done better and it will be interesting to hear what the Minister has to say about recent progress, which we hope is being made in that area.

Thirdly, the environmental impact of farming is critical. Historically, this has been very much a Pillar 2 issue and the mechanisms have been used in that context. However, it is proposed to green Pillar 1—which is, I know, a matter of great concern to many of your Lordships—by tying 30% of the direct payments to cross-compliance. We just hope that that ambition is rigorous enough in its introduction when it comes. We are also concerned that the rather centralist view—the “one size fits all” approach that is being proposed by the Commission, particularly for greening—may be better dealt with if the mechanism for these direct payments could be identified at a national or, even better, regional level. This is a matter of some debate in Brussels. The noises that we hear from there indicate that these views are held more widely. The Minister may wish to comment on this matter when he sums up.

Turning to fisheries, your Lordships will recall that the committee has been extremely robust over the years in calling for radical reform of the common fisheries policy. The new European maritime and fisheries fund does not quite do it. Discussions about these reforms are ongoing. We are clear that the new fund must support a reform policy. We are concerned that the proposed fund is too broad and insufficiently targeted. It certainly needs to be more focused on conservation objectives such as discard reduction. We want to see the objectives and the instrument narrowed so that money will not be spent on some of the things it has been in the past, such as infrastructure and fish farming, at the expense of conservation. Sadly, I have to say that in correspondence with the Government we have made little headway with them on this matter. Perhaps the Minister will update us today.

Finally, I offer some comments on the financial instruments for climate change and the environment. We see a future characterised by risk and uncertainty. There are several aspects to that: economic uncertainty, great demographic change and challenge, and of course the risks linked to climate change, which we regard as very significant. For that reason, we support the distinct sub-programme for climate change, which is an innovation of this instrument for the new MFF. We have argued that there is a strong case for an increased budget for this programme in order to address the challenges of biodiversity and climate change. Climate change is an important issue. The €0.9 billion over seven years will go some way towards meeting the challenges but we regard it as insufficient, even though it has received a marginal increase.

The consideration of climate change throughout the EU budget and the issue of mainstreaming are therefore of great importance. One example may be the use of the European Social Fund to boost training in the renewable energies area. It is in the sort of way that I hope the whole EU budget can be used as a tool to make significant steps towards a green economy. There are those who believe that one of the ways through the economic challenge that we face is to build on the expertise of the green economy and develop world-class industries in that area.

In conclusion, I return to agriculture, where I started. A central recommendation of both the reports we are debating today is to support a substantial reduction in the agricultural budget and a much greater focus on innovation. I totally agree with that. However, this is not about impoverishing farmers across Europe. We were recently told by the chairman of the European Parliament’s Agriculture Committee, Mr Paolo De Castro, that,

“agriculture is at the centre of an Innovation Union and the new global challenge”.

I think what he meant by that was that in order for Europe to prosper in a very important sector, we have to innovate and invest. We cannot work that much harder but we probably have to work a great deal smarter. The question on the final deal for the MFF is whether we are going to let innovation flourish and encourage it, or whether we are going to revert to the old EU policies of suppressing innovation and have seven further sterile years.

My Lords, I currently have the honour to serve on the sub-committee chaired by the noble Lord, Lord Carter of Coles, the fourth sub-committee of the Select Committee upon which I have served. However, I do not propose to follow him on the subjects that he has been talking about today. The report is very timely and we need more time to consider what an appropriate budget for the European Union should be, in very changed circumstances from those in which the Commission began its deliberations.

The current debt crisis could leave us with very different parameters. It seems somewhat artificial to contemplate total budgetary expenditure in such an uncertain situation. Priorities are expressed within the multiannual financial framework with which we can agree or disagree. Broadly, the committee is in agreement with most of the direction, although there is the very major issue of the common agricultural policy, on which I should declare an interest as a partner in a farming enterprise.

One of the conclusions referred to by our chairman, the noble Lord, Lord Boswell—and his presence and remarks are most welcome—was that the duration of the multiannual financial framework is too long. While that is an important view to express at this time, the uncertainties connected with the budget proposals are not conceivably going to be resolved before the end of this period. I strongly support the term of this framework being reduced from seven to five years.

There are other general principles to which we have drawn attention. I would mention the requirement for greater flexibility in spending, as between the different heads, with a controlled mechanism for moving funds towards the spelled-out objectives. With growth and competitiveness scarcely recognised as the principal targets of the Union within the ministerial councils—though I am happy to see that there is some movement in that direction—and against the backdrop of the debt crisis and the threat of contagion from Greece and Spain to other countries, we need to recognise that cohesion is vital. It is satisfactory that the largest head of expenditure is standing at a proposed 36.7% of the budgetary proposals. This is, however, only 1% more than in the current multiannual financial framework. One may wonder legitimately whether that shift of priorities is sufficient to deal with Europe’s situation. It is also welcome that among the categories of regions for assistance a new one has been proposed: the transition region. That is a move towards greater flexibility.

The principles of pan-European development and redistribution of finances seem not incompatible with each other. Both are legitimate and as the report indicates we should be moving gradually towards concentrating on poorer states in the long run, but if we are to avoid a fracturing of the European Union we must acknowledge that the stronger nations will have to help other nations to pull themselves up. These interests are inextricably bound together.

The position in Greece cannot be overlooked while we are considering these matters. I was very struck by an article in the Wall Street Journal at the weekend by five distinguished economists from academic backgrounds, some of them or most of them out of Greece, who advocated that Greece should be given help by the European Union to,

“achieve immediate structural reforms to radically improve the ease with which business can be conducted, and to reduce tax evasion, eradicate corruption in procurement and liberalize the labor and product markets. It must do all this while also ensuring supervision over Greece by competition authorities, improving efficiency in its justice system and health sector, and opening access to its artificially closed markets in transportation, pharmaceuticals and engineering, among others”.

It is to be hoped that with the formation of a Government in Greece, those matters will be addressed as a matter of urgency by the European Union partners. That brings me to something slightly outside of the framework of the report—that we require a forum for considering the debt crisis and matters such as the bank situation that does not simply involve the repetitive meeting of the Council, but continues and sits until these critical matters have been resolved. The process of Heads of Government getting together and lecturing each other from the sidelines or indicating to their domestic communities what they are not prepared to have makes diplomatic negotiation much more difficult. Consequently, I hope that our Government might contemplate suggesting that the eurozone crisis merits a continuity of consideration until resolved, and that we Britons should be involved in that process although not in the eurozone, because the Government have recognised that we are crucially affected by it and have the power to influence the outcomes through not only the decision-making process of the Union but the fact of our being a relatively strong country. We have to alter our institutional approach if we are going to deliver the sort of outcomes required.

I turn, briefly, to some of the particular headings of expenditure referred to in the MFF. On research, the 46% increase over present funding proposed of €80 billion is extremely welcome, not least because it will enable us, if we persist effectively, to improve capacity and the excellence of our work to enable us to increase. On education, the 70% increase proposed from the current MFF to €19 billion is also highly appropriate and crucial for long-term growth. I was distressed to see that the Minister described that increase as “unrealistic”.

Personal enthusiasm for the arts makes me welcome the indication that we are to see a 37% increase over the separate existing programmes for creative industries. As we know in this country, they too stimulate growth. Expenditure to acquaint our citizens with what is being done in the European Union is also of great importance, since there is a lack of understanding at large as to the beneficial effects that the EU can have on our place in the global economy.

There is another omission that is the responsibility of the Commission and which needs to be rectified in further meetings: how much of the budget is to be spent on the new European External Action Service and should it be ring-fenced? It would be interesting to know the Government’s view of that.

I conclude with a reference to a recommendation on the European Court from my former sub-committee, which was chaired by the noble Lord, Lord Bowness. Our view, which the whole committee accepted, is that, because of the greatly increased volume of work being done by the European Court of Justice, we cannot cap at the present level or reduce in any way the funding that is required to enable the Court to tackle these matters. It would have a devastating effect on the operation of the Union if we suffered the sort of delays in obtaining justice that are common in the European Court of Human Rights.

This is an important report and I hope that it will be noticed. I do not have much doubt that it will be. I have heard members of the European Commission referring to House of Lords reports as being among the best reports from the most distinguished think tanks of which they aware in Europe.

My Lords, so far the negotiations over the European Union’s multiannual financial framework for the period after 2013 have been pursued in what can described only as a pretty desultory manner. However, that period of treading water is now necessarily coming to an end as the deadline to complete negotiations gets nearer. That means that the report that we are debating today and the Government’s response to it are particularly timely. The challenges ahead are formidable and the timing of the denouement of these negotiations could hardly be worse, as the eurozone crisis comes to a head.

The new framework will need to be fully consistent with the objectives of fiscal consolidation to which the member states have collectively subscribed, while seeking to shift EU spending towards value-added programmes that will contribute to an overall European growth strategy such as is likely to be endorsed at next week’s meeting of the European Council. The tensions between these two sets of objectives are pretty obvious and we already see them being played out in the much larger context of individual member states’ spending plans and priorities. Total concentration on one of these objectives at the expense of the other will lead only to deadlock at the EU level and will be neither politically nor economically viable.

Following the very welcome introduction given by our chairman, the noble Lord, Lord Boswell, I will concentrate the main body of my remarks on the proposals for the EU’s future expenditure in the fields of justice and home affairs—it is dealt with in a section of our report that was contributed by the sub-committee that I chaired—before making a few more general comments. On JHA spending, two salient points stand out. Here, the noble Lord, Lord Bowness, and I speak across a divide that is not a real divide. The first is that it is a small proportion of overall EU spending, some 0.9% of the total, if one takes the figures from the 2012 budget, the same 0.9% if one uses the figures in the Commission’s 2013 budget, which we all agree are excessive, and yet again some 0.9% if one follows the Commission’s proposals for the next framework period. It is not even faintly comparable in any way with the much larger blocks of spending on agriculture, which the noble Lord, Lord Carter, has spoken about, and the structural funds.

The second salient point is that JHA spending has nevertheless been rising pretty rapidly in recent years—from €354 million in 2007 to €1.4 billion in the 2012 budget. However, at least in the view of my committee, this rise is attributable in large part not to slack control but rather to decisions by member states faced by international challenges—such as drug trafficking, serious organised crime, cybercrime and illegal immigration—to do much more collectively than in the past through EU instruments and institutions to combat these challenges. This has led to the establishment of such bodies as Europol and FRONTEX. The strengthening of the latter was identified in the Government’s 2010 national security strategy as one of our national priorities. Any reduction in real terms to JHA spending post 2013 would cut into activities that relate to our national security. For that reason, we support the application to the JHA chapter of the overall guideline that the Government have agreed with a number of like-minded member states; namely, that the whole of post-2013 spending remains steady in real terms. However, we would not support a freeze in nominal terms—in effect, a quite sharp reduction—which has, at times, appeared to be the Government’s objective. It would be helpful if the Minister could confirm that it is the overall guideline of a post-2013 freeze in real terms that will be our national objective both generally and so far as JHA spending is concerned.

There are also some more detailed concerns, on one of which we have conducted several rounds of correspondence with the Home Office. It relates to the Commission’s intention to propose the establishment of a cybercrime centre at Europol. The committee and the Government are at one in supporting this proposal, which represents a welcome shift in the Commission’s thinking away from any idea of setting up a new and separate agency, but we believe that the Home Office’s position that a new cybercrime centre at Europol should be financed within Europol’s existing budget is neither viable nor negotiable. Will the Minister say which part of Europol’s existing workload, all of which appears to be of real value to this country, we propose should be cut? In any case, it surely does not make sense to take such a Procrustean approach to individual budget lines. Should we not be working to get more resources for a high priority, such as Europol and a cybercrime centre, from other parts of the budget? That has, after all, been the approach of successive Governments over many years. Going away from it now is only too likely to alienate the other like-minded member states with which we need to work in harmony if we are to get a good outcome. Perhaps the Minister could have another look at this matter. I do not ask for a response on such a detailed matter, but I would be grateful if he would take another look at it.

Turning back to more general views, I shall mention three: the need to work closely with a group of like-minded states that support a freeze in real terms; the duration of the new framework; and the rebate. No doubt there will be tensions within the group of like-minded states about the detailed application of the real-terms freeze. Some will want more of this and less of that than we do. The attitude of the new French Government will also be important and could be problematic, particularly on matters relating to agriculture, but it is important that we approach our dealings with these member states with which we have agreed a broad guideline in a spirit of give and take and with a willingness to compromise, otherwise we will soon enough find that the unity of the group will dissolve, and if that happens we will be a good deal less likely to secure our negotiating objectives.

On the question of the duration of the post-2013 framework, I merely echo the points made by the noble Lords, Lord Boswell and Lord Maclennan. The Select Committee has consistently opposed a seven-year period or even—as the Commission suggested one year—a 10-year period and expressed a clear preference for a five-year period, which is the actual treaty obligation. We took that view when the last framework was negotiated. If we had been heeded then, we might be in a better position now. However, we were not. The arguments for a five-year period seem to us even stronger now than before. No member state would dream at this stage and conjuncture of settling expenditure trends so far ahead as seven years; after all, our own Government do not go beyond three years. Nor would it be likely to fix a duration of the mandate to be so different from that of the codecider, which, in the EU’s case, is the European Parliament. I hope the Government would see the logic of a five-year settlement and move in that direction if others favour it.

Finally, there is the rebate. No doubt we shall find ourselves on our own on this issue, as we always do. This is, unfortunately, a zero-sum game and there is nothing we can do to change that. However, in defending the continuance of the rebate as a residual, to be based on actual budget outcomes—on which the committee’s report gives the Government full support—we need to put forward as persuasive a case as we can. There are not many signs of that being so at present. The fact that the Commission has put forward a lump-sum rebate approach would seem to demonstrate that it has forgotten the lessons of the period between 1980 and 1984, when such an approach was tried, with results that can only be described as aberrant. The fact that the Commission’s director-general for the budget could trot out to our committee the old chestnut about the rebate representing a “juste retour” approach, and argue that it does not reflect the greater relative prosperity of the UK and the EU of today compared with that of 1984, would indicate that he is lamentably ignorant of the extent to which the UK’s net contribution after the rebate has increased in recent years.

All this points to an urgent need to explain to all concerned the realities of the situation and the deficiencies of any ex-ante, lump-sum approach. The Minister knows very well that we are giving him full support on this issue. However, we have to be a bit more persuasive and take these arguments seriously rather than simply say: “It needs unanimity to change it, so get lost”. That may be the underlying reality of the situation, but if we wish to keep our alliance together, we need to be a bit fuller in our explanations of why we believe it to be justified.

As a final point, no Government have an easy hand to play in these complex but important negotiations, least of all our own Government. The unanimity requirement for deciding on a multiannual financial framework provides us with considerable leverage but is also a temptation to an unreasonably rigid approach. If we are to hold together the strong alliance the Prime Minister has constructed around a fiscally responsible outcome, and avoid undermining the EU budget’s contribution to any EU-wide growth strategy that is agreed next week, we will need to negotiate with flexibility as well as determination.

My Lords, I thank the noble Lord, Lord Boswell of Aynho, for his comprehensive introduction of these two reports. It is an opportunity for those of us who are members of the European Union Committee to wish him well, in a public forum, as the new chairman of the committee. No doubt he will lead the committee as successfully as did his distinguished predecessor, the noble Lord, Lord Roper, who steered the committee through the production of these reports. As chairman of the then Justice and Institutions Sub-Committee, I will make four short points which it made as part of its contribution to these reports, and which despite the changing circumstances remain relevant.

First, we agree that in this area spending for the period 2014 to 2020 should be broadly consistent with the levels of expenditure planned for the end of the current multiannual financial framework. That is constant in real terms. Citizenship, freedom and security make up less than 2% of the total, but for a five-year period it is difficult to judge what the right levels are. The current five-year programme for the area of freedom, security and justice concludes in 2014 and some agencies such as Eurojust and the Fundamental Rights Agency are being given additional responsibilities.

Secondly, because of the importance of this area of activity, savings should be sought elsewhere in the budget if the ceiling on justice and citizenship is to be raised beyond that of 2013.

Thirdly, if there is a choice between justice and citizenship headings, justice should have the priority.

Fourthly, what gives the sub-committee the greatest concern, to which my noble friend Lord Maclennan has already referred, are the resources available to the Court of Justice of the European Union, comprising the European Court of Justice, the General Court—formerly the Court of First Instance—and the European Union Civil Service Tribunal. As the Select Committee’s report into the workings of the Court noted, the workload is increasing and additional resources are required if delays are not to build up. We cannot countenance a situation similar to that which prevails in the European Court of Human Rights, where the backlog runs to over 100,000 cases. The cost of the Court comes from the administration budget. It is less than a quarter of 1% of the EU’s budget and less than 5% of expenditure on all the institutions of the Union. I am normally cautious about suggesting that budgetary problems can be solved by administrative savings, but in this instance the amounts are so modest even I believe that it may be possible.

The sub-committee’s report called for an increase in the number of judges in the General Court, something which may be achieved without treaty change. Latterly, we have supported the suggested use of recently retired judges to assist the civil service tribunal as a cost-effective way of dealing with what may be a temporary need. The court is seeking approval for changes to its working practices, which we support, but which will not in the light of our inquiry of itself solve the problem.

In this area of justice, if we are to have a full and free single market with all that means in terms of inter-member state trade, freedom of movement and European Union citizens living, working and moving in a variety of member states, we must ensure that there are certain common standards and procedures. This is not to threaten our legal system, but to ensure that British citizens enjoy elsewhere in the Union the protection and freedoms to which they are accustomed here. In many ways it is easier in the area of criminal justice, where the Commission has taken a series of incremental steps. It is more difficult in the area of civil justice, where proposals such as those on wills and succession, and matrimonial, property and contract law, create real difficulties for the countries with common-law traditions. To those who may be tempted to say that we should have nothing to do with any of it, I recall that my right honourable friend the Lord Chancellor expressed the view to the sub-committee:

“Assuming that the general objective of the proposal is one with which we are perfectly comfortable, I would prefer to opt in because I think that it gives a greater role and influence at an early stage of the subsequent negotiations and you have a vote in the course of any decisions on drafting, so you can be in a better position to remedy any queries you have about it”.

In conclusion, I hope that Her Majesty’s Government support those elements in the multiannual financial framework which support European added value, and that this is not governed by a sometimes apparent hostility to all expenditure in the European Union and a current desire to distance ourselves from our partners and the problems in Greece.

My noble friend Lord Maclennan referred to the current uncertainty. In these uncertain days we cannot know what expenditure not yet envisaged may arise. That is highlighted in an article by Bronwen Maddox in today’s Times, which gives succinct and graphic examples of some of the political dangers of which we should all be aware and which I hope Her Majesty’s Government will take into account.

In conclusion, I wish to quote briefly from the article in the Times by Bronwen Maddox. It states:

“As the EU struggles to work out how much it is prepared to pay to keep Greece in the currency bloc, or even the Union, it should take into account how Iran (and Russia) are scanning Europe’s troubled southeast in search of new allies. It is easy in Britain, where diplomacy is infused with a sense of unambiguous borders, to forget how allegiances across Europe’s eastern corner have always been twisted from many strands”.

She concluded:

“The EU’s expansion eastwards and southwards has been one of the transforming gestures of recent history, embracing countries that appeared to want to define themselves by western ideals of liberal democracy. Clearly, the creation of a single currency among very different economies was folly; Greece played to that generous romance of enlargement, extracting all the capital imaginable from its claim to be the ‘birthplace of democracy’.

All that said, the expansion of the EU carried huge symbolic value. It said to those countries, and the world: ‘They are on our side, they share the same values’. If Greece falls out of the euro, and if its links with the EU are strained—or break—it would be careless to overlook the possible consequences. A country that straddles the old fault lines of Europe might find reason to look east—and leaders in Tehran, for a start, would try to give it every cause to do so”.

My Lords, it is always a great pleasure to follow the noble Lord, Lord Bowness, and to do so here in the Moses Room as we plot a path to the promised land of growth, jobs and prosperity in the European Union through the agency of the reports before us today on the European Union financial framework 2014-20. I am very grateful to our new chairman for introducing it so expeditiously. We wish him well in his new tasks and duties.

The Sub-Committee on Economic and Financial Affairs, which I chair, focused in particular on the issues on cohesion policy set out in Chapter 3 of the report. To aid our scrutiny of the various cohesion fund proposals, and in addition to the work undertaken by the Select Committee as a whole, the sub-committee took evidence in December from the expert Professor John Bachtler, Professor of European Policy Studies at the University of Strathclyde. We are enormously grateful to him for his assistance.

Cohesion policy encompasses European Union action to address economic and social imbalances and to help less favoured regions to compete within the vital single market. Cohesion funds form a substantial proportion of the MFF proposals: €336 billion, or 36.7% of the total, compared to 35.7% in the current MFF. Spending on cohesion policy is currently supported through three structural funds. The European regional development fund—ERDF—finances direct aid for investment in companies, infrastructure, financial instruments and technical assistance measures. The European Social Fund finances projects in the labour market that improve skills, social integration and access to employment opportunities. Both these funds are allocated on a regional basis. The cohesion fund finances developments in transport networks, environmental projects and energy and transport projects with environmental benefits, and is allocated at a national level.

The overall scale is determined by two factors: objectives and eligibility. In terms of objectives, the new cohesion policy architecture retains the overarching objectives of convergence, competitiveness and European territorial co-operation. However, the Commission has proposed a change to eligibility to introduce transition regions as an intermediate category between more developed—competitiveness—regions and less developed—convergence—regions. The cohesion fund will continue to support member states with a gross national income of less than 90% of the EU 27 average. As originally drafted, the Commission proposal was that the ERDF would be available to all three categories, but transition and more developed regions would be required to focus 80% of their ERDF funds on certain areas such as renewable energy and small business competitiveness and innovation. The ESF would be available to all three categories of regions, and the Commission proposed that at least 25% of the overall cohesion funding must be committed to it, with more in more developed and transition regions. In each member state, the Commission proposed that at least 20% of the total ESF resources should be allocated to promoting social inclusion and combating poverty. I am well aware that there has been some progress in negotiations in relation to these requirements, so perhaps the Minister would be able to provide us with an update on these discussions.

There are two divergent views regarding cohesion policy’s aims. Some favour a pan-European development programme, while others see it as an explicitly redistributive tool. The transition regions proposal would allow regions in richer member states to remain eligible for structural funds including, in the UK, such regions as Cornwall, Devon, South Yorkshire and Merseyside. I have a past strong interest as Member of the European Parliament for the second largest authority in Merseyside and I invite colleagues to see the transformation that those European funds have effected in the Merseyside region.

The Government have argued that cohesion funding should be restricted to poorer member states after 2020. However, the Government accept that, for 2014-20, all regions should be receiving funding. The aim of EU cohesion policy is,

“reducing disparities between the levels of development of the various regions and the backwardness of the least favoured regions”.

The committee concluded that the new transition region should be supported, provided that it allowed for a more appropriate targeting of funding. Indeed, we found that there was a strong argument for cohesion policy being targeted at poorer member states and for it to operate at a pan-European level. Our conclusion was that, while the European Social Fund is of benefit throughout the Union, other funds, such as the European regional development fund, should be further targeted at poorer member states with a view to withdrawing it from better-off member states in the long term.

The Commission has been clear that it views cohesion policy as a primary vehicle for achieving the Europe 2020 objectives, although our previous report on the EU financial framework from 2014 noted the difficulty in turning cohesion policy into an all-purpose instrument for delivering Europe 2020. Professor Bachtler told us that there was a “tension” between treating cohesion policy as a “delivery agent” of Europe 2020 and its “traditional mission” of “reducing regional disparities”. However, the Government were of the view that targeting Europe 2020 would still mean progress in reducing regional disparities. The committee recognised the importance of Europe 2020 objectives, many of which dovetail with the traditional mission of cohesion policy. However, we stressed that cohesion policy is not merely a delivery tool for Europe 2020 and warned against its core aim being undermined by an unremitting focus on the Europe 2020 agenda. We concluded that the distinct identity and fundamental objective of cohesion, as enshrined in Article 158 of the Lisbon treaty, must be safeguarded. We also stressed that, as an expression of EU solidarity, cohesion policy is one of the most important elements of the MFF in improving public awareness of European Union action.

One of the key questions that we considered was whether, in the current economic climate, a reduction in cohesion funding would be justified, or whether spending on cohesion policy should be encouraged because of its potential to boost economic growth. Professor Bachtler emphasised the importance of cohesion policy at a time of austerity, when national budgets for regional development might be cut back. Although the Commission was keen to retain cohesion as a well funded policy area—albeit that funding had been held level in cash terms—the Government argued that the cohesion budget “should fall significantly” from the proposed levels.

The committee concluded that the economic context had strengthened its belief that cohesion policy should play a more defined role in helping member states in financial difficulties to address structural weaknesses and competitiveness challenges and that it can act as a necessary counterbalance to the effects of austerity measures. We supported the overall envelope proposed for cohesion policy, since it has an important role to play in improving growth and, in the context of a rigid seven-year framework, it is vital that funding remains available to meet changes in the economic climate.

Cohesion policy has been criticised over the effectiveness of spending and for the complexity of its management and implementation. The Commission has sought to address this through what Professor Bachtler described as,

“more concentration, more co-ordination and greater results orientation”.

The Commission has proposed a common strategic framework to improve synergies between the various funds through thematic concentration—the targeting of funds on specific chosen objectives. We agree that the Commission’s proposals represent a much needed attempt to improve the impact and effectiveness of European Union funds and to encourage a more strategic framework. We also support the proposed common strategic framework, although we are aware, from recent correspondence with the Government, of concerns over the precise form that it will take. It would be useful if the Minister provided an update on these discussions. We also recognise the case for thematic concentration on a smaller number of priorities, but remain to be convinced that the Commission’s proposals ensure sufficient flexibility for regions and local authorities to focus investment on their own development needs. I am aware that amendments have been made to the provisions on thematic concentration. Is the Minister content that these provide the necessary flexibility?

The Commission also proposes conditionalities that would place more restrictions on funding allocations. The Government have expressed support for ex ante conditionality, such as the need for compliance with EU regulations prior to funding. The committee endorsed the Commission’s proposals for conditionalities, although we had concerns about the appropriateness of macroeconomic conditionality tools, since withdrawing EU funding from an ailing economy might in some circumstances make matters worse. What is the Minister’s response to these concerns, particularly in the context of the continuing euro area crisis?

The Commission also proposes the introduction of a performance reserve, whereby 5% of the cohesion budget will be set aside and allocated to member states and regions whose programmes have met their targets in a mid-term review. The Government expressed concerns as to whether such a reserve would reward wealthier member states at the expense of poorer ones. To what extent does the Minister believe that the Commission has addressed the Government’s concerns? For our part, we expressed the view that a performance reserve could be beneficial if implemented correctly. However, we found that the proposed 2019 date for the allocation of funding would be too late to have any meaningful impact and we called for a final review and for the allocation of funds to be brought forward. In that respect, I also agree with colleagues who have already spoken about the proposed seven-year period and the five-year period that the committee has supported. Is it the Minister’s understanding that there will be any kind of break within the seven-year period to make a reassessment of the needs of the European Union—for instance, if we needed to instil more growth at that stage, as Europe comes out of its current doldrums?

The committee also heard from the Federal Trust director, Brendan Donnelly, about the wholesale examination of the budget and zero-based budgeting. I know that there has been some sympathy in the Government about this. Mr Donnelly suggested that that might not lead to an increase in the overall budget but might even lead to a decrease. I invite the Minister to talk about that. If you had such a budget, could you then concentrate better on ensuring European Union added value as an element of that?

I ask the Minister about something that has troubled the committee when we have been looking at the budgets so far provided, as we do on an annual basis, in the 2007-13 period. Repeatedly, the Government talk about their aspiration and ambition to make savings in those budgets as they develop. It would be good to have some evidence from 2010-11, for instance, of where savings were actually made in the European budget as a result of the Government pressing the other 26 member states and ensuring that they had allies to do so.

Finally, I invite the Minister to say a little more, within the context of this budget, about how we help small businesses. There are real opportunities to get growth again through small businesses. Will he understand that the essence of helping small businesses is the ambition, which has been expressed by this Government but not always carried out, of ensuring that the single market is developed, completed and made active for those smallest of businesses that wish to ply their wares and services within the European Union as a whole?

My Lords, my response to the melodious and Parnassian beauty of the descriptions of the noble Lord, Lord Harrison, today is to express admiration for his work in the sub-committee, particularly in the area that he was talking about, and to thank him very much. It removes from me the need to go into some of those areas myself, which I shall observe with some enthusiasm and try to be brief. Indeed, unlike previous speakers, I do not have a written text today. If anybody has heard this terrible story before, I apologise in advance. There was a Yorkshire vicar in the pulpit on a Sunday—I will try the accent, but do not laugh—who said, “I am afraid I do not have my usual written sermon today, because I have been so busy during the week. There were two scout camps and the guides were going away as well. I had three funerals to do and four weddings to prepare, so I don’t have one of my usual written sermons that you enjoy so much. I am relying exclusively on divine inspiration this evening, but next week you will get a proper sermon again”.

In that spirit, I will focus on only one or two things. First, I thank the noble Lord, Lord Boswell, for his report as the new chairman and wish him well for the future. This is an important exercise. One can say without complacency that the Commission’s long-term planning for these budgetary constructions worked pretty well in the previous period as well, with some ragged bits and pieces and the continuing British anxiety about the rebate. Whether the rebate was originally intended to last for ever I am not sure. I do not think that that was the case. It is interesting to reflect that, if it now involves everybody in a general recasting of the GNI component of the structures, that may be a totally different thing that the Commission can propose. I hope that it would be accepted.

There is a very small amount of money in this European Union budget, despite the recent years’ growth, with €150 billion as the first figure for the new period and €140 billion at the moment, or thereabouts. The actual expenditure is always less than the amounts allocated, year in, year out. So it is quite a virtuous budget with no debts and no borrowings; the receipts have to equal the payments, by law, and there is no exception to that. It is a very good example which certain states in the United States should look at closely. However, it belongs to the whole Union and is a very tiny mechanism in comparison with what the national member Governments do, and we have to be realistic about that. The timing now could mean that the considerations of long-term planning for a five or seven-year period in future can be irrelevant to the immediate crisis in the eurozone and the fact that there is a developing deflation—some would say a quasi-slump—in a good number of the member states, including the ominous signs in Britain after our recent double-dip recession. No one knows exactly—predictions are always difficult, particularly when they concern the future, as one sage observed—how this will pan out.

In the mean time, the budget has been improved in recent years, and that will be built on in future. I believe that about 80% of the outlays are shared with the administration of the member states, so there is a low level of mistakes, according to the Court of Auditors, in comparison with the millions of transactions every week, month and day. The amount of fraud is minuscule, as we know. So the general support for the budget, philosophically and in this Committee’s discussion, is reflected by the speakers, who feel that it is a good rather than a bad thing to have, although it is very small indeed. Now it has a greater orientation towards long-term investment and cohesion, perhaps bringing the EIB not into the budget itself but into some of the long-term outlays that will be needed for infrastructure spending and improvement. Then the trans-European networks are developing, along with other aspects of transport policy, which allows us to have a much better future. I hope that it will be successfully negotiated by the member states and the Commission.

I wish to comment briefly on what was enunciated by the section in the original report up to 2014 on page 23, from paragraph 57 onwards. For example, paragraph 58 says:

“Greater use of EIB financing and higher contributions from the private sector are desirable”,

because the Commission, with the public money available to it from the member states and its own resources, cannot do much more in comparison with what national Governments will do in future to deal with their own economic crises. The particular national economic crises in the member states will probably not spare many, although Austria and Sweden may be examples. Many member states will be confronted by these problems, so we must take great care in future to make sure that we succeed in avoiding the slump over the whole European Union that is threatening to develop.

It is interesting to see, at the beginning of the summary of the second report, at the end of the second paragraph, the admonition that,

“withdrawing funds from an ailing economy only risks making matters worse”.

That is the general proposition that may apply to more than just one or two member states.

If the Government can in future—and I wish the Minister well with these complicated negotiations—link the construction of this new period for the MFF to the immediate medium-term problems facing member states, that would be good indeed. In a phantasmagorical moment, one could imagine that if the slump was allowed to develop and continue because austerity programmes were not relaxed at all, as Governments endlessly waited for demand somehow to pick up automatically of its own accord without the necessary injections of new long-term capital, the EU budget might look like the combination of a kind of Tennessee Valley Authority and one or two other of those special measures that Roosevelt brought in to deal with the terrible recession and slump in the United States. It is in that spirit that I hope that this exercise is successful when negotiations are concluded, and I hope that the Minister will reassure us that national Governments are alert to and aware of the dangers that we all face.

My Lords, I will cover some of the areas that were formerly allocated to what was Sub-Committee G, dealing with social policies and consumer protection. I start by saying that I very much welcome the opening remarks of the noble Lord, Lord Boswell, especially those in support of ERASMUS and the creative industries. I start with some comments about the ERASMUS section and will quote again the comment from the Minister that was referred to by the noble Lord, Lord Maclennan.

With respect to the ERASMUS for All proposal, which we examined in our inquiry into and report on the modernisation of higher education in Europe, we not only welcomed the Commission’s efforts to streamline and simplify the numerous existing programmes in the area but considered that, as lifelong learning is key for long-term growth, this programme merits a larger proportion of funding under the next MFF. Although the Minister told us that the Commission’s preferred funding increase was completely unrealistic, most of our other witnesses disagreed.

We also noted that work and study placements abroad produce obvious benefits for individuals in terms of increased confidence, language skills and employability. We considered that the UK’s prevailing monoglot culture, among other factors, prevented its students participating in ERASMUS to the same extent as those of other member states. Therefore, additional EU funding for such placements should be welcomed to support increased UK participation in ERASMUS and other mobility programmes. We also welcomed the proposed sub-programme under ERASMUS for All, which will introduce a dedicated funding stream for sport for the first time, which is in line with another of our past reports, concerning the development of grass-roots sport.

On the subject of Creative Europe, again I declare an interest as somebody who works extensively in the cultural and creative industries and support some of the comments of the noble Lord, Lord Maclennan. We considered here that the cultural and creative sector’s contribution to the EU is fundamentally important and heard much compelling evidence that the increased budget proposed by the Commission for the Creative Europe programme would stimulate job creation and growth in line with the Europe 2020 strategy.

In the context of domestic funding cuts for these sectors and UK organisations’ obvious capacity for attracting EU funding of this nature, we call for the Government to support a proportionately larger budget allocation to this area, which represents only a very small proportion of the total MFF. One component part of Creative Europe is the media programme, which provides funding for television and film productions across the EU and beyond. I am sure some of your Lordships will have enjoyed the fruits of this programme, such as “The Bridge”, a very compelling Danish-Swedish drama series that was broadcast on BBC Four and which was funded by the media programme.

I turn now to the cohesion policy, an area that was referred to by a number of noble Lords earlier in this debate, and specifically to the European Social Fund. Both reports being debated today recommend that although the ERDF should be targeted at the poorest member states, the European Social Fund is of benefit throughout the European Union. As we identified in a report on the ESF, and as was clear from our project visits in various parts of London, poverty and unemployment, and the need for new skills, do not respect national boundaries.

The European Social Fund can also make a valuable contribution to realising the Europe 2020 goals, including that of greening the economy, a point that was made earlier by the noble Lord, Lord Carter. It can do so most effectively by working strategically with the other structural funds, including the rural development and fisheries funds. For example, the fisheries fund could pay for fishermen to leave the industry and the ESF could pay for retraining and diversification. We therefore support the Commission’s proposed common strategic framework, whereby member states must plan the deployment of all these funds under one strategic umbrella.

I would like to draw on the lessons of a seminar on the ESF last December, which was one of a number of meetings we held with various stakeholders in the year. Words that kept cropping up at that meeting were “partnership”, “flexibility”, “simplification” and “local”. Of those, flexibility—the ability to respond to local needs—was crucial for those participating. It is where the Commission’s proposed thematic concentration, running through the various structural funds, may not work on the ground. We are therefore delighted that its importance is reflected in the most recent report under debate today. We also agree with the report’s support for the overall envelope proposed for cohesion funding, and argue that the ESF has a particular role within that envelope as a fund that can make a real contribution to meet the challenges of the current economic climate.

My Lords, I declare an interest, in that I worked on European affairs in the United Kingdom public service and in the European Commission, and I have pensions from my work. In this debate, I have the role of orphan Annie because I am not a member of the European Union Committee or of any of its sub-committees; perhaps I am even objective.

This comprehensive and high-quality report from the House’s EU Committee is at the heart of our policy towards the European Union, and I thank the committee for it. Subject of course to the economic future of the eurozone, there is surely nothing more important than the establishment of a seven-year budget from 2014 to 2020—perhaps it should be a five-year one—and the priorities for EU action over that period. The committee is right to state at the outset that the multiannual financial framework—the MFF—

“will dictate much of what the EU does until the end of this decade”.

Here in the Moses Room, we are in the big time.

I shall comment on some but not all of the 73 conclusions and recommendations of the committee; that number alone demonstrates the breadth and importance of the subject, and a similar conclusion can be drawn from the 81 Commission proposals for legislation and communications listed in appendix 5. Before I turn to some of those points, I would like to express general principles that in my view should be central to the Government’s approach to the negotiation of the MFF, and I attach great importance to them.

First, the Commission’s budget proposals show some restraint. Total payment appropriations under the current seven-year MFF are 0.16% of gross national income, below the ceiling that sets a cap on the EU’s own resources. The new proposals for 2014-20 would cost 1% of estimated gross national income and leave a margin of 0.23% below the ceiling. I recognise of course that some expenditure—principally the European Development Fund for the benefit of African, Caribbean and Pacific countries—is off-budget, and all off-budget expenditure requires careful scrutiny.

However, while the Commission shows some restraint, I strongly believe that the Government are right to stress the importance of savings and to press for them. After all, this is not an abstract exercise. We are dealing with public expenditure right up to 2020. Recent events have demonstrated that a major cause of the economic crisis in Europe, apart from incredibly bad judgment of risk in many banks, is the too-high level of public expenditure and the extreme difficulty for some member states to finance it. Some 86% of current EU own resources are derived directly from GNI-based and VAT-based resources. Restraint on public expenditure and a rigorous approach to justifying it is a solemn duty on Governments and is in the EU’s interest. Furthermore, in assessing the priorities, investment and employment-creating expenditure—for example, on infrastructure—should have some priority in the EU’s overall interest.

To a considerable degree, our national interest in this seven-year EU budget coincides with that of the EU as a whole. We want savings and strict attention to priorities, both to ensure as far as possible that particular items of expenditure are disproportionately favourable to the UK and because our net contribution has recently risen quite strongly. It is well known that I am rather proud of the UK rebate—I played a small part in negotiating it—which has so far delivered about £68 billion to the UK economy. It is an intrinsic part of the EU budget system and, being subject to unanimity, cannot be changed without our agreement. However, the UK Government agreed to exclude non-agricultural expenditure in new member states from the calculation and this has led to an increase in our net contribution from £3 billion in 2008-09 to £9.2 billion in 2010-11. A hard-headed approach to this change means a tougher negotiating stance on the total EU budget.

On our priorities, I begin with cohesion policy, which is heading 1 in the MFF and is supported by the European regional development fund, the Social Fund and the cohesion fund. In financial terms, this is, as noble Lords have said, an important part of the MFF. In the new proposals, it is 36.7% of the total and is comparable to expenditure on agriculture, food and environmental policy. Evidently, the key issue is to identify the European added value. I favoured regional development when I had some responsibility for European policy, and I still do, but we have to balance it with available public finance. The analysis by the committee is good and I agree with much of it. In particular, I favour the transitional region category, noting on a personal level that it would apply to Devon and Cornwall. It would be sensible to have a performance reserve and some ex ante, but not too bureaucratic, conditionality. Like the Government, I do not favour macroeconomic conditionality.

Agriculture, the food supply and the environment are subjects that I used to know a lot about. Of course, the old CAP has long since vanished. It was a market-based policy with little or no direct payments to farmers. The support prices were set at too-high levels leading to high expenditure on disposing of public intervention stocks and on export subsidies called “refunds”. We have replaced it with a policy that is largely based on direct payments to farmers, which is where the budget costs arise. The question we now have to consider is whether the objective of a viable agricultural industry and a secure and diverse food supply for our people can be obtained with a slightly lower level of direct payments. Some environmental conditionality is already present, which is good. I am not in favour of the Commission’s proposal to add further environmental conditions to 30% of direct payments, which would certainly be more complex and would have doubtful added value. I support the committee’s view that some transfer of resources from Pillar 1 to Pillar 2—that is to say innovation, research and knowledge transfer—should be an objective.

Finally, in view of the time constraints, I will make three bullet points. First, the European Development Fund, which is the biggest element off-budget, should be brought within the multilateral financial framework and, separately, the cost of the European External Action Service should be identified and ring-fenced. Secondly, the case for an EU-wide financial transaction tax has not been made. The last thing we want is more taxes. Thirdly, the committee states that,

“a VAT-based own resource is not appropriate for funding the EU budget”,

and that it might be removed entirely. It also states:

“This need not necessarily prejudice the UK abatement, although we acknowledge that determining a new base for calculating the abatement might require a difficult negotiation”.

The committee’s overall report is truly excellent, but this point seems a trifle naive. I am with the Government when they are quoted in paragraph 233 as having fundamental objections to changes to the own-resource system, notably because the Commission’s proposal,

“would remove the permanency of the UK’s current abatement mechanism”.

The new own-resource decision would require unanimity, so I say to the Government: stick to your fundamental objections.

There is only one ministerial statement that I currently always carry in my wallet. It is a statement by the noble Lord, Lord Sassoon:

“We are very concerned about those growing contributions, and we are working hard to moderate them”.—[Official Report, 8/11/10; col. 1.]

My Lords, I congratulate noble Lords involved in producing these two reports. I also congratulate the noble Lord, Lord Boswell, on his new role and wish him well.

Apropos of nothing, I note that previous EU debates in which I have spoken have tended to be very male dominated. That is also true of this debate. For some reason we have 14 noble Lords speaking but only one noble Baroness; why this should be so, I am not clear.

The EU today is a strange contradictory entity. On the one hand, it has its traditional structure still functioning with long time horizons and with the Commission as its policy engine—the background, if you like, to these two reports. In this version, the EU moves in a closeted, bureaucratic way. I shall call this EU1. On the other hand, there is the EU, dominated by the eurozone, as a firefighting mechanism enmeshed in almost daily crises and having to make rapid responses to them. I shall call this EU2.

As we know, EU2 has a de facto president, Angela Merkel, even though she has no formal legitimacy. In EU2 the Commission, and even to some extent the Council, have receded into the background. They are not arenas where significant decisions are initiated, just confirmed. In EU2 vast amounts of money are being channelled around Europe to shore up states and to protect banks. These sums of money are massively greater than the orthodox EU budget. Far from the,

“smart, sustainable and inclusive growth”,

talked about in the Europe 2020 literature, in EU2—in other words, in the real Europe of the moment as opposed to the paper Europe of plans for the future—there is no growth at all. Europe is essentially mainly mired in recession.

The question at the moment, I suggest, is how to bring these two Europes together. The second of the two reports is much more conscious of this fundamental issue than is the first and reflects the essentially continuing nature of the crisis between the time at which the first and second reports were produced. The second report rightly observes that,

“the euro area crisis has not stimulated … radical thinking”,

about the immense challenges the EU now faces. I think that this is true.

In the light of this, I ask the Minister to comment on three primary issues. First, Mrs Merkel rightly and necessarily wants far greater fiscal integration in Europe. This is where the real Europe—EU2—is moving. As far as I can see this will not be possible without a budget for the eurozone countries, and most of the colleagues with whom I have discussed this agree with me. That budget will not be the same as the budget being discussed in these documents. When the Government say that they will oppose any new taxes, does this apply to taxes specifically established within the eurozone as part of a new fiscal integrated system?

Secondly, Europe 2020 has to become Europe 2012. The report refers to:

“An industrial policy for the globalisation era”,

and to:

“An agenda for new skills and jobs”.

This cannot be just a leisured anticipation of the future—in other words, the sort of paper Europe that we have always had in the past with very slow incremental change—but has to have bite in the here and now.

The politicians of EU2 are trying to drive through, almost overnight, reforms that should have been made over a decade or more. The fundamental issue of how to reconcile austerity with growth remains hugely problematic. What do the Government make of President Hollande’s proposal for an injection of €120 billion into the eurozone economy as a stimulus? I understand from the French newspapers that this would be primarily based on project bonds, which are touched on in these reports, and would be massively greater than anything that would come within the orthodox EU budget.

Thirdly, if it survives as a recognisable entity—and I hope that it does—EU1 has to resemble EU2 far more closely. The EU has to be more innovative and, as others have said, much more flexible and less bureaucratic. The mountains of bureaucratic literature that come to you when you are on an EU committee in this House are amazing. I am on the same one as the noble Lord, Lord Carter, who chairs it brilliantly, but we get enormous amounts of this. I do not think that this is possible in the EU’s new environment. It must act quickly. It is not just a matter of the moment, responding to crisis. This is an immensely fast moving world, so the EU must be reconstructed if it is going to be effective. It must be much more fast moving.

The second report has interesting proposals of its own to make and considers some proposals from the Commission. What is the Government’s view of how these goals are best achieved? How can the EU become much more adaptable and fast moving for the future? It cannot survive unless it does so. You cannot just revert to EU1, away from EU2. If it is to survive the EU has to be dramatically more adaptable.

In conclusion, even in the horrible crisis in which the EU is enmeshed, as a pro-European I would not want to give up the European dream. Even against the backdrop of this crisis or perhaps using it as a mechanism for necessary change, I would like to see the EU creating a model for growth different from that of the United States and from China’s and integrating it with the European social model. American growth is based on cheap credit, cheap energy and endless mobility. This is surely not a way for the future. The Chinese model for growth is environmentally far too destructive to be profitably copied elsewhere. In Europe a different model of growth can be still be pioneered which would be environmentally as well as economically sustainable.

My Lords, I will echo one or two of the points made my noble friend Lord Dykes. Although we are sometimes very critical of EU finances we should remind ourselves that we have a ceiling of around 1% of GDP—I think that it is 1.23% at the moment. We have to have a balanced budget. We look seven years ahead and maybe five would be better. We have a strong and frustratingly active audit process that seems to give the rest of the organisation a bad name, but it is very thorough. If many member states copied that model, or perhaps even if we did in some areas, we might not be where are at the moment.

My own committee, now called the External Affairs Sub-Committee—a name easier to understand than it used to be—was pleased with most of the way that heading 4 on external affairs was looked at. We agreed with the Government in seeing this as an area where Europe was particularly important; in that cliché, it added value on a global scale. There were important roles that it was fulfilling.

An area which has generally been seen as an EU success in the past—certainly over the past two decades—is its exercise of soft power, driving and motivating the instinct of other European states which want to shed the shackles of central economies or dictatorial regimes and to join the body politic of Europe and the European Union. It thereby reinforces the commitment to both social democracy in terms of economy, liberal democracy, politics and trade, and to an open and outward-looking global view. It has been very successful in that area. Under this process, some €70 billion is expected to be spent on the external affairs area, which is a relatively modest part of the almost €1 trillion which is being talked about for this seven-year period. That €70 billion is spent on development policy and all the things that have to be done in helping pre-accession candidate nations move towards membership. As we learnt in some of the recent accessions, we have to ensure that things such as energy, border control, civil administration, corruption and organised crime are set right before new member states join. It is spent on partnership programmes, particularly in the east but also in the Mediterranean—our own are close to home—through to humanitarian aid and all the stability initiatives, development and nuclear safety.

One area of interest, although not a large area of the budget, was a particular instrument for Greenland. That seemed quite strange at the time, but I am sure that under Arctic policy, Greenland is going to become even more important.

The European budget, through different mechanisms, tends to pay for civil missions of CSDP, although not on the whole the military planning procedures. It pays for civilian missions as well. That is part of the EU outside its borders.

Where did we have some criticism? I am grateful to those who have mentioned the European External Action Service. That did not come under our purview because it is in administration. The External Action Service is relatively new; it came out of the Lisbon treaty. It is a major conduit through which the EU relates to the rest of the world. Its remit runs from trade through to all sorts of other issues, and high priority matters for the European Union. Yet its budget within this process is hidden within administration. Where it was in the accounting perhaps did not matter so much, but we felt strongly that, as an effectively separate institution, it ought to be separated out and we ought to be able to appraise it.

We were also quite surprised that there seemed to be what we would know as contingency lines throughout heading 4. Although we understand that flexibility is important in this area, the Commission and the External Action Service rightly point out that we cannot predict the number of natural disasters, for which Europe contributes important humanitarian assistance to the rest of the world, or what they will be over the coming one, two or three years. We do not know where political issues, like helping Libya get back to stability, will arise from year to year. The flexibility in there is right, but the contingency areas perhaps add a little too much fuzziness to how the budget is assembled.

The other area that has been mentioned by noble Lords is the European Development Fund, which is not the total development budget of the European Union but that which is used within what I think of as the African, Caribbean and Pacific countries. That lies outside this framework. Clearly, to a business or any other organisation, that makes no sense whatever. Unfortunately, I am told that the calculations show that if it fell within the framework, it would not help the UK’s budget contribution, which is a shame. However, I am sure that there ought to be some way around that. We need to bring that area in and include it as part of the overall external policy.

As the External Affairs Sub-Committee, we were happy that this went in the right direction and that Europe’s role in the broader world was recognised as being important. We are at one with the Government in understanding that, although it must happen in a way that is cost-effective. Certainly, over the period, the total spending of the External Action Service should not grow, despite some of the start-up costs.

I shall make one or two further comments as an individual Member of this House, as opposed to as chairman of the sub-committee. First, on regional policy, I am lucky to come from a part of the United Kingdom that benefits greatly from convergence funding, although we should like not to be in that position. Unfortunately, it looks as though Cornwall and the Isles of Scilly will again qualify for convergence funding in the next period that we will look at. It is important that regions graduate out of this area of state-welfare benefit drip. It is a shame that that has not happened, perhaps because of the way that the economy works at the moment. However, I feel strongly that, in the longer term, we should not move to excluding certain developed states from convergence funding or cohesion funding.

Why is that? The European Union—particularly the Commission, which is in charge of these programmes —tends to be far more objective than national Governments over who should receive these funds. I am certain that if my part of the world had not fallen within the European Commission’s definition of a NUTS 2 region—of GDP per inhabitant being less than 75% of the EU average—it would never have received the aid that it needs to become a thriving economy in the future. That objectivity is important and it should not depend on which member state your region happens to be in. Spreading the rest of the cohesion funding very thinly, even over transitional areas, is wrong. Transition should be of a sort whereby you move from being a convergence area to being a normal area and are helped over a period.

I hope my noble friend Lord Carter will forgive me but I have always been very sceptical about international fisheries agreements. They are far better than they used to be; they are now called fisheries partnership agreements and there are 16 of them. On the whole, they are an excuse to get rid of European fleets from someone else’s waters, where states that are even less able to protect their waters than we are have been completely fished out. The money goes towards helping those fishing communities to look after themselves, but it often does not get much further than the national capitals. While I am sure that the system is much better than it used to be, I am still very sceptical about it.

Turning to climate change, this programme ends in 2020. We have three very strong targets for carbon reduction, energy efficiency and renewable energy. Therefore, it is quite coherent that we should have a strong programme there.

Although it not an area in which I have ever been much involved, one of the greatest added-value areas of Europe ought to be its research capability, which seems to be going down in our national economies. If there is one way in which the Commission’s goals for our competitiveness, world position and employment can be fulfilled over this seven-year period, it is by having a much stronger research base. I should dearly like to see a significant proportion of this budget go to that area, to make Europe competitive in the very different world that will arrive by 2020, when this programme ends.

My Lords, I join other noble Lords in congratulating the noble Lord, Lord Boswell of Aynho, on his thoughtful introduction of this report and I pass to your Lordships the regrets of the noble Baroness, Lady O’Cathain, who is chairman of Sub-Committee B on the internal market and would have liked to be here, but cannot. As the recent addition to that sub-committee, I have come in her place to draw your Lordships’ attention to some of the important issues with regard to scrutiny of the part of the multiannual financial framework relating to infrastructure and innovation. In so doing, I remind noble Lords of my entry in the register of interests as professor of surgery at University College, London, an institution that is in receipt of funds from the framework 7 programme for innovation in biomedical sciences research, and as an applicant to that funding scheme.

The Connecting Europe Facility is the proposal in this MFF to bring together the funding streams related to infrastructure spending on transport, telecommunications and energy. These are all important areas, and Sub-Committee B recognised in its scrutiny that appropriate investment in this type of infrastructure could have important benefits by driving growth, improving infrastructure and meeting the objectives of European added value. If properly focused on what independent nations are unable to do but what the European Union could do more effectively by working together, this type of activity could potentially be very important.

In addition, the focus on European added value through properly transparently described and funded programmes of infrastructure investment would allow the opportunity to develop criteria that properly assessed European added value at the outset and ensured that projects could be tracked to demonstrate that added value, which is vital to convince the people of our country that this type of investment through their contributions to the European Union is effective and cost-effective.

Equally, this area of investment could be used to leverage private sector investment in major infrastructure projects, if properly directed. The proposal that the Commission play some important and enhanced role in the supervision of these projects was also potentially welcome, with the caveat that national competences must not be overridden in areas where member nations could perform tasks more effectively.

There were some concerns. The proposal in the current MFF is that funding in this area be increased fourfold over previous infrastructure investments in the areas of transport, energy and telecommunications. This was considered somewhat unrealistic. The emphasis must be on investment and a budget commensurate with that investment that focus on areas of infrastructure development that are truly European added value. As the sub-committee scrutinised proposals in this area, there was some concern that that may not be the case. With this unrealistic proposal for a large increase in expenditure, it is very important for attention to be focused on those areas of added value where nations would be unable to make the appropriate infrastructure investments.

Equally, there was concern that previous budgets have focused more on transport infrastructure and that moving forward in this MFF there should be particular emphasis on energy and telecommunications. There were some concerns about the detail of the various instruments included in this proposal. With regard to the transport instrument, for instance, the Government have recognised that there are concerns about the proposed core corridors and the potentially unwarranted mandatory infrastructure investment that could cost our country and other European nations substantially and inappropriately. The sub-committee is aware of the important advances that the Government have made in negotiations on these matters to ensure that that will no longer be the case, but it remains concerned to hear more from the Government about instruments in the telecommunications and energy areas. What progress has been made to reduce the substantially increased budget to a more realistic level? Are there areas of concern over some features of the transport instrument and mandatory infrastructure investment?

The point was also made in the sub-committee that the proposal that the Commission has a more important role in the supervision of this type of infrastructure investment should not in any way infringe national competences in these areas. This is a vital issue that would need to be emphasised during the period of this budget.

The second area I turn to is Horizon 2020, which is the innovation instrument dealt with in the MFF. The sub-committee agreed that this was a vital area, and we have heard many noble Lords in this important debate emphasise the importance of investment innovation in research and technology to drive economic growth and ensure that Europe more broadly is competitive in the coming years as we see increasing global competition from countries such as the United States, China and others, where investment in research and development continues to play a vital role in public and private investment policy.

On Horizon 2020, we have heard that there is a proposed substantial increase in the budget on research spending, but the Government consider it unrealistic given the current overall financial constraints. The sub-committee was of the view that there should be an increased emphasis on investment in innovation expenditure but within a smaller budget. So there is a very clear view that innovation should rise up the spending priorities of the European Union, should overtake areas such as the common agricultural policy and become the heart of spending proposals from the EU. That would ensure that investment in innovation translates into innovation being applied to small and medium-sized enterprises so that they can promote economic growth and create jobs.

If the proposed budget increase for innovation will not be achieved in this MFF round, it is certainly suggested that the focus should again be on areas where there is European added value. This is to drive forward the European Research Council and research excellence in Europe to ensure that co-operation in research and fostering research networks is achieved as a primary focus of the investment of those valuable funds to drive research.

My Lords, I declare an interest as chair of the think tank Policy Network, which has received some funding from the European Parliament budget.

This has been an excellent debate, typical of the quality of the work of the European Union Committee of this House. On behalf of the Opposition, I welcome the noble Lord, Lord Boswell, to his new role as chair, which I am sure he will carry out with distinction as his predecessor, the noble Lord, Lord Roper, did. He must have had a very satisfied feeling, as this debate proceeded, about the group of heavy-hitting Members he has on his committee. They and the noble Lords who chair the various sub-committees have shown today a wide range of knowledge and experience of the EU’s business. It is a balanced and objective analysis, with recommendations, and I am sure that the report of this debate will be widely read in the European institutions and by those concerned with Europe’s work.

Having said that, I regret that the committee did not issue a bolder clarion call for radical reform of the EU budget. I make no secret of the fact that I am a very passionate pro-European, but I do not think that pro-Europeans should pull their punches in any way about the need for radical budget reform. If ever there was a case for it, surely the crisis that the eurozone has now entered is a justification.

I remember at the last budget settlement in 2005 that one of the things solemnly agreed by the European Council was that there would be a thorough mid-term review of the common agricultural policy in the period of that financial framework. It never happened. I was in the Commission at the time and remember the arguments that were put forward: “Oh, we don’t want to do a review now, what we’ll do is have a really thorough intellectual examination of what needs to be done”—this was in 2008—“and will come up with radical proposals for the next seven-year period”. However, when we get to the radical proposals published by the Commission in June 2011, I am afraid they can only be described as a damp squib. It is not just the Commission’s fault but it is to an extent, because it has a duty under the treaties to speak for the European interest. The Commission should never have allowed itself to get into the mood of complacency that the member states were only too happy to be in. The Commission should have challenged them, but on the budget, it has not. As a result, it makes the task of making the case for Europe more difficult.

I agree with the noble Lord, Lord Teverson, that the European Union has very strict procedures for audit, in many ways better than many of its member states. However, the fact is that there is a widespread perception of waste and bureaucracy in that 6% administration budget. The United Kingdom should be pressing for an independent review, not just of the Commission but of the Parliament and Council budgets. The Council tends to hang on to its own budget and say that no one can look at it. We need an independent review of all the institutions and their budgets and whether they could be more efficiently spent.

The other problem with the budget is that it is such a collection of vested interests. It is the problem of an acquis of vested interests, which is extremely difficult to change. As reformers within the European Union, we have to think how, either through time-limiting certain programmes or pieces of legislation, we can make it easier to get things changed. What is the Government’s policy for making that kind of change possible? Change in the EU’s policy programmes is much needed.

The noble Lord, Lord Williamson, is right that the common agricultural policy is radically different from the policy that was launched in the 1960s, but it still needs an awful lot of reform. The payments that are made to rich farmers in northern France and parts of Britain and that often go to commercial companies are an abuse, and we ought to be capping them. I ask the Minister: is it his policy that payments to rich farmers should be capped or is it not?

Secondly, some of the Mediterranean subsidies that are given to tobacco famers in Greece, for instance, are an absolute disgrace. If we want to help Greece, the last thing that we should be doing is helping its tobacco farmers. We should help Greece to train the unskilled workforce that means that it has a real problem in competitiveness.

On the structural funds, I am a passionate supporter of regional policy. However, an independent review by Barker set out very clearly what needed to change in the structural policies. We need to get away from the doctrine of the juste retour. We need to focus on growth priorities and be clear about what they are. We need more conditionality. These things are happening to an extent, but not nearly enough.

My position, which is certainly the Labour position as well, is that it is impossible to argue for any increase in the EU budget until much more radical reform takes place. I accept the intellectual argument that a successful monetary union may require a bigger budget to make it work, but it will be impossible to argue that unless the existing budget is reformed. There is a case for some of the programmes being expanded. If there were reform, that is what should happen. We know that there are proposals to increase the research budget and expenditure on infrastructure and to extend ERASMUS. These are all very worthy objectives, which will help Europe’s competitiveness. However, I seek an assurance from the Minister. If additional money is made available under the growth plan that will come to the Council next week, will Britain be a participant in the extra money that will be available? Will we benefit from some of it as well the eurozone, or are we abstaining once again from full participation in the Union’s development?

Therefore, some areas could be expanded if only there was reform, but the reform nettle has yet to be grasped. The growth agenda to which President Hollande is so attached is an opportunity to grasp the reform agenda, but I wonder what strategy the UK Government have for being bolder in this respect. It is very difficult to get reform. I welcome the alliances that the Government have built so far, but in the past, they have tended to crack under pressure. As I have mentioned, there are vested interests everywhere in the EU budget. The European Parliament rightly has co-decision powers in the budgetary area. What is the strategy?

I read an interesting analysis from the Centre for European Reform by John Peet, the eminent Economist correspondent, and Stephen Tindale. They argued for a tripartite initiative by Britain, France and Germany, in which each member state was prepared to put their red lines on the table and try to work out a radical plan for change. Are the Government prepared to think in those terms, or are we essentially stuck with the status quo?

As my noble friend Lord Giddens said, a Europe 2 is emerging. We are in the middle of a crisis. We cannot just let the opportunity of the European budget pass us by. If Europe is to gain legitimacy, there must be radical reform of its budget.

My Lords, this afternoon’s debate has been very interesting and I welcome the committee’s views and the report into the next multiannual financial framework, the MFF. I would also like to thank the committee for all its work.

The Government will publish their final response to the report at the end of this month, so the debate is timely but, as I am sure those who have spoken this afternoon would expect, I will reflect on some of the more detailed points and ask noble Lords to wait for the formal response. I will answer as many of the points raised as I can, but let me principally set out what the Government believe is most important with respect to the MFF.

As the EU Committee is well aware, the Government are taking tough positions in Europe on the MFF. Negotiations are continuing towards the European Council where a presidency negotiating box will be discussed. This sets out the parameters of the MFF negotiation, moving us on from the Commission’s original proposal in June last year. I have been asked about details of the strands of negotiation, on a number of which there is little to say. In answer to the specific question from the noble Lord, Lord Boswell of Aynho, we are seeking significant reductions and reforms, including cuts from regulations. Negotiations on those specifically are going reasonably well, alongside the MFF negotiations. We are confident that we are making progress, but it is not decision time yet.

The ongoing instability in the euro area is vindication of this Government’s efforts to impose strict financial discipline on our domestic budget. We have made tough choices at home and it is now vital that EU member states show that same resolve. At a time when member states across Europe are tightening their belts, the European Commission must lead from the front to ensure that the same discipline is seen in the EU. What are they doing instead? They have called for increases in expenditure which are frankly incredible. The Commission’s proposal earlier this year to increase the annual budget by 6.8% for 2013 was completely unreasonable. The UK is committed to taking action to curb irresponsible increases in the budget, for 2013 and the next multiannual financial framework, and we will continue to work with like-minded member states to that end.

The noble Lord, Lord Harrison, asked what the evidence is for what we have achieved in the past two years. I remind noble Lords that the original Commission proposal for the 2011 budget was an increase of 5.8% and it came in at 2.9% after tough negotiations. In 2012 the original Commission proposal of 4.9% was reduced to 2.02%. The UK has been at the heart of the negotiations in Council to block increases and that is where we will continue to be. The Commission’s proposals for the next multiannual financial framework go even further, seeking to increase its revenue and spending. It wants new taxes to boost the Brussels budget, as well as an absurd spending increase. This is simply not acceptable on either front. Instead of consolidation, the Commission proposed expansion. Tough multiannual financial framework ceilings represent the best opportunity to restrain EU annual budgets and member states have recognised this link.

At the European Council in October 2010, member states agreed that,

“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”.

What has happened? Rather than follow this path, the Commission has bowed to pressure from the European Parliament to increase the budget. This returns us to the extravagance and reckless expenditure that sowed the seeds of the global economic crisis. The 11% increase proposed for the next financial framework is therefore incompatible with the tough decisions being taken in the United Kingdom and in countries across Europe. We cannot and will not support it.

In December 2010, the Prime Minister and colleagues from other member states, including France and Germany, set an upper limit for the next framework in their open letter to President Barroso. They stated clearly that,

“payment appropriations should increase, at most, by no more than inflation”.

This view has been acknowledged by the EU Committee. In answer to the specific question from the noble Lord, Lord Hannay of Chiswick, I confirm that it remains the Government’s position. The Commission claims to have done as we have asked, but let me be clear: it has not. On average, expenditure in each year of the next framework would be about €14 billion higher than it is today. In addition, the Commission has earmarked an extra €18 billion in off-budget expenditure. As the committee noted in its report, this shows an alarming lack of transparency, which brings added risks of poor oversight and control.

The Government’s overriding priority on expenditure is to restrain the total budget size but, within that context of restraint, the Government want to see taxpayers’ money directed towards areas of greatest European added value. The great majority of specific suggestions for directing expenditure that I have heard this afternoon are consistent with that.

Growth and competitiveness, external funding and the climate change components of the budget are priority areas. While our objective is to restrain the size of the budget, we believe that these areas should see a proportionately greater share in the next framework. However, this focus also demands tough choices. The first among them is a point raised by the noble Lord, Lord Boswell of Aynho. Very substantial reductions are required to the direct payments component of the common agricultural policy and to the administration budget.

Before I respond to a few of the many points on specific expenditure, a couple of general points were raised. Other noble Lords, including my noble friend Lord Maclennan of Rogart, raised the question of a five-year framework. We agree with the concerns raised in this area, but our overriding concern in the negotiations has to be to seek restraint. If restraint can be guaranteed in a five or seven-year MFF or some form of review can be built in, we are willing to discuss it, but it has to be subsidiary to our main objective.

In response to requests for increases in expenditure as opposed to relative prioritisation within the budget, whether for good things such as Europol or any number of others, I reiterate that if the Government’s opening position were to be to recommend explicit increases in certain areas of the budget before we achieved any corresponding decreases, we would be at risk of seeing ourselves committed to a higher overall budget, which would undermine the Government’s top priority here. Of course we will retain flexibility as negotiations progress in how we allocate spending, but I am going to do nothing this afternoon to endorse any absolute areas of increased expenditure. I hope that all noble Lords will understand why that is.

I turn to a few specifics, starting with issues about the common agricultural policy which were raised by the noble Lord, Lord Carter of Coles. We are seeking substantial reductions to the CAP focused on Pillar 1, the direct payments. The Commission proposal does not deliver the reform that we need. Direct payments represent low value for money. The Government are also sceptical about the Commission’s proposals on greening in the CAP. The Pillar 2 rural development is better and we want to see it taking a greater share of the total.

In answer to the specific question of the noble Lord, Lord Liddle, I am sure that he was not seeking to walk me into some trap, talking about rich farmers. That is not how I would express it. The UK is opposed to the Commission’s proposal to cap direct payments to large farms, which is the right way to see it. The CAP should encourage competitiveness, and capping direct payments would discourage that. I am afraid that I do not believe that there is merit in that capping.

On the European External Action Service, the Government do not support the ring-fencing of expenditure. The key is again—this is my constant refrain—to see restraint over the MFF in respect of the EEAS. Of course we expect the External Action Service to show value for money. We have consistently opposed increases in this specific area.

My noble friend Lord Bowness asked about the need for more judges. Yes, the Government are aware of the large backlog of cases facing the ECJ. We support reforms that would enable the ECJ to operate more efficiently. We hope that ECJ capacity will increase as a result of cost-effective reforms, which are achievable.

The noble Lord, Lord Harrison, asked about support for transitional regions and other structural and cohesion funds. The overall levels of the structural and cohesion funds should fall in real terms. The SCFs in rich member states should be cut significantly, and a greater share should be seen to go to poorer member states. The Government do not believe that the transition regions as proposed are affordable. Yes, the UK’s opposition to the transition category would reduce our share of receipts, but remember that two-thirds of this loss would be offset by the way in which it flows through the calculation of the abatement, a subject to which I will return.

The noble Baroness, Lady Young of Hornsey, mentioned ERASMUS, and ERASMUS for All can certainly add value. Again, the increase proposed is unacceptable. The Government can accept an increased share only within the envelope of a real-term freeze. Within that, among other things, the Government support the inclusion of a reference to grass-roots sport. Yes, of course we recognise the important contribution which cultural and creative sectors make to job creation and growth but, again, with the same caveats that I will not repeat.

In broadly similar territory, the noble Lord, Lord Kakkar, raised the question of the Connecting Europe Facility. He was quite right to draw attention to the 400% increase proposed in that area. Negotiations do not include specific numbers, but it is clear that substantial reductions will be needed from what is proposed.

Those were some issues on the budget—but, as noble Lords have pointed out, it is not the only priority. The MFF represents the only true opportunity for the EU to introduce a new system of own resources, the system that funds the EU budget. I share the strength of view of the noble Lord, Lord Liddle, on these issues. I hope that the noble Lord is absolutely clear that we will defend our rebate. I assure the noble Lord, Lord Williamson of Horton, that we will not trade with the abatement as has happened in the past. We will resist any change to the abatement; our abatement remains absolutely justified. The structure of EU spending means that we get less per capita than any other member state. Without the abatement, the UK’s net contribution would be the largest across the EU and twice as large as contributions made by France and Italy.

Ideas for new taxes have also been touched on this afternoon. Again, noble Lords will not be surprised to hear that the Government strongly oppose any new taxes to fund the EU budget. We attach considerable importance to the principle of tax sovereignty; we oppose any new taxes or changes to the existing system that increase the UK’s contributions or pose a threat to our long-term position—including, specifically, any financial transaction tax to fund the EU budget. We cannot accept a budget that asks for more and asks for a greater share from taxpayers and the UK.

In answer to the points made by the noble Lord, Lord Giddens, if the eurozone moves towards greater fiscal integration and imposes taxes on some joint basis within the eurozone, that will be for the eurozone. Our main concern in that context will be to see that nothing that is done affects the single market and how that is driven forward. The noble Lord also raised the question of project bonds. As I said on other occasions, yes, we will look sympathetically at detailed proposals if and when they come forward.

The MFF represents the opportunity for a far-reaching review of the spending framework. We must focus on combining stability with flexibility and building on the work going on across Europe to improve spending frameworks. We are faced with a liability of unspent commitments, which will soon be worth the equivalent of two annual EU budgets. Again, this is incredible. Of this, the Commission has said that almost €70 billion is “higher than expected”. This is extraordinary. This mountain of unspent commitments has, in the Commission’s own words, created a “snowball” effect on payment levels. We need real, practical solutions to address this liability. So far, the Commission has rejected every suggestion from member states.

The basic credibility of EU spending depends on orderly accounting. We have touched on it many times in your Lordships’ House, but nevertheless it is still astonishing and disappointing that the European Court of Auditors has not granted a positive opinion on the EU’s accounts for 17 consecutive years. This system must focus on the level of cash payments—actual spending—that the MFF will allow. Instead, the Commission continues to focus on commitments and on planned spend. Payments determine the cost to the taxpayer. The Prime Minister made this clear in his letter in 2010.

The Government took tough decisions at home and will continue to encourage our European counterparts, member states and the Commission to take the difficult decisions to cut deficits and tackle the root causes of the ongoing crisis. The current Commission proposal for the MFF is completely incompatible with the decisions being taken in finance ministries across Europe, with the realities felt by taxpayers across Europe and even with the views of President Barroso, who in June last year argued that:

“Many Member States need to show more ambition when it comes to fiscal consolidation”.

The MFF must deliver real fiscal consolidation. This cannot be achieved with substantial increases in the budget, new taxes to fund the EU budget or unreasonable changes to the UK’s abatement. This will be a tough negotiation but the Government are prepared to meet that challenge. We will be working tirelessly towards a deal, but it has to be a deal on the UK’s terms and has to be informed by the excellent work of this committee and the many points that have been made in this debate, for which I am very grateful.

My Lords, I am very grateful to all those noble Lords who have participated in this debate. I am conscious that the hour presses now, so shall respond only very briefly. The contributions that have been made have reinforced the opinion I have already formed in the first month of work on the EU Select Committee as to the tremendous reservoirs of expertise we have, both in the members and in the staff of our sub-committees and main committee. That has come out very closely and clearly in this debate today, in what is a very technical and at the same time a very important subject. I am grateful for that.

I am also grateful for the Minister’s response. All of us are conscious of, and many of us have direct experience of, the sensitivities of going into a negotiation and the need to have the right kinds of signal to do that. I can probably speak for nearly all the members of the committee and sub-committees in saying that we want to see the maximum amount of flexibility and imagination in the negotiations in terms of the particular options that can be taken and some of the particular interests that have been mentioned today. Even if we may not absolutely coincide with him on the exact framework, many of us would welcome the fact that he has shown a commitment to rigour and so forth. That is not a card to play or throw away at this particular juncture, so we are grateful for the way he has put that and responded. It has contributed to an understanding for which I am very grateful. In that spirit, we wish the negotiations well.

Motion agreed.

Science and Technology Committee: Nuclear Research and Development

Motion to Take Note

Moved by

To move that the Grand Committee takes note of the report of the Science and Technology Committee on Nuclear Research and Development Capabilities (3rd Report, Session 2010-12, HL Paper 221).

My Lords, I start by thanking the members of the Science and Technology Committee, including the co-optees for this report, for their excellent contributions. I also thank our specialist adviser, Professor Robin Grimes of Imperial College, for his wise expert advice. I also thank the Minister for the Government’s response to our report, to which I will refer shortly.

This report of the Science and Technology Select Committee is about the credibility of the Government’s plans for nuclear power in the future. Nuclear energy currently supplies about 16%—12 gigawatts—of the UK’s electricity, which is down from 25% 15 years ago. Nine of the current fleet of 10 nuclear power stations are due to close down in the next 13 years, by 2025. The Government have announced that they will build a new fleet of nuclear power stations to replace those that are going out of commission. The new fleet is to be built by the nuclear industry, and the aim is to build up to 16 gigawatts of power by 2025. These new power stations will have a lifespan of 60 years. We are talking about energy generation during the bulk of the remainder of this century.

Looking further ahead, to 2050 and beyond, it is expected that nuclear power will provide a larger share of our electricity than at present. Various scenarios produced by the Government and by advisers suggest that between 15% and 49% of our electricity will come from nuclear power, but it is likely to be well above the minimum of these scenarios. Why is that? The Government’s policy on energy supply has to meet four objectives. The first is security of supply; the second is affordability; the third is to meet our legally binding greenhouse gas targets; and the last, but not the least, is safety.

On the third of these, the Committee on Climate Change, the Government’s statutory independent advisory committee—I declare an interest as a member of it—has suggested that, in order to meet our greenhouse gas targets, by 2030 the electricity supply will have to be largely decarbonised. This is likely to be achieved through a portfolio that could include 40% nuclear, 40% renewables and 20% fossil fuels, mostly with carbon capture and storage. In this mix, nuclear energy is a proven, low-cost, low-carbon option. In short, if we are to keep the lights on with a lower carbon footprint, and if we are to be able to pay to keep them on, we are likely to depend to a substantial degree on nuclear power.

This is the starting point for our report, which is not about the arguments for and against nuclear power. We take it as given that nuclear energy will be part of the future mix, and we asked whether the Government have a credible plan to deliver this. Our inquiry concluded that the Government do not have a credible plan. This was the view of all the expert witnesses, including those from the UK and overseas, and including the Government’s Chief Scientific Adviser and the chief scientific adviser in the Department of Energy and Climate Change.

We asked whether the UK will, in the decades ahead, have a sufficient supply of expertise, as well as the research and development capabilities, to support an expansion of nuclear energy. We concluded that, although the UK still has strengths in the nuclear field, they are largely the result of past investment. Many of the leading experts will retire in the next decade and, because of a lack of investment and vision by the Government, there is inadequate succession planning. Without a new generation of experts and a new focus on research and development, the UK will not be able to act as an intelligent customer for new power stations, as an effective regulator or as a contributor to the development of new nuclear technologies by UK industry. These functions are all necessary, even if the Government were to adopt what might be called an “Argos catalogue” approach of buying nuclear power plants from overseas companies.

Remarkably, in our inquiry, the Government did not even recognise the problem that they face. They presented an extraordinarily complacent view about the future. To quote one senior official in the Department of Energy and Climate Change, the Government’s strategy is to “keep a watching brief”. I can only speculate that the DECC official, when referring to a “watching brief”, was thinking of Euro 2012, Wimbledon and the Olympics. I doubt that the next generation of young scientists and engineers will be attracted by the vision of a “watching brief”.

Nor will UK industry be able to capitalise on the estimated £1.7 trillion global market for nuclear technologies in the years ahead. I will give some figures about our investment in R and D. Since the 1980s, the nuclear R and D workforce in this country has declined from about 8,000 to under 2,000, counting both public and private sectors. From the figures we had available, up to 2009, our investment in nuclear R and D was lower than countries such as Australia, which has no nuclear energy programme, half that of the Netherlands and Norway, and one-100th of that of France. We spend a smaller percentage of our energy research budget on nuclear energy than any of the 17 countries for which we had comparative data. Our international partners view our lack of investment with disbelief.

The UK also does not make the best use of facilities it has. At the National Nuclear Laboratory, to which we paid a visit to see this with our own eyes, there are state-of-the-art facilities for handling hot radioactive material that have never been commissioned. They could be an attractive facility for international collaborators, but we are simply not using them.

It appeared to us as though the Government were setting out on a journey to a nuclear energy future without a map of how to get there, without a driver and without anyone to repair the car if it breaks down on the way. What needs to happen? Our report made 14 recommendations. I do not propose to go through all 14, and I am sure that other noble Lords will refer to various aspects of our report. A central recommendation is that the Government need a nuclear energy strategy and, to underpin this, a research and development road map as well as a body to make sure that the road map is developed and implemented. That body, which we called the nuclear R and D board, should, we argued, have a powerful independent chairman and include experts from all key stakeholder groups. We argued that it should develop the vision and drive that is currently lacking, and it should hold the Government to account. In implementing this, there is no time to waste. If the Government continue to “keep a watching brief”, there may be no lights by which to watch the brief.

What have the Government said in their response? I will first give the good news. The report seems to have acted as a wake-up call. The Minister of State for Universities and Science said that nuclear issues are:

“High on our agenda… after a challenging report from the Science and Technology Committee”.

Furthermore, the Government have accepted the majority of our 14 recommendations in full or in principle. No doubt other noble Lords will pick up on other recommendations. We very much welcome this positive response. Crucially, the Government will publish a long-term strategy for nuclear energy, including an industrial vision statement explaining how the research base can support the global economic opportunities in nuclear technology. This strategy is due out in the summer. Judging by our weather, the summer has been postponed this year; I hope that that does not mean that the strategy will also be postponed.

The Government have also established a nuclear R and D advisory board, chaired by the Government Chief Scientific Adviser, whose job is to co-ordinate effort and to create the R and D road map to underpin the nuclear strategy. This road map is due to be published at the end of the year, and I hope that it will have real teeth. It should set out clearly how the Government intend to make appropriate investment in nuclear R and D, how this investment can be harnessed to support product development by UK industry and how the training of the next generation of scientists and engineers will be achieved.

The government response leaves many questions unresolved, and I hope that the Minister will use the opportunity provided by this debate to update us on progress and thereby shine light, perhaps even light generated by nuclear power, on some of these unresolved issues.

I have four questions for the Minister. First, will the R and D advisory board continue, as we recommend, with not only an advisory but an executive role in the future and who will chair it? Will it be established as a non-departmental public body as we recommended? Secondly, will the Government reinstate the UK’s membership of the so-called Generation IV International Forum, the body that will shape the next generation of nuclear power stations, or are we to remain in the stands as observers? Thirdly, have the Government decided that they will now commission the currently unused state-of-the-art hot facilities at the National Nuclear Laboratory? Fourthly, do the Government plan to implement our recommendation for the re-establishment of the Nuclear Safety Advisory Committee to provide independent advice and challenge for the Office for Nuclear Regulation and challenges to it? This country rightly has an outstanding international reputation for nuclear safety, evidenced by the fact that our chief nuclear inspector, Dr Mike Weightman, was chosen by the international community to report on the Fukushima incident in 2011. It is crucial for our nuclear future that this outstanding reputation is maintained.

I look forward to the debate and to the Minister’s answers to these and other questions. I commend this report to the House. I beg to move.

The noble Lord, Lord Krebs, has given a splendid introduction to this debate. I might add that he was an excellent chairman of the committee and mention one particular contribution. One weekend he took home what many of us regarded as not a very good summary of our report and came back with an electrifying one. That substantially laid the foundations for the report’s success and its result.

Given the response from the Government, which I shall refer to in a moment, I do not hesitate to say that this has been a very influential report, perhaps more so than some other science and technology reports of recent years. I hope that I am not breaching a confidence when I say that the Minister of Energy asked the noble Lord, Lord Oxburgh, and me, two co-opted members of the committee, to go and see him. He wanted to discuss one or two impacts of the report. The right honourable gentleman confessed to us that the report had drawn attention to some significant gaps in the Government’s policies for nuclear energy and, in particular, to the need for more research and development. Certainly, the contrast between what the noble Lord, Lord Krebs, rightly called the complacent evidence given to our inquiry by the Government and the far more positive, constructive tone of their response is truly remarkable and very welcome.

This debate is the occasion for looking forward to what is to come and, like the noble Lord, Lord Krebs, I will have some questions for the Minister. It is still clear that there are challenges. Last Thursday I was privileged to host a reception in the Palace at which the University of Manchester and the Dalton Nuclear Institute celebrated their recent award. I might add that Manchester had the foresight to embark on a new nuclear research and training programme well in advance of the previous Government’s change of heart, with the notable speech by the Prime Minister at the Royal Society. Manchester started in 2005, when some of us felt that we were batting away in the dark, banging for a new nuclear programme and not being listened to. The result of the university’s far-sighted decision was the establishment of the Dalton Nuclear Institute. Earlier this year, the institute and the university were awarded the Diamond Jubilee Queen’s anniversary prize in recognition of their,

“internationally renowned research and skills training for the nuclear industry”.

They have every entitlement to be extremely proud of that.

At the reception last week, the director of the institute, Professor Andrew Sherry, who gave some very compelling evidence to our Select Committee, listed what he saw as seven grand challenges over the next decades. I will draw attention to some of these and ask the Government where we are getting to on them. Andrew Sherry’s seven grand challenges are: decommissioning and clean-up; geological disposal; current and new-build reactor systems; spent fuel management; plutonium management; safeguards and security; and future nuclear energy systems, especially the generation 4 system, to which the noble Lord, Lord Krebs, referred. That is a formidable agenda by any standards. However, the Government’s response to our report, and the accounts that I have heard of the work of the R and D advisory board, are encouraging as far as they go. Of course, we await the strategy paper and the promised road map, both of which are strongly recommended by the Select Committee and accepted by the Government. Many of our own more detailed recommendations have to await those documents, although the signs that they will be favourable are good. However, I am very glad that when he gave his response to the committee’s report, the noble Lord, Lord Krebs, indicated that we may well want to return to the issues in the future if we are not satisfied with what we see. This is a hugely important area of government policy and this Select Committee is probably as well qualified as any to press the Government to get on with it.

I would like to ask the Minister about two of the seven challenges. One concerns plutonium management and the other future nuclear energy systems—the fifth and seventh items on the professor’s list. As everybody well knows, plutonium stocks are the long-term legacy left behind after decades of uranium-based nuclear generation. They must be dealt with. They can no longer simply be bequeathed to future generations. We have to find a solution. The Government are consulting on this but they have made it clear that their preferred solution is to build a new Mox plant—a mixed oxide plant—because the one at Sellafield has never worked properly, even though the French have had a very successful Mox plant in France. However, it is already clear that while this would progressively consume the plutonium stocks, it would be unlikely ever to pay for itself by the sales of Mox fuel.

There is an alternative solution, which I have discussed with the Minister and officials in his department—the so-called PRISM process being put forward by GE Hitachi. It would burn the plutonium as a fuel and at the same time generate electricity, so it should pay for itself. It is in fact a new generation nuclear reactor. I understand that GE Hitachi has offered guarantees, and it tells me that it is in detailed discussions with the Nuclear Decommissioning Authority. I was reassured a few months ago by officials at DECC that they are treating it very seriously. Can my noble friend tell us anything more about that and about when we might have a decision? I recognise that the Government’s preferred decisions is the Mox plant, but there seems to be what might be a more valuable way forward through the GE Hitachi PRISM.

In this context, I welcome the noble Baroness, Lady Worthington, to her position on the Front Bench. I think I am right in saying that this is her first time in Grand Committee. We look forward to hearing her speech. I have had a number of exchanges with the noble Baroness since she joined the House, and she has sought to persuade me that the future for the nuclear industry should be based not on uranium but on thorium. It is a perfectly respectable argument in the right places. It has greater resistance to proliferation and other advantages, but I have also discussed this with experts at the National Nuclear Laboratory, and I am persuaded by the force of their arguments. This country has decades of practical experience with uranium. We have developed our widely recognised expertise in the uranium fuel cycle, and there are likely to be ready supplies of uranium all over the world, as far as can reasonably be seen. Thorium may be a proper process for a country that is starting up and has no history equivalent to ours, but I have to point out respectfully to the noble Baroness that I do not think it could possibly be appropriate in this country.

The second thing I shall talk about is future nuclear energy systems. Our evidence convinced me and, I think, most members that UK participation in international programmes—the noble Lord, Lord Krebs, has already mentioned the Gen 4 proposals—is essential if we are to present ourselves as having a long-term nuclear future and the credibility, to which the noble Lord referred, that will be needed if we are to work with other countries. For this, we must restore our reputation as world-class experts with a coherent and cohesive R and D programme. We took a lot of evidence about this. We still have great strength in certain fields, notably the fuel cycle field, but without such a programme, the rest will just dissipate and disappear.

How can this be done? One of our proposals was that, quite apart from the overseeing board, to which the noble Lord, Lord Krebs, referred, we need a top, high-level hub around which other research facilities in the country can act as spokes. I have discussed this at some length with the National Nuclear Laboratory and, of course, with the Dalton Nuclear Institute, but there are other institutions. There are ISIS, Diamond Light Source, the universities and so on. We need this hub. In my view, a combination of the National Nuclear Laboratory and, as a university participant, the Dalton Nuclear Institute would provide very welcome technical leadership. As has been said, we have world-class resources. The noble Lord, Lord Krebs, has already referred to the commissioning of the remaining phases of the nuclear laboratory at Sellafield. I, too, went to see them. My noble friend Lord Wade and I went, and they are hugely impressive, but empty. It is an enormous waste to leave them unused and unoccupied when they could help to establish our credibility as having a long-term future.

I ask the Minister what is happening there. Can he give us some understanding that these facilities will be commissioned and perhaps some idea as to how they might be paid for? We had useful evidence that they are very attractive to foreign companies and Governments that would want to do research on highly active materials. They have all the equipment and facilities to do that. However, we need to have this properly organised with an integrated and accessible hub—what the National Nuclear Laboratory described as,

“a focal point and lead organisation to coordinate work on behalf of the Government including international collaboration”.

There is much else in the report that we could refer to, but these are two very important issues in a very important report, and I hope the Minister will be able to offer us some way forward. As I said earlier, my impression is that the advisory board is doing well as far as it goes. However, the Government will need to press this forward vigorously and make sure that the hopes that have been aroused by their response to the report will indeed be realised.

My Lords, I welcome this report, which, as the noble Lord, Lord Jenkin, has said, is extremely well written and constructed and should lead to new long-term policies. I also welcome the unusually constructive government response, by which I refer to the generic feature of government responses, which do not always welcome all sorts of recommendations. This is a good step forward. The report is, of course, mainly concerned with nuclear fission power and the UK context, although it does note the evidence of the director of the UK fusion programme and there is also evidence in it from the director of the Atomic Weapons Establishment. I will come back to these questions but will just declare my own interest. In my own meandering career, I have worked on various nuclear issues such as the fast breeder reactor, fission-related problems and fusion technology. I am now a consultant and adviser to Tokamak Solutions, a project with government and private funding that is looking at possibly linking fusion and fission.

As the report says, the UK has very considerable capabilities in the basic sciences and technologies needed for the nuclear industry. In many areas, the UK was a leader and has a great tradition of collaboration between universities and government or industrial laboratories, which I have participated in. One of the features of having this dual approach to development and research, which is, of course, common to all other countries but which has seen a huge decline in the UK, is that it enables projects to start in the applied area. They then go into the universities, which advise them, and they then turn into research projects, funded by research councils, to establish the basic principles and publish the results in the scientific literature.

Some of the areas where the UK did particularly important work was mathematics, such as that relating to the optimisation of nuclear reactors that began in Harwell. The work there has established the basic methods around the world in many areas of technology including fluid flow, structures in nuclear engineering, electrodynamics and safety. Not everyone knows that Dalton was a meteorologist before he became a chemist. Dalton’s meteorology, as well as his chemistry, was important for safety.

The other important point I want to emphasise is that the model proposed in this report is essentially one of a board, with one or two centres, and university departments. The noble Lord, Lord Jenkin, has, quite rightly, picked up what I also want to emphasise, which is that having a very significant hub makes a huge difference. There was an educational rumpus in the British system around 1990, when Mrs Thatcher—the noble Baroness, Lady Thatcher—was still Prime Minister, over whether climate change research would have one major centre, collaborating with universities, or all the funds would be distributed among existing laboratories. The controversial decision was taken to have the Hadley Centre, which turned into a world-leading institution. In the past, we have had world-leading centres that have been major hubs. The recommendation is not as strong as it might be in this report. Indeed, this has been the basis of leadership in the United States, France, Germany—until it withdrew—and Japan. We should remember the lessons of those countries.

In respect of that point, I worked in the Central Electricity Generating Board laboratory, which is now a housing estate, like many of our former laboratories. The privatisation programme in Britain led to a lot of housing estates taking over laboratories but none of the money from those estates ended up in science. It ended up in various places, which we shall talk about.

On the UK activities of this hub programme, it is essential that it does not just advise the Government. On this, I differ from the noble Lord, Lord Jenkin. It must be seen to be a realistic organisation that works with industry. It must have contracts with industry—that is important—or it will not have credibility.

I see. The hub must be very practical and involved in engineering. I am sorry to sound like a broken record but we used to do that in the old CEGB. We were dealing with problems in power stations and designing new power stations, as well as carrying out research. That led to world-class respect.

The other important point is that there is the possibility of our hub or network using the extraordinarily advanced international computational facilities at the Atomic Weapons Establishment and, as I learnt yesterday from the Financial Times, the new engineering facilities being built at Rolls-Royce for the Trident programme. These will have extraordinary abilities, which we should involve in our programme.

I have a little anecdote on this. When I was a trainee, I was clambering around on a new railway engine that was being built in Vickers. All our equipment there was stamped, “Nuclear facilities: not to be used for any other purpose”. That is the kind of collaboration from which we rather want to move away. The United States has the major nuclear laboratories. It has always combined R and D work on the civil and defence aspects of nuclear energy. I do not see why we should move more in that direction in the UK.

Finally, responsibility for forward strategic planning, which needs to be explicit in the terms of reference of the board and maybe this hub, should include R and D programmes concerned with nuclear waste. This should involve not only geological repositories but new technologies. My noble friend Lady Worthington will doubtless touch on this. It is clear from Russia, China and Korea that it is important to use materials other than uranium, and that, even with uranium, we must find technologies that will use our existing waste as well as new waste. Can we really accept that the UK’s nuclear waste will be stored for ever, until the next ice age, about which the noble Lord, Lord Oxburgh, will perhaps tell us? Surely this is the moment when we should have new institutions with very long-range objectives—at least as long-range as those of other countries, which are certainly working on that timescale.

My Lords, it is a pleasure to take part in this debate. The committee’s chairman has given us an excellent introduction. I, too, commend his chairmanship of the committee and his presentation of our findings today.

The report is primarily about keeping open this country’s options for nuclear energy, which depends on having the technical competence to understand, procure, run and regulate future generations of nuclear reactors. This calls for a wide range of scientific and technological expertise and a steady inflow of capable young people into nuclear science and engineering. The rationale for the inquiry was concern that we might be losing that competence. In spite of a worrying degree of complacency displayed by some government officials, our concerns were echoed by industry and other experts.

Our review of nuclear engineering and science in the UK showed that a substantial amount of R and D work was being carried out. However, there were two problems. The work was being carried out by more than a dozen different organisations, each with its own remit, priorities and agenda. Furthermore, there were no formal means by which these bodies could tailor their programmes to complement each other or to form a coherent national civil nuclear programme. These organisations are listed in the report, and I will mention only two. Our National Nuclear Laboratory, to which the Government assign lofty aims and responsibilities, is run at arm’s length by DECC, receives virtually no direct government funding and its main programme comprises such short-term, applied projects as it can fund through external commercial contracts. Some of its important and strategic facilities remain unused because no customer needs to use them and universities cannot afford them. It is as if the Government do not mind very much what the NNL does, provided that there is no charge to public funds. This situation is viewed with astonishment by colleagues in other countries, as is the minimal level of public funding for nuclear research over the last 20 years. The striking details are displayed in our report.

The second example is our research councils, which decide what science to support on the basis of competitive bids from universities. If the quality of science proposed in a nuclear bid, although high, is judged to be less good than that in another competitive bid, the work is not funded, regardless of any national importance that it may have. Again, this is not a criticism of research councils, which have to operate this way, but it does mean that special arrangements would have to be made for them to fit into any kind of national programme.

Each of the other UK bodies in nuclear R and D has similarly diverse aims and approaches. Unco-ordinated as they are they are, this eclectic mix of activities does have one characteristic in common: nearly all the money comes directly or indirectly from the Government. It would make sense therefore for the Government to exercise some coherent degree of oversight. But who is to do it? The problem is not eased by what appeared to us to be an unsatisfactory interface between the two departments primarily concerned, BIS and DECC. There is no person or body within government that has either the competence or responsibility to take an overall view of our civil nuclear capabilities. It is hardly surprising that we are not viewed internationally as a serious player, an impression that is reinforced when the Government decides on cost grounds that we should not participate in important, collaborative programmes international programmes that other countries see as a means of reducing costs.

It is for that reason that our report urges the Government to both develop a nuclear R and D strategy and establish an independent nuclear R and D board to ensure that the strategy is implemented. These two elements of our report are closely linked and depend on each other. The board should have members drawn from industry, from research laboratories and, indeed, from academia.

The Government’s reply to our report, as our chairman has said, is encouraging. The reply accepts the idea of a national strategy and a road map, and that is welcome. It has also established a nuclear R and D board, chaired by the government Chief Scientific Adviser to advise on next steps. This is fine as far as it goes. Whereas an advisory body chaired by the government Chief Scientific Adviser may be an appropriate interim step, it would be a serious error to regard it as a long-term solution. The government Chief Scientific Adviser has many responsibilities, and whereas his weight would be useful in dealing with the various independent and disparate bodies I have described, it would be unrealistic to expect of him the ongoing commitment of time and effort that will be needed.

Precisely how our nuclear R and D board is implemented or named does not matter. What we need is a high-level expert and influential body with a chairman who can commit several days a month to the job, supported by a small staff and a modest budget. The board must be able to co-ordinate, promote collaboration and commission work in areas where it recognises strategic gaps, whether in research, development or training. Our inquiry did not anticipate that the cost of funding such work would be high, and one witness suggested that an expenditure of around £20 million a year would be sufficient. This funding would enable the board to complement the work of the research councils, the technology strategy board and others, most likely with contracts placed with the National Nuclear Laboratory or perhaps with universities.

Such a commitment to R and D, along with a coherent road map, would also send a very clear, positive message to the nuclear industry. Much of that industry is international and can choose the most attractive location for its manufacturing facilities. This would be seen as a clear invitation to invest here. The recently announced intention to support the Rolls-Royce naval nuclear propulsion facility is to be welcomed and will certainly attract international interest. It would be strongly reinforced by a clear civil nuclear road map and a credible means of implementing it. The key point is that there must be a clearly identified focus of responsibility for ensuring the health and effectiveness of an agreed civil nuclear R and D programme: the road map. The additional cost would be very small. The job is primarily one of co-ordination and ensuring that the country gets value for the money that it is already spending. The opportunity is not only to secure an essential leg of government energy policy but to open up opportunities for industry at home and abroad.

My Lords, during the debate on the gracious Speech, I spoke about this report and described the extraordinary discrepancy between the view, on the one hand, of government officials in DECC and the previous Secretary of State and, on the other, those of almost everyone else, including the Government’s own scientific advisers. I quoted our conclusion:

“A fundamental change in the Government’s approach to nuclear R and D is needed now to address the complacency which permeates their vision of how the UK’s energy needs will be met in the future”.

I went on:

“Those were strong words and they seem to have detonated like a nuclear explosion within DECC. The Government’s response, accepting almost all our recommendations, appears to represent the fundamental change in approach to R and D that we demanded. It also acknowledges, ‘that nuclear power stations have a vital part in our energy strategy’”.—[Official Report, 16/5/12; col. 464.]

I welcomed the change, but said that I remained acutely concerned about the Government’s wider approach and about what I fear is still a possibility, an acute energy security crisis.

Many of my concerns remain. I believe that every member of the committee was deeply disturbed, indeed shocked, by the flaws in the approach of the department over this important area of its responsibilities that were exposed during our evidence sessions. Comforting although it is to have our criticisms and recommendations so comprehensively accepted, confidence was shaken and it will take a good deal of effort for it to be fully restored. What is important now is to see the commitments made in the Government’s response turned into reality.

The publication of the long-term strategy document in the summer, the creation of an advisory board led by the Government’s chief scientist and the development of the promised road map will all be significant steps, but a number of our recommendations are taken no further than the promise that they will be considered by the advisory board and as part of discussions on the road map. As the noble Lord, Lord Krebs, has already observed, many questions are unresolved. The Select Committee will need to keep a close eye on events as they unfold.

This is not the moment to range widely over energy policy and the problem issues I referred to in the debate on the gracious Speech. The coming debates on the energy Bill and the proposed hugely complex system of contracts for difference will provide plenty of opportunities for that. I believe that the nation’s energy security depends on a substantial nuclear component and will listen closely to the debate about whether that will require up-front price subsidies of the initial high capital costs of nuclear to produce competitive low-cost energy over a 60-year life cycle and whether the Government’s complex scheme will provide the certainty and confidence that France’s EDF and probably others will demand if they are to go ahead with the planned nuclear programme.

I leave those vital questions for now. I want to take up two points that arise directly from our report. The first is covered by paragraphs 84 to 86 and the former Secretary of State’s comments about oil and gas scenarios. Those responsible for energy policy have now to face the reality that gas prices are most unlikely to be at the top end of Mr Huhne’s alternative scenarios but are likely to be at the bottom. I shall, I hope, explain as I go on why this is a completely relevant topic to consider in the context of a report on nuclear R and D.

North American gas prices have tumbled due to the successful exploitation of US shale gas reserves. There are vast shale gas reserves around the world, including in Europe and under European waters. They are so vast in China, Mexico and South America that the energy resource geography of the world is likely to be completely transformed. That was the view of Professor Mike Stephenson of the British Geological Survey, who is also the director of the Nottingham Centre for Carbon Capture and Storage, who was speaking at an important seminar I attended yesterday at the Geological Society in Burlington House.

The Government appear to have been playing down the potential for UK shale oil, but the Commons Energy and Climate Change Committee has concluded that a moratorium on extraction in the UK is not justified and the way has been cleared for further exploratory work. That is important because at present we simply do not know how much we have. The BGS’s early estimate for the area being looked at in the north-east is likely to be revised up later this year, and estimates for the rest of the UK onshore will follow. Melvyn Giles, global head of unconventional gas and light oil at Shell, has recently reported that the UK’s offshore reserves are “mind-blowingly big”. At the moment, extraction costs make offshore reserves completely uncompetitive, but developing extraction technology may well change that. Onshore, it seems highly probable that the rest of the world will over the next few years follow the American lead.

The Select Committee’s report was about nuclear R and D; but R and D of one potential energy source cannot, or should not, be carried out in isolation. The reality is that UK shale gas exploration is in its infancy. We do not know how much is down there, onshore or offshore, we do not know what proportion is retrievable and we know very little about the likely cost of extraction. We also have much to learn about the potential environmental impact, given the political need to reassure the public that shale gas can be extracted safely. Almost everything I heard at Burlington House was reassuring, but the truth is that everyone has been caught a little by surprise by the speed of events and there is a need to catch up. Most of the studies produced so far in the US and here lack peer review. There is an urgent need for independent peer-reviewed assessment to identify low risks—the things we do not have to worry about—and those that are high risk that need to be regulated for public safety and to satisfy public opinion. There is a need to collect much more data.

If we are to have a sane energy policy, we need to know much more about these hugely important changes in the world’s energy resources and markets as a matter of some urgency. An article in the May edition of the journal of the Foundation for Science and Technology, entitled “The gas supply revolution”, by Malcolm Brinded, former executive director of Shell’s Upstream International business, provides compelling evidence in support of that argument, whether the primary concern is global warming, energy security or cost.

I believe that DECC should be encouraging a substantial research programme, perhaps jointly with the countries in eastern Europe that have vast reserves but could make good use of our expertise and regulatory experience. The funding councils stand back from such programmes, believing that it is a job for the oil industry, but researchers outside the oil industry have to be more and more involved if we are to get the information that we need. I do not apologise for saying all this on the back of a report on nuclear research. We need to have a properly co-ordinated programme of research that covers the main energy sources. They need to be looked at together. I have no doubt that this is a topic to which the Select Committee will have to return.

I turn to the subject of the UK nuclear industry’s potential,

“contribution to jobs, growth and high value exports”,

to pick up a quotation from the Government’s response. The Times, in a leading article on 11 June, observed that we need,

“to identify sectors, such as creative and professional services, health care and pharmaceuticals, the growth of which could make Britain a net exporter”.

The committee heard ample evidence that, despite several decades of government neglect, nuclear should be included in that list. I refer to paragraphs 67 and 68 of our report, which contain the TSB’s estimate that the global nuclear fission market is worth about £600 billion for new nuclear build and £250 billion for decommissioning, waste treatment and disposal over the next 20 years, with considerable opportunities for UK businesses. Paragraph 68 describes the R and D competition that the TSB has launched for feasibility studies targeted at SMEs, which could become part of a new nuclear supply chain and its likely future round of investment for larger collaborative R and D.

Evidence in paragraphs 72 to 74 suggested that the real opportunity would be,

“‘taking a lead now in the development of some of the technologies for future systems’ so that the UK had an exportable technology in two, three or four decades time and could take advantage of the ‘£1.7 trillion of investment worldwide’ in these technologies”.

Mr Ric Parker of Rolls-Royce told us that,

“there are two clear areas for the UK to play a role in the development of these technologies: the prime investment is in high-integrity manufacturing, monitoring and some of the technical and engineering support for these new facilities”.

He also thought that,

“small reactors, of the 200-, 300 megawatt size … could be a major earner for the UK”.

Paragraph 5 of the Government’s response talked of a commitment to securing the maximum economic benefit to the UK from investment in nuclear power generation. That will require more effective joined-up government, particularly between DECC and BIS, than we detected in the evidence that we received; and more effective international co-operation, something that has already been mentioned by colleagues, including the reinstatement of the UK’s active membership of the Generation IV Forum—our recommendation 5. The encouraging reality is that nuclear is not just a costly necessity but provides a huge opportunity for the growth of a large and profitable international industrial sector. We must seize that opportunity.

My Lords, I never thought that I would, in these hallowed places, praise the Daily Mail. However, last March, just over a year ago, Michael Hanlon, the scientific correspondent, did a great public service in demonstrating the fact that the Fukushima disaster should not turn us away from nuclear energy. He pointed out on 31 March, just three weeks after the accident, that 20,000 people had died in the flooding but nobody had died as a result of the nuclear explosion. He pointed out too that nuclear workers who were trying to deal with the problem might, with their protective suits, at worst—I am speaking as a biologist—have an extra 1% or 2% chance of developing a cancer as a consequence. He pointed out that, at Chernobyl, far more people were killed as a result of a reaction to the explosion than as a result of the nuclear reaction itself. One of the things that Mr Hanlon pointed out in his various writings on the subject was that politicians—I am not referring particularly to British politicians—really ought to have known better, and that we actually need to be much more aware of a balanced view about nuclear power.

I say all that because one of the things that our report focuses on is the issue of public engagement, and the issue of public understanding of what is involved. This is still an issue today. Only yesterday, there was coverage in the Welsh papers about Wylfa B and how PAWB is congratulating itself that the Minister is now dead in the water with his plans for it, while the Minister—Mr Hendry—was pointing out that he would persist with his plans for that part of the world. People have to understand that nuclear reactors actually release less radioactive material than do coal-fired power stations, and that if we abandoned nuclear completely it would increase the amount of nuclear radiation around us.

I have just come back from the Cheltenham Science Festival. It is an amazing event which lasts five days, where scientists from all over and outside this country come to present their various sciences to the public. What was so dissatisfactory and disappointing was that at this outstanding festival—it is probably the best public engagement in the world at a science festival—in 200 representations, events, lectures and various symposia, there was not a single one on nuclear fission. EDF was present with its tent. As the Minister will know, EDF spends some €350 million a year on R and D in this area, and it spends 8% of that in the UK. At this meeting, EDF said privately that it cannot find enough young people to help it with this research and go into the industry. That links in pretty well with what the noble Lord, Lord Oxburgh, said about our need to link with industry.

Certainly, talking to various young people doing nuclear physics at that meeting in Cheltenham, it was obvious that there are some really outstanding scientists. One of my colleagues, who trained at Imperial College, for example, clearly had an extremely promising career but now cannot find any post-doctoral or further research position to continue her work in nuclear physics. This is a terrible blight on our young generation, as it is when we come to recruiting PhD students. With the extreme tension at the engineering office of the sciences research council and the fact that in real terms we have lost 16% of our budget, it is massively difficult to see how we can really maintain this expertise in which we led the world. Only 40 years ago, we were spending nearly £500 million on research in this area. Under different successive Governments—no one Government are to blame—we ended up spending probably a post-doctoral scientist’s research salary and a bit more besides, which is really quite shocking. It is now slightly creeping up, but the pressure is massive and not one that can be undertaken with the constraints that apply to our two research councils most involved in this area. There is also a clear need that if we are really to have the public behind us and with this very important initiative, we have to be seen to be listening to the public much better than we have been doing. Aspects of public engagement have been pretty unsophisticated, and they need to include a recognition that we as scientists have to show our responsibility and concerns about the ethics of what we do and involve social scientists in government to work out how best to do that. This is still a major problem.

Recently in a debate in the Chamber, the noble Lord, Lord Alderdice, argued that we on the Select Committee are not interested in social sciences. I am afraid that he is mistaken. So much of the work that we do is involved in social sciences, and we take it very seriously. Of course, the Engineering and Physical Sciences Research Council has also tried very hard to get involved with things like dialogue and better public engagement and has tried to support it a great deal. But it is really very important that the Government do that. If we do public engagement with the issues involved in nuclear, it is actually a generic area; the skills we would learn from this contentious area apply increasingly to a whole range of technologies as science develops and becomes increasingly important in our society. I hope that the Government can do something towards this and do what is essential to make this a much more acceptable technology, which will I hope be better funded in consequence.

My Lords, we are already at a point in this debate when much that must be said has been said. As the noble Lord, Lord Crickhowell, pointed out, the energy world has changed a great deal since the report was published, but I still believe that it is crucial to retain nuclear power as one of the low-cost carbon options in the UK energy strategy, despite the increasing awareness of the vast potential of low-cost shale gas and concern about the failures at Fukushima.

Nuclear power is the most mature of the three major low-carbon options in our strategy and is vastly better understood in terms of performance, maintenance and cost than offshore wind, let alone carbon capture and storage. However, there is no denying that the possibility worldwide of cheaper natural gas, even if there is not very much of it directly under the UK—although, as the noble Lord, Lord Crickhowell, said, there may be some under the waters adjacent to us—together with, illogically in my mind, the safety concerns resulting from the Fukushima failure that the noble Lord, Lord Winston, has just addressed, have made the nuclear option less attractive, so much so that those who were to supply our new plants have either delayed their commitments, as with EDF, or, in the case of RWE and E.On, withdrawn completely. Of course, there are others who may be willing to build our plants, such as the Chinese and the Russians.

It is, no doubt, because of the change in the general energy supply outlook that the Government decided to introduce contracts for difference to provide a more favourable pricing environment for potential bidders. These CFDs are being viewed by some as a hidden subsidy for nuclear power which, as we all know, the Government have sworn that they would not allow. They argue that the CFDs are available for all low-carbon options, not just nuclear, and that it has always been assumed that it would be necessary to subsidise low-cost carbon alternatives, at least initially. This is not, therefore, in their mind, a subsidy that singles out nuclear. On balance, I agree with that argument and, in any case, I have always felt that the first implementation of any new technology needs some form of financial assistance.

On the basis that this is not the time to abandon plans for maintaining, or even growing, our nuclear base, the recommendations of the Select Committee’s report that will restore and update our knowledge base are powerful and should be implemented. I was highly encouraged by the positive response from the Government to many of our recommendations. I join others in complimenting our chairman, the noble Lord, Lord Krebs, for the strong way in which he led the inquiry and the focus he maintained on the importance of re-establishing a competitive, well co-ordinated R and D base for the nuclear industry.

First and foremost, as no doubt many have said and will say, we need a comprehensive R and D strategy, as laid out in our first recommendation, that looks as far ahead as 2050. The output of this strategy will be a road map, which although it is not stated, will have to be reviewed every few years to ensure that it is keeping up with unpredictable developments. Along with many others, I am pleased that our recommendation to set up an advisory board to oversee and co-ordinate this R and D programme was accepted. As we have heard, the board has already met, but we are yet to learn who is going to pay for all this and for how long the payment will be maintained. Our chairman has said, perhaps in another place, that we may have to return to this to ensure that the programme continues.

I spoke in the Queen’s Speech debate about the need to increase the resources that we devote to R and D in the broader context of the economy, very much along the lines of the noble Lord, Lord Crickhowell. At present, largely because of the dramatic fall in our manufacturing output, we lag far behind our competitors in R and D spend as a fraction of GDP. The dangers of allowing this to happen are no better illustrated than by our current predicament with nuclear power. We can no longer build nuclear plants ourselves and therefore lack the ability to determine our own future.

Fortunately, in the case of nuclear R and D, the Government agree with our concern and with our wish to restore our nuclear R and D capability so that we can support the new-generation plants and better deal with the already existing and giant problem of disposing of our legacy waste. We need not do this in isolation from the rest of the world. We should, as the noble Lord, Lord Hunt, suggested to me yesterday, collaborate with others, especially the French, who have world-leading capability. In giving evidence to us, Mr Bernard Bigot, chairman of France’s Alternative Energies and Atomic Energy Commission, which, incidentally, has 4,500 people working on nuclear energy R and D with a budget of €1.2 billion—the noble Lord, Lord Krebs, referred to the comparison between our 2% effort and theirs—said:

“So I think you should build expertise in your country and share expertise with others in order to strengthen your capacity”.

He made it clear that the French would he happy to collaborate with us.

I finish by asking the Minister to assure us that the Government’s commitment to restore our R and D base in nuclear power is firm and that the full potential of nuclear technology for this country will be realised.

My Lords, I would like to take up the point about public engagement made by my noble friend Lord Winston and the importance of getting people in this country to understand the vital necessity of having more nuclear power capacity.

Twenty years ago, in common with many people in this country, I was opposed to the extension of our capacity for nuclear power. This was largely because of the problems of the disposal of nuclear waste and its persistence in the environment, which have still not been solved. This was reinforced early in my time in the Lords when I was sent as a representative of the Environment Committee to a weekend conference in Iceland on marine wildlife. The main concern of the Icelanders was the radioactive isotopes in their fish, which were traceable to leakages from Sellafield. As a balancing act they hoped that we would agree to their resumed hunting of minke whales. Over the past 20 years, however, I have come to realise that the only effective solution to our short-term energy needs and the overriding importance of mitigating climate change is nuclear power. I therefore support all the recommendations in our report.

One of the great drawbacks of democracy is that it inhibits long-term strategic planning because of the short-term needs of politicians to be re-elected. Nuclear power is essentially an unpopular policy for many of our electorate. It also may require greater investment and mean weaning people off their love for motor cars and dependency on oil. Long-term strategies may also imply government investment and the raising of taxes. Although the Government’s formal response to our report is encouraging, when he gave evidence to us the Minister was extraordinarily complacent, relying entirely on fossil fuel technologies such as carbon capture and storage, which is still at an experimental stage, and fracking, which always sounds to me rather indecent—and which also may be more problematic in this country because of the clay content of our soils and because our oil shales are much deeper than those in the United States. Even if successful, both these technologies will ultimately run out of their basic raw materials. Therefore, I hope that the forthcoming strategy that the Government are to produce will be more realistic about the need for nuclear power.

At the moment the Government seem to have no sense of the urgency of our need for research capacity, which has been underfunded for the past 20 years. We have an ageing population of nuclear scientists and astonishingly have withdrawn from the international forum for generation IV development. Government action is urgently needed now to provide a strategic plan and sufficient investment to ensure the security of this country’s energy supply and the long-term aim of mitigating climate change. So far there is little indication of the necessary urgency.

My Lords, I congratulate and thank the noble Lord, Lord Krebs, and fellow committee members for an excellent report, which seems to have shocked the Government out of their complacency. A number of noble Lords have mentioned that word in relation to the evidence that was given. It seems that the report has engendered a different response and indicated that there is a problem that needs to be addressed. I congratulate the committee on achieving that change.

I will quickly try to summarise a few of the issues raised by noble Lords. The theme that seems to be emerging is that there has been a lack of a long-term strategy. That has been mentioned by a number of noble Lords. There are two clear recommendations on the way to address this. It would be great to hear the Minister comment on those. One is the creation of a hub, where we can our co-ordinate our R and D efforts. The noble Lords, Lord Hunt of Chesterton and Lord Jenkin of Roding, mentioned that particularly. Also, in parallel with the creation of this more coherent strategy, noble Lords are seeking clarity about the status of the advisory body that has been created. Will it be given an executive power, as the noble Lords, Lord Oxburgh and Lord Krebs, have asked?

As the noble Lord, Lord Winston, has said, there seems to be an important public engagement question around nuclear power. I have been doing my own investigations into nuclear power, to which the noble Lord, Lord Jenkin of Roding, has alluded, and it has been a fascinating journey. I have visited many places and have just come back from a trip to the national nuclear laboratory at Oak Ridge in the US. This morning I was in one of the laboratories at Cambridge University that has a great heritage as regards nuclear research. However, all this seems to be slightly frozen in time. Once we were a great nation as regards innovation and pure research into nuclear physics. We have lost that. It is not just us. Other nations, the US included, have gone on to look at other, perhaps more exciting topics, around nuclear fusion or pure particle physics.

How do we get people really excited in the idea that they have a future career in nuclear fission? That is the question. A number of noble Lords have raised this, including my noble friend Lady Hilton of Eggardon. The big imperative here is the tackling of climate change, and the need to move to a low-carbon economy. If we want young people who are interested in that agenda to think “nuclear” in response to that question, we have a challenge ahead of us. It would be interesting to hear from the Government, now that they are out of their complacent mode and into active mode and looking to address this, what plans we have for a much more diverse set of technologies that is discussed in the public discourse around nuclear fission.

My noble friend Lord Hunt of Chesterton mentioned that we have in the past coupled nuclear fission for energy with military purposes, but the spectrum of technologies for nuclear is very broad. At one end it is used for medical isotopes that save people’s lives, and at the very far end you have nuclear weapons. Nuclear power sits somewhere in the middle. I wonder if perhaps a hub cannot be created where we look at the other end of the spectrum, where we bring medical uses of nuclear and power together. That might help with the public engagement question and create new frontiers. If you want to attract people into this sector, they are not going to be excited by small modifications of existing technology that is more than 40 years old. They need a new scientific frontier in which they feel that they can make their mark and have a career that will lead to all sorts of recommendations, accolades and, ultimately, jobs. What are the new frontiers in nuclear fission? That is an important question that we have to think about. We must not simply see this as a limited set of technologies, as we perhaps have in the past. There are more than 900 different reactor designs that could be conceived of; we seem to be fixated only on a narrow range. In terms of public engagement and bringing people into the sector, those are key questions.

A number of noble Lords have made reference to the Government’s proposals for the existing electricity market reforms, the noble Lord, Lord Crickhowell, among them. There is a question over this and it would be good to hear how things are proceeding. We have seen in the headlines since this report was issued a number of changes of state of some of the projects that we were expecting to go forward. Are our plans on track? If not, perhaps we could have some words on how we are going to address that.

The noble Lord, Lord Jenkin of Roding, mentioned our plutonium storage in Sellafield. There are ways of tackling this that go beyond simply repeating the Mox experiments of the past. I will not go into details, but that is a clear need for us. We tend to view, perhaps, plutonium as a liability, but there are technologies out there that could turn it into a very valuable asset. We need to be looking at that, and I hope that it will form part of the strategy.

I hope that I have not glossed over too many of the questions. This is my first time attempting to sum up a debate, and I am very humbled to be here on such an important debate with such eminent people speaking. I will finish there, if that is okay. I again welcome the report and thank the noble Lord, Lord Krebs, and his colleagues for such an excellent contribution and the effect that it has had in galvanising the Government.

My Lords, I congratulate the noble Baroness on her star performance at the Dispatch Box. Of course, there have been star performances overall. We have a galaxy of scientific brains here. I wore my special tie with stars on it because I knew there would be. Of course, this report is a credit to the House of Lords, on which I congratulate the committee and its chairman, the noble Lord, Lord Krebs—and, of course, for his work on the climate change committee, for which we in our department are so grateful. Of course, as you can imagine, a lot of this is way above my head. I was reflecting on my own school report the other day, and pulled it out to see what it said about my science O-level. It was one simple sentence: “This boy will not be a scientist”.

Therefore, it is no surprise that the committee did not call me to give evidence, because I am not sure I could have added much other than some of my limited business experience of a few years. One point that is fundamental to understanding this nuclear issue is that for 27 years we have had no nuclear business. We have had nothing to export and no expertise to grow because there has been no future for the younger generations that have been mentioned to work into. Because there has been no activity in the nuclear world, we have also had the brain drain. I have been quite interested in what this committee would have said had it come up with this report five years ago and am slightly depressed by some things that some noble Lords have said about the Government not doing enough.

I want to mention some of the things that we have done. We have been in power for two years, in which time we have identified and given clearance for eight nuclear sites to go ahead. We have persuaded companies to come back and invest in the United Kingdom. We brought planning back to the Secretary of State so that we can clear the decks for a lot of the planning issues that are there. We have agreed and brought into law provisions, which were drawn in this House, for two new nuclear reactors so that they can be used immediately. We have dealt with the appalling mess, which preceding Governments should be ashamed of, over the decommissioning waste that was left up at Sellafield. I have brought in a plan whereby waste is going to be exported from all of our shockingly badly managed waste pools during this Parliament. We have revolutionised the security of our nuclear power stations and have set a very clear mandate for those investing in nuclear in this country about their security requirements. We have totally overhauled the civil nuclear police force, in a process that has happened very quickly—it is not quite finished yet, but is happening now. We have announced electricity market reform and contracts for difference to set the framework for a clear pathway for investment. On decommissioning, I have persuaded the Treasury, amid the appalling economic climate that we have inherited, to invest £10 billion of new money in our nuclear waste and decommissioning. We have made very significant strides. To touch on a point made by the noble Lord, Lord Jenkin, we have committed and commissioned a business case for a Mox plant, which will solve the huge plutonium pile that we have inherited as a Government.

If that is not enough, think of the backdrop that we have inherited—Fukushima, Switzerland and Germany withdrawing from nuclear as a result, and the appalling balance sheets that E.On and RWE have as a result of Germany withdrawing. I do not need to dwell on it for too long, but we have inherited unprecedented economic conditions that have made investment into anything new by any industries, let alone by Government, extremely vulnerable and volatile. However, it is not all bad. The UK has come out of it as a world leader—not a world leader in the technology but in the way that it reacted to those horrific events at Fukushima. As the noble Lord, Lord Krebs, mentioned, we are indebted to the work of Mike Weightman, who has, in a great credit to our country, been asked to come up with a report for the future of nuclear. We noble Lords have, as a group, responded with great diligence and calmness to all the activity going on, and this report adds to the momentum that we are trying to create.

Because we have now got our inherited nuclear industry into better shape, we have started exporting our skills abroad. It was only last week that I hosted the entire Abu Dhabi nuclear organisation and their security people here. We are now signing a memorandum of understanding and supplying security expertise and waste management expertise to them. We have a draft memorandum of understanding with Saudi Arabia to do the same. Of course, as regards the continued fall-out from Japan, we are right at the forefront of advising on it. It is a question of getting that export focus and the confidence back into our industry. Despite our not being in the vanguard of new nuclear, we still have terrific expertise in this country of which we should be proud.

We readily dismiss the assertion that we are not investing enough in R and D. We have spent £500 million on R and D through the NDA in the past four years. That is not an inconsiderable amount of money. We have invested £20 million on R and D on fission alone in the past four years. Therefore, it is not all bad news. There is a lot of good news. I hope that the committee will give us some credit for that.

I now wish to deal quickly, as I know that the noble Lord, Lord Winston—

I am merely giving the figures concerning investment by the NDA in nuclear R and D. I am very happy to supply the noble Lord with a breakdown of the figures on an annual basis, and as regards fission. I am happy to supply the noble Lord with those figures and place them in the Library.

I will not dwell for too long on some of the specific points that were raised in the debate as the Government have responded to the report. The noble Lord, Lord Krebs, has asked for a credible plan. He knows that the credible plan will be developed before the end of the year. He is absolutely right to hold us to task and to say that we should not be complacent and ensure that we have the right advisory board in place that has executive powers to create the momentum that we are determined to develop. The noble Lord mentioned the Generation IV International Forum. Professor MacKay has been asked to come up with his consideration and advice on that. Again, it is not a case of pushing it into the long grass. We will receive his considered reply and I am glad that he found favour with the committee. The NNL reports to me. I will discuss it in a bit more detail in a minute but it is developing a business case for the new facilities. I suspect that that will be positive. As we know, the ONR is considering what the position will be as regards the Nuclear Safety Advisory Committee and establishment. Therefore, I hope that within the next few months we will have a straight edge on that. We have committed to doing that. That was one of the positive things in the report. As I said, the noble Lord, Lord Krebs, is right to hold us to account and make sure that what we have said takes place.

I have mentioned Mox, to which my noble friend Lord Jenkin of Roding referred. We remain very open-minded as regards PRISM. It is not yet a proven technology. It may be so in time but the industry has on many occasions gone down following the introduction of new technologies which have had disastrous consequences, as, indeed, did the previous Mox plant. However, as I am responsible for Mox I take on board what the noble Lord says.

The noble Lord, Lord Hunt of Chesterton, talked about a plan. However, there is a 2050 plan, which is a long enough vision as far as I am concerned. The noble Lord, Lord Oxburgh, spoke about the NNL. The NNL reports to me. We have just reappointed the chairman. I have been working very closely with him and I am disappointed that the impact has not been seen.

The NNL is a profitable organisation, and it should not be dismissed but its biggest client is a government entity—the NDA. The NNL does a fantastic job; its management team is in the right place, whereas three or four years ago it probably was not. It has done a terrific job in the pay negotiations, which have given certainty to their staff for the future, and I have no doubt that there will be an increase in their activity as, wearing my other hat as the Prime Minister’s trade ambassador, we seek to promote their activity and skill abroad. My noble friend Lord Crickhowell talks about shale gas. In the past few weeks, at my instigation we have set up the office of shale gas assessment to make sure that we can establish public confidence in shale gas. We all know how difficult it is to do things on land in the UK, and it is very important that we establish public confidence.

The noble Lord rightly refers to the abundance of gas in the world—there is effectively 240 years of gas. As I have told noble Lords before, I have been in Algeria recently where they have discovered as much shale gas as there is in America, which will one hopes have long-term effects on our pricing. We have had a record number of licence applications for exploration off our coasts, so one hopes that we can develop that side of things.

The noble Lord, Lord Winston, talks about Wylfa, which is a problem, as we know and as has been well documented in the press, and we are in active negotiations with several parties. I cannot go into detail but they are positive negotiations and clearly we are determined to find a solution for Wylfa, because it is key and the second phase of our rollout. The noble Lord referred with great knowledge to education. If we can get a viable future for nuclear in this country, the jobs will flood back, and we must be there to take them. The universities—and I greatly appreciate the noble Lord’s influence on this—should be there to provide courses for them.

I am grateful to the noble Lord, Lord Broers, for his support and the work that he has done on the committee, and the discussions and input that he had before. The noble Baroness, Lady Hilton, mentioned fission, which is important and not something that we should be complacent about. It is something that we should explore, but we should explore every avenue and create the hub to which the noble Baroness, Lady Worthington, referred, as did the noble Lord, Lord Crickhowell. That is why the manufacturing and engineering capacity through the Nuclear Advanced Manufacturing Research Centre could and does act as the hub, but we must put greater importance on it to achieve the vision that we all have. I am looking at my watch because I am mindful, along with the noble Lord, Lord Winston, that we may be 1-0 down by the time we finish.

There is no doubt that we have to play catch-up, and we all understand that. This report helps us to identify the number of issues that we have and, of course, as a Government, we welcome it. It is incumbent on us all in this Room and in successive Governments to work together. The road map being put together by the Dalton Nuclear Institute and NLL, with input from the committee, has to set out our R and D capability and requirements. The Government have then to put their full weight behind it, not tiptoe behind it. It is key to future growth for this country, as has been mentioned by a number of noble Lords, and it is something very simple for us to attain. We will have the structure in place by the end of the year, and we must vest in it the authority that the committee looks for. Research and development is absolutely fundamental to the future, and as a Government we know it.

As I said earlier, we have a great deal to build on and we must not beat ourselves up. We have enormous skills and capabilities in this country in so many walks of life. We are the envy of the world for a lot of things we do. As has been demonstrated by the ONR with Mike Weightman, we have the expertise; we have Professor Beddington, who has tremendous status in the world, and we have a very good platform from which to develop.

As I said, we have a committed Science and Technology Committee and a Government committed to new nuclear, and I am very pleased to report that we have a company by the name of EDF which only today appointed Bouygues and Laing O’Rourke in a joint venture as a preferred bidder for Hinkley Point C main civil works contract. If that is not a good start, I do not know what is.

My Lords, I have very much enjoyed this debate, and would like to thank all those who have taken part in it. It demonstrates the depth of expertise in this House, which makes such a difference to the quality of debate on important issues such as the future of nuclear energy.

I also thank the Minister very much for his encouraging response. We all accept that the move ahead with a new generation of nuclear power stations and the electricity market reforms are very significant steps forward in the role of nuclear in future energy supply. That in itself underlines the urgency of ensuring that we have an adequate R and D base and skills to procure, regulate and run the new generation of nuclear power stations.

I will not go on in any detail, because the Minister has left me minus one minute to allow the noble Lord, Lord Winston, to get in front of a television. Therefore, I shall delay noble Lords for only a few seconds longer.

I sound just one note of warning about shale gas. Of course, noble Lords are right to reflect that there is a large amount of shale gas in the world—in fact, without carbon capture and storage, enough to fry us all many times over. So shale gas has to go with CCS, which is an unproven technology, whereas nuclear is a tried and tested technology. We must therefore not relinquish our commitment to nuclear because of the hope of shale gas with CCS, unless we are prepared to fry.

I reiterate what has been said by other noble Lords during this debate. We are encouraged by the Government’s response, and thank them for that, but wish to keep our eye on things. I am very encouraged that the Minister has emphasised the executive powers and continuation of the R and D board, and we will want to keep a close eye on that to make sure that the important recommendations that we have made are carried through. I thank all those that have taken part.

Motion agreed.

Committee adjourned at 7.48 pm.