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EU Council

Volume 756: debated on Monday 27 October 2014


My Lords, with the leave of the House I will now repeat a Statement made by my right honourable friend the Prime Minister in another place. The Statement is as follows:

“Mr Speaker, yesterday British forces concluded their combat mission in Afghanistan. I know that the thoughts of the whole House will be with the friends and families of every one of the 453 British soldiers who lost their lives in this long campaign. We will never forget their sacrifice for us. When al-Qaeda attacked the twin towers in 2001 it planned that attack from Afghanistan, operating freely under the Taliban regime. Our incredible service men and women have driven al-Qaeda out and they have built up and trained the Afghan forces, none of which even existed in 2001, so that the Afghans can take control of their own security. I said when I became Prime Minister that I would bring our combat troops home. Today, they are coming home and we should be incredibly proud of all that they have done to keep our country safe.

With permission, I would like to make a Statement on last week’s European Council. Before turning to the issue of our contributions to the EU, let me first update the House on three significant agreements where the UK played an important role: on Ebola, on climate change and on the situation in Ukraine.

First, on Ebola, the world is facing one of the worst public health emergencies in a generation. Playing our part in halting the rise of this terrible disease is not just about meeting our moral obligations; it is also the single most effective way of preventing Ebola infecting people here in the United Kingdom. That is why Britain has been making such a major contribution to the international response, pledging more than £205 million, and sending troops and health workers to West Africa. However, it also means that Britain must use its influence to get other countries to step up their contributions, too.

Before the Council I wrote to all my fellow leaders, urging that we significantly step up our collective response. At the meeting, member states agreed to my proposal to more than double the EU effort by pledging more than €1 billion in assistance. The Council also agreed to increase the deployment of medical and support staff in the region and for member states to guarantee proper care for our courageous health workers.

Secondly, it is vital that Europe plays its part if we are to secure a global deal on climate change in Paris next year. One of the problems we have faced in the past is that instead of just setting a binding target on carbon emissions, the EU has set binding national targets on things such as renewables and energy efficiency. These diktats over how each country should reach its commitments can pile up costs on our industries, consumers and families who do not want to pay any more on their energy bills than they have to. They also create an unnecessary trade-off between cutting carbon emissions and promoting economic growth. At this Council, we have chosen a different path. We have reached a landmark commitment to deliver at least 40% reductions in greenhouse gases by 2030. We rejected any new binding national targets for renewables or energy efficiency, giving us full flexibility over how we reduce our carbon, allowing us to do so at the lowest possible costs for consumers and businesses. This is another example of where British leadership has helped the EU to step up and meet its international obligations, while at the same time protecting our national interest by keeping energy bills down for businesses and Britain’s hard-working families.

The Council also discussed the situation in Ukraine and relations with Russia. We welcomed the Minsk agreement between Kiev, Moscow and the separatists. However, the Council was also clear that much more must be done to implement that agreement before the EU should consider lifting any of the sanctions put in place in response to the conflict and in response to Russia’s actions. The Council welcomed the parliamentary elections that took place in Ukraine yesterday. It made clear that it would not recognise the outcome of any elections organised by the separatists outside the framework of Ukrainian law.

Let me turn to the issue over the UK’s contributions to the EU. I want to be clear with the House how the demand for the UK to repay money has come about and why the scale and timing of this demand is unacceptable. In an organisation like the EU, if your economy grows a little faster or a little slower, then there can be adjustments every year to the amount you pay. In some years the UK adjustment has been negative, as it was in 2008, 2009, 2011 and 2012. In some years we contribute a little bit more. This happens every year. When the UK is growing at 3% a year, and many European economies are growing much more slowly, it would not be surprising to find Britain being asked to pay a little bit more this year. What has never happened is for €2 billion to be demanded. This represents around 20% of our net contribution to the EU last year. Member states collectively are being asked to pay almost four times the highest gross figure requested in recent years.

It is simply not acceptable for the EU to make these kinds of demands, and to do so through a fast-tracked process lasting barely a month. Two billion euros is bigger than many countries’ entire gross contributions. It cannot just be nodded through by the EU bureaucracy as some kind of technical adjustment. It is British taxpayers’ money and it is not small change—it is a vast sum. So this has to be examined in detail and discussed properly. That is why I interrupted the Council meeting on Friday to seek an urgent resolution to this issue. I was supported by the Prime Ministers of Italy, Holland, Malta, Greece, and others. The Council agreed that there would be an urgent discussion with Finance Ministers to resolve this issue going forwards.

It is not just about the scale of the money being demanded; it is also the timetable. The Commission admits that it does not actually need this—indeed, the President of the Commission was not even aware of it on Thursday evening. So there is no pressing need for the money to be paid. There are fundamental questions over the fairness of these payments. For example, the proposal is for funds to be taken from the UK to correct historic contributions to the EU budget dating back to 2002 and to be redistributed based on the current share of gross national income to countries which only joined the EU in 2004 and 2007. It is not just Britain that would lose out. It is perverse that a country such as Greece, at the heart of the crisis in the eurozone, is being asked to find money to pay back to countries like Germany. The revised gross national income statistics on which these adjustments are based are also not yet finalised. The numbers are a ‘provisional estimate’ and the EU-wide process to quality-assure the figures will not conclude until well into 2015. So Britain will not be paying €2 billion to anyone on 1 December, and we reject this scale of payment. We will be challenging this in every way possible. We want to check on the way that the statistics were arrived at and the methodology that was used. We will crawl through this in exhaustive detail.

The events at last week’s Council will not—to use some British understatement—have enhanced the reputation of the European Union in the United Kingdom. As the Italian Prime Minister put it, ‘Even the EU’s founding fathers would turn to Euroscepticism when faced with some of the things that you’ve seen see here’. The European Union has to change. It has to regain trust. That starts by understanding and respecting the fact that these payments and adjustments are about the hard-earned taxes of its citizens. This is just one of the many challenges in our long campaign to reform the European Union. It is vital that we stick to the task. We have already cut the EU budget, got Britain out of the bail-out schemes, vetoed a treaty that was not in our national interest, made vital progress on cutting red tape and completing the single market, and we are leading the push for what will be the biggest bilateral trade deal in history, between the EU and the US.

None of this is easy. Progress is hard-won. It requires perseverance and hard work. We will carry on defending our national interest and fighting with all we have to reform the EU over the coming years. At the end of 2017, it will not be the Brussels bureaucracy or the politicians of any party who will decide whether we remain in the European Union or not. If I am Prime Minister, it will be the British people who make that decision through an in/out referendum. Others who aspire to this office and who refuse to give the British people their say should explain themselves to this House and the country. I commend this Statement to the House”.

My Lords, that concludes the Statement.

My Lords, I am grateful to the noble Baroness, the Leader of the House, for repeating the Statement given by the Prime Minister in the other place.

Let me begin by echoing the words of the Prime Minister about the contribution of our Armed Forces in Afghanistan. On these Benches, as in the rest of the House, our thoughts are with those who have served our country and the families of those who have lost their lives. Britain’s commitment to Afghanistan will continue beyond the handover of Camp Bastion. We must continue to support the Afghan Government through both political and humanitarian aid as well as in our training mission. Every one of our troops who served in Afghanistan can take pride in both their mission and in what they achieved, and our whole country is proud of them. I also echo the Prime Minister’s words about Ukraine and support for its Government.

On climate change, we welcome the climate and energy package, paving the way for the global UN summit in Paris next year. What action will the Government be taking in the coming months to encourage other countries, particularly China and the US, to agree a more ambitious target, sending a clear leadership signal to all countries in advance of the summit next year? Specifically, why was the energy-saving goal watered down from the Commission’s recommendation of 30%? All opportunities must now be taken to strengthen these elements of the package over the coming months.

I turn briefly to the Ebola crisis in west Africa. The whole world has been horrified by the devastating scenes in West Africa, and our hearts go out to the communities that are confronting this threat on a daily basis. We welcome the UK’s efforts to help affected countries. We are proud of the work of our Armed Forces, our health professionals and our aid community. I welcome the fact that the Statement said that member states agreed to increase the deployment of medical and support staff in the region.

I turn to the EU budget change. The Commission’s handling of this matter has been cack-handed and unacceptable and, as the noble Baroness said, has caused consternation in a number of other member states. The urgent priority now is for the Government to pursue all diplomatic means to get the best deal for Britain. We are bound to wonder if they have done due diligence in their handling of what one might term a fiasco. The Prime Minister says that he was made aware of this matter only on 23 October, and the Chancellor said that he had no warning. However, that is simply not the case. These changes to the budget arise from changes to estimates of gross national income, or GNI. Can the noble Baroness confirm that the Office for National Statistics agreed to, and has been part of, the substantial and planned changes to GNI across Europe for the past two years, since 2012? Can she further confirm that the ONS stated publicly in May 2014 that these changes would impact on our budget contribution? It said in its press release:

“GNI … is used in the calculation of a Member State’s contribution to the EU budget”.

Clearly, the Treasury was aware of this. My right honourable friend the leader of the Opposition quoted in another place from a letter from the then Economic Secretary to the Treasury, the right honourable Member for Loughborough, who wrote to the parliamentary committee on Europe a full seven months ago on 11 March. In her letter she said that changes to GNI were going to take place in time for 2014, and wrote about the high priority that the Government were giving to addressing them.

So these changes were planned for a number of years, the ONS publicly declared that they would impact on our budget contribution, and Ministers knew about them and claimed that they were a high priority. Are there any further budgetary adjustments coming down the line that will affect any amounts due or owing—adjustments that are currently not in the public domain? I think that we deserve to know.

It is hard to see how the Prime Minister can maintain his assertion that there was no warning and that Treasury Ministers knew nothing about these changes. Surely the Treasury must have made its own estimates of the impact on the EU budget that would follow. The reason why this matters is that in our view the Prime Minister could have done much earlier what he did at the last minute on Friday when he called for a meeting of Finance Ministers and entered negotiations about this demand. I think we would all be interested to know how he plans to go ahead and sort out this fine mess.

It is clear that the Prime Minister spends all his time negotiating with his party about Europe, when what he should be doing is negotiating with our partners in the rest of Europe about a reformed Europe and getting a better deal for the British people in the European Union. It is the British people who are paying the cost for the Prime Minister’s focus on his party rather than working in the best interests of the country.

My Lords, I am grateful to the noble Baroness, Lady Royall, for her comments in response to mine on Afghanistan and Ukraine.

In starting my response to the points that she has made, it is important for me to make it clear that the Prime Minister played a leading role in Brussels last week on climate change and Ebola, two very important matters on the agenda at the Council meeting. He achieved very good results that were good for Europe and for the United Kingdom; they felt right and they felt fair. This is in stark contrast to the way in which the previous Government approached some of the negotiations on matters such as climate change in the past. The same cannot be said, though, in terms of it being right or fair, when we consider what happened on the EU budget surcharge.

Taking the questions that the noble Baroness put to me, and starting with climate change, the target of at least a 40% reduction in carbon emissions has been described as ambitious, but it is a very sensible one. The way that we are approaching this, in not having the subtargets as binding agreements on member states, is very important. However, we are now in the best possible position to push our international partners, such as America and China, to bring forward ambitious climate pledges to reach a global deal next year.

On Ebola, the noble Baroness was right to say that the Prime Minister succeeded in ensuring that we attracted a financial commitment from member states, so Europe as a whole now will be contributing €1 billion to fighting Ebola. However, it is not just about the money; we also got a commitment that other European member states will help with their healthcare workers and ensure that they travel to affected countries. This is something that we need to continue to apply pressure on and ensure that we all do our fair share in ensuring that Ebola is properly tackled out there in west Africa.

As far as the budget is concerned and the points that she made about the surcharge, I do not think that it is right to focus on who knew what and when. What people really care about is how much is being demanded and the fact that this amount is unprecedented in the level that is being sought by the EU. It is true to say that there is a process every year that is standard in calculating these contributions, but it has never led to the kind of demand that we have seen on this occasion. Importantly, with regard to the level that the UK is being asked to contribute, no member state will know what amount it is being required to contribute in terms of its net contribution until it is clear what amount the EU is going to return, having identified what the countries’ gross contributions are. It is the net contribution that is key in this context, and it is that net contribution that the Prime Minister has made clear is absolutely unacceptable. He has made it clear that the way in which the European Commission has behaved in going about this process is not right, and that is something that we will ensure is properly addressed in the way in which the Prime Minister has described today.

My Lords, we now have 20 minutes for questions on the Statement. I remind noble Lords that it is not a short debate. Noble Lords are asked to keep their questions short so as to enable others to follow.

My Lords, does my noble friend accept that it is quite acceptable for the EU to want to recalculate the basis for calculating gross national income? However, why does this tax have to become retrospective? Can she explain to us why this has to be a retrospective exercise? Why is it not just being taken forward from here, if we get the agreement of Ministers, with the tax applying in the future, not the past?

My noble friend has highlighted one of the issues that we have to explore in greater detail in the process of talks that will start in the emergency discussions between Finance Ministers later next week.

My Lords, I think we can all agree that the figures that have been produced need to be pored over in the greatest detail and justified, if they are justifiable. However, we have all read in recent days and weeks about the domestic changes that we have made to the calculation of GNI. I ask the Minister —as the Government seem to have been quite coy about this—whether, in the recalculation of GNI, we have included two service industries that have not been included previously, one of which is the illegal drugs trade and the other prostitution. If that is the case, what was their contribution to the increase in GNI and are we in fact the victims of our own success in boasting about the growth of GNI?

There is a lot of talk going on at the moment and many suggestions are being made. People are trying to complicate yet further something that is already incredibly complex. As the Prime Minister has been emphatic in saying, this is a standard process that happens on an annual basis. The UK expects to play its part in this process in the way it has done in the past. What has not happened before, but has happened this time, is this kind of demand being made at this sort of level. We need to understand the detail before we can go any further forward on this matter.

My Lords, I associate myself with the Prime Minister’s remarks on the drawdown from Afghanistan in offering our deepest support for the 453 men and women who gave their lives in that cause. I also say to the Minister that we must not forget the many thousands who have been injured and maimed and who continue to live. We must remember our obligation to them as well.

On the EU budget contribution, does the Minister agree that since these reservations, voiced by Eurostat, go back to 2002—indeed, I understand that there were six reservations—they would have been known about by the Labour Government in all the years since 2002, and that the statistics that needed to be looked at have not come out of the blue for either side? Will she tell the House whether the emergency Finance Ministers’ meeting on 7 November will hold bilateral discussions with the other eight states that are similarly affected in order to build a consensus that this cannot go down the route which the Prime Minister is resisting and which they are trying to make him take? Will she also tell the House whether I am right to say that the amount sought is 0.01% of GNI?

My noble friend is right to remind the House that in the context of Afghanistan we must also remember those Armed Forces personnel who were very badly injured through their service on our behalf in that country. I am grateful to her for reminding us of that.

On her point about bilateral conversations on 7 November, I do not have the detail about the way in which the meeting and the conversations are going to be constructed that day. However, it is important for us to be clear that other member states are affected by this and that they feel as strongly as we do. The Italian Prime Minister has it made clear, as he said when he was talking about the demands put on some member states by the surcharge, that this is not a figure but a lethal weapon. On my noble friend’s specific point, I may have to write to her if I am not able to give her an answer during the course of answering the Statement.

Will the Minister confirm that the GNP funding stream was invented here in London, was introduced 20 years ago and has worked extraordinarily well for this country in comparison to the old VAT-based stream? Will she also confirm that the reason the sums are large is that the refund to those who have overpaid is a multi-year refund, covering up to 20 years? Furthermore, will she confirm that for the United Kingdom to refuse to contribute to those who have overpaid would be illegal, unreasonable, unwise and unjust?

As I said in an earlier response, the Prime Minister is clear that this demand, and the scale of it, have come out of the blue without any proper preliminary discussions. We now have to consider it very carefully and in great detail, and that is what we are going to do.

My Lords, in all the hullabaloo about yet another £1.7 billion of our taxpayers’ money going down the drain in Brussels, I notice that the Statement fails to mention a brilliant new spending spree to which the Council agreed—a mere €300 billion over 2015 to 2017. However, the Council conclusions mention it on page 10, where it is referred to as the,

“Strategic Agenda for the Union in Times of Change”.

Can the Minister tell us what the UK’s share will be of this new €300 billion and when we will pay it? Presumably we are looking at about another €30 billion or so over the next two years. Can she also tell us whether the Prime Minister was a party to this further lunacy or whether he was outvoted?

The package to which the noble Lord refers is the new investment package that the new Commission is proposing for the eurozone. Clearly, if it is the eurozone, that does not include the United Kingdom.

My Lords, is not the real and deeper lesson of this whole budgetary saga that the European Union administration is struggling to cope with a 20th century, highly centralised EU model in 21st century conditions that are completely different and in which these heavily centralised provisions no longer operate or are even necessary? Are the Minister and the Prime Minister not right to focus on the need for fundamental reform, such as many people throughout Europe, as well as many Governments, are calling for, and on winning the allies to build up a course for a better European Union that will fit 21st century conditions?

My noble friend is absolutely right. That is what the Prime Minister is seeking to do and he is attracting a great deal of support from other member states in reforming the European Union, because it is clear that that is what needs to happen.

My Lords, the Prime Minister is putting it about that there is nothing he could have said or done about this until he knew the full details, which happened only on Thursday, and the Minister has been trying to defend him on that basis. However, is that not complete and obvious nonsense? It has been known for many months that these negotiations were continuing between Eurostat and the ONS. Anybody half awake would have known that, even if the recorded growth discrepancies in any one year were fairly small, resolving the whole matter by a single payment could amount to paying a very considerable cash sum. All that the Chancellor and the Prime Minister had to do was simply to follow carefully, via the ONS, how the discussions were proceeding to see whether that danger was materialising. They monumentally failed to do that: they took their eyes completely off the ball and have no one but themselves to blame for the surprise that they found on Thursday and Friday.

I know that the noble Lord follows European matters quite closely but, from what he has just said, he is clearly not familiar with this process, which happens every year. Each country puts forward the calculations of its own measures and then the Commission has to look at each country’s submissions alongside one another. It then proposes what will be refunded in the light of that. No nation state will know the net payment until the last minute. That is why all of the nation states that were affected by this dramatic increase were as surprised as Mr Cameron.

Will the Minister not agree that it is sad that we should be welcoming, as I welcome, the three points on which the Council made great progress with British leadership—climate change, Ukraine and Ebola—but yet again we are caught up in one of these kerfuffles? Would the noble Baroness not accept that, frankly, to suggest that the Prime Minister only heard about this from the British Permanent Representative in the car on the morning of the meeting, when the matter had been notified by the Commission about 11 months ago and had been agreed with various emanations of the British Government in the summer, is not credible? There was a slip-up somewhere and the Prime Minister was not properly briefed; that is surely the truth of the matter.

Given the point of the noble Lord, Lord Kerr of Kinlochard, about the great benefit to this country of the switch from TVA to gross national income calculations from the time of the Edinburgh European Council in the 1990s onwards, would it not be helpful to the House if the noble Baroness were to let us have the Treasury calculation of just how much Britain has benefited over the years from having a GNI calculation? It is surely also important to recognise that the EU is not the only organisation that works in this way. The United Nations assessed contributions are based on GNI calculations; no doubt our GNI contribution will go up a bit as a result of the success of the Government’s policies. This is the normal way in which these organisations work. Should we not be a bit calmer about it?

I have tried to make it clear, both in the Prime Minister’s Statement that I have repeated and in the responses I have given to points made today, that the Prime Minister has been very active in taking a leading role in Europe, both on the specific agenda items that I have talked about and in saying that we believe, as do others, that the European Union needs to reform. The Prime Minister is absolutely clear that there are real benefits to this country from being in Europe and he has spoken loudly about those benefits.

However, the situation in which we find ourselves with the budget on this occasion cannot be as the noble Lord describes. Why are other European leaders also surprised to find themselves in receipt of a big bill, as the UK was last week? I will see whether there are any specific further data that I can share in response to the noble Lord’s point, but I say to him that people in this country see the benefit of Britain’s place in Europe. They see that it has an important place in achieving some important international objectives, whether about Ebola or climate change. However, those successes and important advances do not come at any price. The way in which the European Union sometimes behaves and operates means that it lets itself down in the eyes of the people who have to fund its membership.

My Lords, does my noble friend not agree that what the noble Lord, Lord Hannay, describes as a “kerfuffle” is about £1.7 billion? We have not got any money. We are borrowing money in order to pay our bills. Surely the point is that the European Union is spending too much. It simply cannot issue continuing demands as it has and argue that that fits some formula or other. Will my noble friend note that the Opposition have singularly failed to indicate whether they would pay this money or not? The truth is that they are a pushover as far as this is concerned. Is my right honourable friend the Prime Minister not right to try to get the European Union to put its house in order and live within its means, as everyone else has to do?

My noble friend is absolutely right on every point. I would add that we should remember that it is not clear for what purpose the European Union needs this extra money, and that this is an organisation whose accounts have been qualified for many years.

My Lords, I pursue the point of my noble friend Lord Tomlinson because I was a bit puzzled by the answer. To what extent has the increase in GNI been caused by estimates for drugs and prostitution? Is this the first time that we have done that, and how large were those figures? Above all, were they accurate? Are we not, in fact, making it difficult for ourselves by adding in such figures in such a way that we are then being hit on the head by Brussels?

The noble Lord is focusing on the wrong thing. What is vital is that we have been presented with a massive bill which is wholly unacceptable and have been given a wholly unacceptable timeframe in which to pay it.

I think that the noble Lord has already had a go. Is it not the case that the agreement on climate change, happily, does not amount to a row of beans? The official conclusions say that,

“all Member States will participate in this effort, balancing considerations of fairness and solidarity”.

In other words, there is no target for any individual member state, and I commend the Government for having made it clear that energy policy is the responsibility of member states, not of the European Union as a whole, so it does not mean anything.

Is not the fundamental question of the contributions a problem? While the late Lady Thatcher succeeded in securing a substantial improvement in the net contribution which we paid, not only was that net improvement insufficient to do us justice but the previous Labour Government also gave a large part of it away in exchange for a promise of reform of the common agricultural policy, which has not happened. This is why the issue is so sensitive. We already pay more than our fair share into the European Union budget.

My noble friend is absolutely right to point out that the previous Government gave away our rebate, to the tune of £2 billion. That has really affected the demands that Europe makes on our budget.

On my noble friend’s point about climate change, I certainly disagree with his description of what has been agreed in Europe on emissions reduction targets of 40%, but I say to him and the House that the way in which we have reached that agreement is different from the way in which previous Governments did so. We have made sure that we are able to retain flexibility in this country and are able to deliver on these targets in a very cost-effective way.

Will the Minister accept that there are a number of people besides myself in this House who would like a clearer answer to the questions asked by the noble Lord, Lord Kerr, who has great experience and knowledge of these matters? I would be grateful if she could look at them in Hansard tomorrow and put answers of some type in the Library. They are important. I know that they are complex, and I am not necessarily saying that she ought to have the answers at her fingertips, but I would like to hear them.

Finally, as long as the Prime Minister keeps giving into and appeasing those in his party who want to take us out of Europe, sooner or later they will push him into a corner, where he will have to abandon that appeasement. Frankly, he needs to stand up and fight for whatever it is that he believes in.

On the question asked by the noble Lord, Lord Kerr, and reinforced by the noble Lord, Lord Hannay, as I have already said, I will see what it is possible for me to provide by way of a written answer. As to the noble Lord’s broader point, I restate that the Prime Minister is absolutely committed to securing good reforms in Europe. He is approaching this in a very constructive way because he wants to see a Europe that works properly for the people of Europe. That is what he will succeed in achieving. When he has done that he will hold a referendum in 2017 in which people will have the final say.