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EU Budget Surcharge

Volume 757: debated on Monday 10 November 2014


My Lords, I shall now repeat in the form of a Statement the Answer given by my right honourable friend the Chancellor of the Exchequer to an Urgent Question earlier this afternoon in the House of Commons. The Statement is as follows.

“Last month the previous European Commission presented Britain with a bill for £1.7 billion, which it insisted had to be paid by 1 December. The Prime Minister spoke for taxpayers when he said that was completely unacceptable, and we set out to get a better deal. After intensive discussion with the new Commission and at the ECOFIN last week, we have achieved that.

I can tell the House that we have halved the bill, delayed the bill, will pay no interest on the bill—and have changed the rules of the EU so this unacceptable behaviour never happens again. Let me briefly give the details.

At the European Council last month, the Prime Minister made it clear to the Barroso Commission that, while annual adjustments to contributions were a regular part of EU membership, a sudden and unprecedented demand for a £1.7 billion payment on 1 December was unacceptable. He got agreement of all 28 Heads of Government that it should be discussed by the Finance Ministers urgently.

That meeting took place last Friday, and followed two weeks of intensive and constructive discussion with the new Budget Commissioner—Vice-President Georgieva—and other member states. As a result of those discussions, we achieved unanimous agreement that, first, expecting payment on 1 December was indeed unacceptable. Therefore, the budget rules will be rewritten to allow for a delay in any payments, and in Britain’s case that means we will pay nothing this year, and instead make payments in two instalments in July and September, in the second half of next year.

Secondly, the suggestion that we might have to pay interest charges was rejected. It was unanimously agreed that there would be no interest charged on these delayed payments.

Thirdly, in our discussion with the new European Commission, it was agreed that a full rebate would apply to the British payment, and that this rebate would be specific, extra to any other rebate we might expect next year, and, for the first time ever, be paid simultaneously with any money owed. It was not clear we would receive a rebate, let alone such a large one. No one in this House suggested we would. Indeed, it was only confirmed to us by Vice-President Georgieva on 6 November—last Thursday evening. It means that Britain’s payments have been halved from £1.7 billion to around £850 million.

Finally, all member states agreed with us that this entire episode was unacceptable. A deal was reached to make a permanent change in European law so it never happens like this again. In the face of this budget challenge we have far exceeded the expectations or predictions made by those before Friday’s meeting. We have achieved a real result for Britain. But this is only the first step of the reform we need in Europe—reform that we on this side of the House believe should be put to a vote of the people of Britain”.

My Lords, I genuinely feel sorry for the noble Lord opposite. In 10 years or so of speaking from that Dispatch Box, I now and again had awkward cases to argue but I never had a completely bankrupt one, such as the case that the noble Lord is trying to put forward. If the Chancellor had got such a good deal, why did he not go to the other place and make a Statement today instead of being dragged there by my right honourable friend the shadow Chancellor in order to answer some questions that have arisen around this issue?

Is it not clear that the Chancellor failed to reduce the UK’s net contribution by a single penny? The analogy that has been used widely is “smoke and mirrors”. I cannot see much through smoke and at the age of 75 I do not much like what I see in the mirror. I certainly do not like the Government’s smoke and mirrors on such a significant issue as this sum. What it all revolved around is the fact which the Government seek continually to deny—that they had omitted to identify the rebate to which we were entitled, a rebate that the Commission has made abundantly clear was never in the slightest doubt. On all sides, it has been made absolutely clear that Britain was going to get the rebate, and the saving that the Chancellor has made was achieved by subtracting from the bill he was presented with the rebate to which we were entitled. What a story.

I should just like to point out that what we have seen in the past few days is complete clarification of a situation. The reality is that the net payment is £850 million. Noble Lords may understand the situation better than me but until that point everyone assumed that the payment was £1.7 billion. The rebate was not at all clear. What officials spent the past two weeks doing was clarifying that the rebate would be available in a size that has effectively halved our payments. There are also no smoke and mirrors about the fact that the payment has now been delayed—it is in two stages. We have brought the rebate forward so that it offsets the notional second half of the payment. What we have introduced in the past few days is complete and utter clarity on the arrangement in hand.

My Lords, can the Minister confirm that the policy of constructive engagement and alliance that has brought this happy result will be pursued across the whole spectrum of EU policy, instead of one of hubris, bluster, threat and brinkmanship about repatriation of powers, as that is the way to get a good result? Can he also confirm that while of course the UK must always drive a hard bargain to get the best value, given that control of EU spending is vital, our UK contributions to the EU, which give us access to the world’s biggest single market and trade agreements with 50 countries, are less than a quarter of our annual national debt payments? Finally, can he also clarify the exact way in which the final bill has been calculated and whether the rebate is being applied to all 18 years—1995 to 2013—covered by the £1.7 billion GNI recalculation? What is the effect on the rebate in the next and subsequent years?

I thank my noble friend for the questions; there is quite a list there. My right honourable friend the Chancellor has demonstrated how effective his constructive engagement has been in producing this outcome. I would expect the same result from the Prime Minister’s constructive engagement on the reform programme that we will put to the British people in 2017. It is absolutely right that we drive a hard bargain and get better value for money. If one looks at the EU budget, my right honourable friend the Prime Minister has been the first to achieve a real-terms cut for the multi-year financial facility, through to 2020, which has thereby capped the amount spent. The weakest part of our performance of the past few years in that negotiation was, frankly, the poor rebate deal that the previous Government gave away, which put us in a much weaker position. That was by far the most ineffectual piece of negotiation. It is a complicated calculation to work out these rebates, but the rebate side of the calculation does not go back for the same full period as the GNI calculation.

My Lords, the original demand from the Commission was for €1.7 billion. Its demand is still €1.7 billion, against which a British rebate of approximately half that sum has to be offset. If that is right, and I think it is, it does not seem to me that the Government have reduced the amount of the demand by one penny—certainly not by one euro. What they have done, through some creative mathematics, is bring in a rebate that we were going to get anyway and then pretend that they have reduced the €1.7 billion, which they have not.

My Lords, I am afraid that I can only repeat the position. It was far from clear that the rebate would be applied. That is the point at issue between us. We can continue to have that discussion, but it was far from clear that the rebate would be applied. That is what was accomplished in the last two weeks. The other things that have been accomplished are a deferment of the payment and that there will be no interest on those payments. We have also changed the rules so that we cannot get ambushed like this again.

My Lords, would the Minister accept a welcome for the elegant and timely decisions reached in the Council last Friday, while recognising that the clarifications relate to the timing of payments, not to their scale? Will he also recognise that such technical adjustments, as I think the Chancellor said in his Statement, are an endemic part of the EU budget process, from which the UK sometimes benefits and sometimes loses? In future, it might be better to handle it all a little more calmly.

I thank the noble Lord for pointing out that these are, in practice, technical adjustments. Of course, it was a very large technical adjustment delivered with very short notice, which is why the Prime Minister reacted in the way that he did, and why, as part of the negotiations over the past couple of weeks, we have determined that the process will not work quite that way again. In summary, I agree with the noble Lord that there is a better way to handle these things.

My Lords, would my noble friend not agree that, when the announcement was first made that we had to pay £1.7 billion—it is pounds, not euros—we were told by the Commission, other member states and, no doubt, the party opposite that it had to be paid by 1 December, or else we would have to pay interest? We have now reached a situation where it does not have to be paid by 1 December; half of it has to be paid over a period next year. By the way, there was no mention of the rebate whatever at the beginning of this conversation. If this is smoke and mirrors, can we please have more of them?

I thank my noble friend for putting, with force and eloquence, precisely the points I have been trying to make in response to the last three questions.

My Lords, can the noble Lord explain exactly what the Treasury had been up to—it had been involved in all the calculations—and how it was that, after three months of negotiations, the Chancellor did not understand what it had been doing? The Chancellor also did not advise the Prime Minister before he went to Brussels, which is why the Prime Minister was caught on the hop. If we have not got just what we were going to get back in any case, can the Minister assure us that we are still going to get the rebate in 2015 and 2016, and that we have not merely already received it back as an advance?

I can assure the noble Lord that the rebate that we are discussing with respect to halving this payment is applied specifically to this payment. It is independent of other arrangements for the rebate.

My Lords, I was saying to my noble friend: is this not the most skilful manoeuvre we have seen since Disraeli caught the Whigs bathing and ran away with their clothes?

It is hard for me to put it in historical perspective, but as always, the Prime Minister and my right honourable friend the Chancellor have done an excellent job representing the interests of this country.

There is a minute, so I have just made it. The country was treated to a lot of sound and bluster from the Prime Minister stating that he was not going to pay a penny. Today, by smoke and mirrors, the Chancellor has reduced that amount to £850 million. However, is the Minister aware that people think that that is a lot of money, which is to be added to the £11 billion we shall be making in contributions?

I agree with the noble Lord that £850 million is a lot of money. We will expect value for money for that kind of investment. I should make clear that the Prime Minister said that we would not be paying £1.7 billion on 1 December. In fact, we will pay nothing on 1 December. We will pay £850 million in two payments next year.