I beg to move, That the Bill be now read the Third time.

I am pleased to open this debate on the Bill, which rewrites our legislation on the taxation of trading, property, and savings and investment income. The Bill has been produced by the Inland Revenue tax law rewrite project, which is a long-term undertaking to rewrite our direct tax legislation so that it is clearer and easier to use. This is the second rewrite Bill to venture into the realms of income tax and it does so in a significant way, by tackling schedules A, D and F in the current legislation. About 20 million people receive income of one variety or another that is taxable under these schedules.

Before I say more about the specifics of the Bill, it might be appropriate to remind the House of the work of the tax law rewrite project. The project was set up in 1996 by the former Chancellor, the right hon. and learned Member for Rushcliffe (Mr. Clarke). It is a project to rewrite the UK direct tax code, the provisions of which have been enacted over at least the past two centuries. The principal aim of the project is that the rewritten legislation should be accepted by all the main users as clearer and easier to use. While making the legislation more accessible, the project also takes great care to preserve the effect of the present legislation, apart from minor agreed changes, and it proceeds through careful consultation and consensus. It is beyond the remit of the project to make any change in the main tax policies. However, the rewrite can encompass minor changes where they will improve the legislation. Examples of such changes are the inclusion of extra-statutory concessions, the repeal of obsolete material and the correction of small anomalies. The explanatory notes list 159 such changes in the Bill.

In its consideration of the Bill, the Joint Committee focused in particular on the minor changes and satisfied itself, and reported to the House, that they were all within the remit of the project. It also heard that the project had dropped any proposed changes that did not meet the approval of its two external committees. The Joint Committee noted the widespread public scrutiny of the Bill as a whole, and of the minor changes in particular, which were flagged up very clearly at each stage in the consultation process.

In the run-up to the Bill, 18 separate consultation papers were published, and the Bill was published in draft form last March. All were published for public consultation. In addition, a response document summarising the comments made on the draft Bill and setting out how the project has taken account of them was issued last September.

Of course, consultation does not stop with formal papers. The project continues to consider other ways to involve users of tax legislation and keep them informed so, over the last two years, the project has made much more use of its website to publish work in progress in the form of early drafts or changes to previously published work.

It may be helpful if I say a few words about the content and approach of the Bill, which is the third of the tax law rewrite project. The charge to income tax is broken down into a number of schedules. Over the years, schedules have come and gone, but currently we have schedules A, D, and F. The Bill tackles income tax charged under those schedules. It brings the charging and calculation rules for the different sorts of income together in updated classifications, such as trading income, savings and investment income, and property income. Unlike current legislation, it integrates foreign income in the same parts as equivalent United Kingdom income, confining any special rules that apply to foreign income to a different part.

The Bill applies for income tax only. The project consulted at an early stage on whether to aim for separation of the income tax code from the corporation tax code. Users of the legislation favour making this separation, so where the legislation rewritten in this Bill currently applies to both codes, the current provisions will be repealed for income tax purposes, but will continue to apply for corporation tax.

The Joint Committee heard that this Bill is the first step in the separation of the income and corporation tax codes. The project will consult further on the extent to which corporation tax provisions should be rewritten in full or should cross-refer to income tax Acts.

Various techniques have been used in the Bill to make the legislation clearer and more accessible. The first and most important element is the imposition of a coherent structure. Instead of the haphazard order of provisions in the existing legislation, the Bill presents all the material in a logical way, with linked topics grouped together.

The Bill also contains plenty of aids to the reader, such as introductory scene-setting chapters and signposts to other relevant provisions. These are designed to help readers to find their way through what is, inevitably, a large body of legislation. Other features of the rewrite process include shorter sentences, modern language, more consistent definitions and greater use of other reader aids such as formulae, tables and method statements. All this combines to make a new style of tax law that is more accessible and altogether more user-friendly.

The project continues to enjoy the strong support of users of the legislation and I am also happy to say that it continues to command strong support from both sides of the House. I pay tribute to Members of the House and of the other place who have played a part in the scrutiny of the provisions to date. The comments made by the representative bodies confirm that this latest Bill from the project has indeed been well received. The Institute of Chartered Accountants in England and Wales said that the Bill, as published in draft last spring,

"is well constructed and we commend its drafting. It covers important ground and . . . facilitates taxpayers' easier understanding of legislation which will affect very many of them, it is a useful addition to the rewritten legislation."

The Chartered Institute of Taxation said:

"we recognise and commend the huge amount of detailed work that has gone into the production of this Bill . . . please extend our congratulations to the entire Project for what is on balance a mammoth and an excellent product."

To sum up, this is an immensely worthwhile project that modernises our direct tax legislation, making it clearer and easier to use. This, the second income tax Bill, is another major milestone in the work of the tax law rewrite project. Work remains to be done to complete the rewrite of income tax, but the Bill is a demonstration of significant further progress and it maintains the project's excellent track record on improving current legislation. I commend it to the House.

As I said on Second Reading, the Conservative party very much welcomes the latest product of the tax law rewrite project, which, as the Economic Secretary said, was set up by the previous Conservative Chancellor, my right hon. and learned Friend the Member for Rushcliffe (Mr. Clarke). Anything that reduces the impact of the taxes that we impose on taxpayers, certainly in a regulatory sense, is welcome.

I cannot resist welcoming the Liberal Democrat presence, as it was completely absent from Second Reading, as the Minister might remember, which is strange given that the Liberal Democrats are particularly fond of income tax and want to increase the top rate, introduce a regional income tax, local income tax and so on. Under the Liberal Democrats, we would therefore have a lot more tax and a lot less income. Nevertheless, I welcome the hon. Member for Twickenham (Dr. Cable) to his place for Third Reading.

The Economic Secretary mentioned in his short speech the history of income tax and that it was set up at the end of the 18th century to pay for the war with France. At the time, it provoked an outcry in the House of Commons. Charles James Fox, no doubt speaking from this side of the House at the time, said that income tax

"tends to the immediate destruction of"

taxpayers'

"trade, the annihilation of their fortunes, and possibly to the loss of liberty of their persons".

William Pitt had personally designed the new tax system in his combined role of Prime Minister and Chancellor—an arrangement that I am sure that the current Prime Minister would look on with envy—to stabilise the country's finances. I wonder what would happen were Fox and Pitt to glimpse our proceedings today in this near-empty Chamber as we remove from the statute books what remains of the schedule structure of the Income Tax Act of 1803. We are witnessing a little bit of history. As someone who studied history at university, I think it is worth mentioning that.

Of course, the Bill also separates income tax and corporation tax law for the first time since corporation tax was introduced in 1965. That will have a significant impact on 20 million taxpayers, 5.7 million recipients of tax credits and 47,900 tax practitioners, as well as on the £22 billion of revenue collected by the taxes represented in this legislation. The fact that we can pass this Bill, with its 886 clauses, with some confidence that it only makes our direct tax law simpler, more consistent and easier to use, and is not being used as a stealthy tax-raising measure, is down entirely to the heroic work of the three committees that oversee the rewrite project mentioned by the Economic Secretary.

The first of those is the Joint Committee of both Houses, which scrutinises the Bill to make sure that the letter but not the spirit of the law is being rewritten. Like the Economic Secretary, I pay tribute to my right hon. and learned Friend the Member for Rushcliffe for chairing that Committee. It is appropriate that he stays involved, as the Chancellor who established the tax law rewrite project nine years ago. When it met last month, the Committee concluded that it was satisfied that

"the only changes that the Bill makes to the existing law are of such minor significance that they need not be referred to the attention of Parliament."

I am grateful for its work. I have read the proceedings and it is clear that it grilled the officials involved. Clearly, while I suspect that the Chancellor of the Exchequer is desperate to increase income tax revenues to fill his black hole, this Bill will not be his way of doing it.

Another important check on the process is the steering committee. I pay tribute to another former Chancellor, who chairs it—Lord Howe of Aberavon, who also sits on the Joint Committee. Lord Howe is a driving force behind the tax law rewrite project, and the Economic Secretary and I can attest to his personal interest in the Committee proceedings, as he sat in the public seats upstairs to listen to us, which is probably the first time that a former Chancellor has done so. His presence was very welcome.

I also thank my right hon. Friend the Member for Fylde (Mr. Jack) for his work on the steering committee. As I said on Second Reading, the whole project seems to be aimed at establishing a retirement home for former Treasury Ministers. I repeat my offer to appoint the Economic Secretary to it on 6 May.

Guffaws of laughter.

No doubt the hon. Gentleman is looking forward to his own lengthy contribution to the debate. I am sorry that he has moved back to his usual place in the Chamber, because I thought for a second that he had been promoted to the post of the Minister's Parliamentary Private Secretary—that he had finally reached the first rung of the ladder—but, sadly, he seems to have fallen to the ground. I think that I have advised him before to make more helpful interventions on Ministers' speeches if he wants to get on in life.

I also thank the consultative committee: representatives of lawyers, accountants and other tax practitioners and, indeed, representatives of taxpayers such as the Confederation of British Industry, the Institute of Directors, the Federation of Small Businesses and the London chamber of commerce. Theirs is detailed work. Those representatives are in the front line in dealing with the complexity and obscurity of tax laws that we pass here and I thank them for their help in trying to make legislation clearer and simpler.

Let me now deal with the substance of the Bill and specific issues. If the Minister does not wish to intervene, perhaps he will write to me if he thinks he could respond to any points that I raise.

The Minister mentioned the integration of foreign with United Kingdom income tax rules. That is, I think, one of the most welcome features of the Bill. Perhaps the Minister will now consider introducing a single tax form for foreign and UK income. A question was asked about that in the Joint Committee. I know that it is beyond the remit of the rewriting team, but it is very much within the Minister's remit. It might be of practical benefit to the whole rewriting process if people could fill in just one form.

Clause 882, which was also discussed in the Joint Committee, gives the Treasury power to alter the legislation by an order that is subject only to a negative resolution, rather than the affirmative procedure that we would expect. The issue was also considered by the Delegated Powers and Regulatory Reform Committee in the House of Lords. I understand why the power is necessary—technical changes may be needed to correct any mistakes or omissions in this complex legislation—but will the Minister now repeat his assurance to the Joint Committee that he, or other Treasury Ministers, would make such orders only after securing the agreement of the consultative and steering committees? That is, I feel, an important check.

Appendix 4 of the memorandum submitted by the Inland Revenue to the Joint Committee indicated that there were some extra-statutory concessions that had not been written, or rewritten, into the legislation. The reason given by the Revenue was that they were too complex. They include fairly important matters such as directors' fees, the profits and losses of theatre backers, compensation for the compulsory slaughter of farm animals, and wear and tear on furniture and the like in furnished lettings.

I know that the tax law rewrite team gave detailed consideration to what might be done in those areas, but decided that it could not make any great improvement—or that it was not worth trying to do so. Is the Minister satisfied with that conclusion? It seems a shame to leave some particularly complex parts of the law unrewritten just because they are particularly complex. Perhaps once the whole body of direct taxation has been rewritten, the rewrite team will look again at the bits that they have had to leave out. I know that there will only be a few, but it would be a shame just to leave them standing there, unrewritten.

Other clauses affect the tax paid by individuals, both in theory and in practice. The Joint Committee looked in depth at the 43 changes that may lead to the payment of less or, indeed, more tax by an individual. Examples include clause 412, on stock dividends, clause 150, on securities held as circulating capital, and clause 666—a rather inauspiciously numbered clause—on beneficiaries' income from estates in administration. The Joint Committee satisfied itself that the changes are sufficiently obscure as to be very unlikely to have a significant impact and I am sure that it is right. However, as tax law develops and as the courts and the Revenue interpret it, one would not want individuals to end up paying more tax as a result of a rewrite. I hope that the Minister will assure me that, despite the Joint Committee's having satisfied itself on this matter, the Treasury will continue to keep an eye on it as the various rewrite laws bed in and new tax practice develops around them. We do not want taxpayers to pay an unfortunate price for what should be a very welcome process.

I turn now to an issue that I raised on Second Reading, but which is worth airing again on Third Reading. The valuable work done through this process by the tax rewrite team will be completely pointless if it is to be undermined by subsequent legislation that is poorly drafted or inconsistent with the rewritten law's language, and which returns us to the very morass that the rewrite project is supposed to address. This is, as the Minister well knows, a real threat, because it has already happened. Large parts of the Income Tax (Earnings and Pensions) Act 2003 were superseded just a couple of months later by schedule 22 of that year's Finance Act, which was hideously complex, used language inconsistent with the rewritten tax law and, indeed, undermined the whole purpose of the rewrite project. That is not just my view but that of the Inland Revenue itself. Indeed, its "Tax Law Rewrite: Plans for 2004/05" address this very point, saying:

"One issue which gave rise to a considerable amount of comment and discussion during 2003–04 was raised by Schedule 22 to the Finance Act 2003 . . . Critics argued that the style and format of Schedule 22 compared unfavourably with the quality of legislation produced by the project; and that it was highly unfortunate that a substantial part of the second Tax Law Rewrite Act had to be replaced so quickly by new legislation that was perceived to be of lower quality . . . The topic received considerable public airing. It was also discussed on several occasions by the project's Committees . . . this is an issue that will no doubt stay with us—to some degree—and on which we must continue to work. It will be a priority in 2004–05 to keep this issue in front of us and to promote further discussion about how best to tackle it."

I have quoted that passage at length because it is very important and it gets to the heart of the issue, which is whether this process is simply temporary or will bring about a real change in the way in which we produce tax law.

When I raised this issue on Second Reading, the Minister conceded that I had made a fair point. He said that the Government were learning lessons from the debate and from the criticisms that were received of schedule 22. His excuse was that it is difficult to produce good-looking legislation when it needs to be produced to tackle such problems in a fairly short time and under pressure. Of course, he is right, in that parts of the Finance Bill are often produced in that way in order to deal with what the Government of the day would describe as "tax-avoidance schemes". But given that that is a normal process in Finance Bills, the Minister must surely look at a way of ingraining into the team currently writing tax law some of the principles and language used by the rewrite team. Otherwise, we will shortly find that—under perhaps Governments of either persuasion—much of the rewrite team's good work is undermined as bits of the tax law are superseded by hastily and poorly drafted new tax legislation. I ask the Minister to look again into that matter and see what can be done. The Inland Revenue said that it wanted to promote further discussion on how best to tackle the problem in 2004–05 and time is rapidly running out, so this is probably my last opportunity to make the point.

Does my hon. Friend accept that some of the most byzantine legislation emanates from Europe, and will he urge our European colleagues to reflect further on the lessons that we have learned from our tax rewrite system here to see if they can improve their legislation by writing it in that format? [Interruption.]

My hon. Friend makes an excellent suggestion. The hon. Member for Rhondda (Chris Bryant) made the point that "Byzantine" does not relate to Europe, but one hopes that, with the Turkish accession, it soon will. The EU, which is now the source of an enormous amount of financial regulation, if not yet tax law, should certainly learn the lessons from our rewrite project, which has been a model of how to produce clear and consistent language. If those in Brussels pay any attention to what is going on in national Parliaments, I hope that they have heard my hon. Friend's point.

The Bill reinforces the determination of Conservative Members—I hope that it is reciprocated on the Government side—to ensure that the rewrite project continues—and continues to be properly funded. As I understand it, it has completed only about a third of its scheduled work and there is at least one more income tax Bill to come, before the team moves on to capital and corporation taxes. I can certainly give a commitment today that a future Conservative Government would ensure that it received all the support that it needed.

We would like the process to go even further and build on the work of the rewrite project by promoting tax simplification—[Interruption.] I see that that commands broad support on this side of the House. We believe that the UK tax system has become over-complicated and changes too frequently. It is riddled with inconsistencies, complexities and obsolete provisions and those inconsistencies impose a considerable burden on taxpayers and businesses, adding to the costs of complying with tax law. They also add to costs of the Inland Revenue and have led to a huge growth in demand for tax services in the past few years.

We have examined the proposals put forward by Lord Howe himself in his Hardman memorial lecture of 2000 and, indeed, the recommendations of the working party that Sir Alan Budd chaired for the Institute for Fiscal Studies. When we are elected to government, we would wish to proceed along the lines recommended and establish a simplification project to run in parallel with the rewrite project. We would also introduce a tax structure review programme to look into the existing primary direct and indirect tax legislation, which would identify measures to be modified, approved or abandoned. We would hope that, just as with the rewrite project embodied in the Bill today, the tax simplification project would command broad support throughout the House. It would follow in its structure many of the structures in the tax rewrite system and we shall shortly publish details of exactly how we wish to proceed.

Tax law has become more complex and I applaud the efforts to rewrite it in consistent and clear language, but we now need to take a further step to make the substance of our tax system altogether simpler and fairer for those who pay it. Having said that, I greatly welcome the Bill before the House today and wish it a speedy passage.

May I add my support for what seems an eminently sensible and uncontroversial piece of legislation? I congratulate those who worked on the tax rewrite project and helped to produce the Bill before us.

Perhaps I should also congratulate the hon. Member for Tatton (Mr. Osborne) on managing to spin out to 20 minutes his contribution to a debate on legislation that we all agree is necessary and almost entirely devoid of controversial policy. He helped to fill in a couple of minutes of his contribution by referring to the Liberal Democrats' enthusiasm for income tax. I did not come here today to engage in party political banter, but I should be happy to respond to the point that the hon. Gentleman made. It is certainly true that one of our policies—our only tax-raising policy—is to increase the rate of taxation on earnings above £100,000 a year. We also propose that there should be greater reliance on the income tax mechanism by exchanging the council tax system for one based on local income tax. One consequence of working through the existing mechanisms of the Inland Revenue would be to show that there was less tax bureaucracy, because there would be no need for council tax benefit systems or valuation systems. We would thus be freeing up resources for more productive purposes. The hon. Gentleman is right in one sense: we are placing more reliance on income tax as a tax mechanism, rather than raising taxes.

The hon. Gentleman's party claims to be the real Opposition. Does he think that real Oppositions should turn up to Second Readings of important legislation?

This is important legislation and we are here to respond and agree to it.

What about Second Reading?

I am sure that I can give the hon. Gentleman an explanation. We all agree that the Bill is useful; it does not affect the course of parliamentary business. There are much more important issues when we do need to be in the Chamber and when we make an effective contribution.

At the end of the hon. Gentleman's speech, he made the entirely valid point that the fundamental problem is the extreme complexity of the tax system. Most of the complexity is not in the income tax field, but relates to capital gains tax and business taxes, where there is a case for major simplification. There are complexities in the income tax regime, however, and the measure will help with those.

On a personal level, I should like to mention a couple of points on which the legislation is helpful. Until recently, I had little experience of farming, but as I have just married a farmer I have come to appreciate some of the difficulties that many farmers face when dealing not only with the absurd bureaucracy of the Department for Environment, Food and Rural Affairs but also with tax complexities. The sale of a few bales of hay or the temporary renting out of a field to a neighbour for pasture cause enormously complex tax problems. The attention that the Bill devotes to clarifying what trading income means will, I hope, make farmers' lives a little easier.

Another interesting example from the legislation relates to the rent-a-room provisions. The idea that to deal with homelessness one might encourage house owners and householders to let out a room and get some tax relief was useful and sensible, and we should make more use of it. However, the problems presented by the legislation are exemplified by the 20 pages of the Bill devoted to explaining how the various provisions and reliefs are applied. Anything that the legislation can do to clarify those matters will be much appreciated.

The key point, at which the Conservative spokesman hinted, is that the way to deal with both the difficulties of tax language and the complexity of the provisions is for as many people as possible to be lifted out of tax altogether. Last week, we made a small contribution to that through our proposals on stamp duty. Millions of people are on low incomes—pensioners and low-paid workers—and pay income tax, so it would be desirable to lift the threshold for them. We know how difficult that is, because lifting thresholds is expensive; or, if they are tapered, they create higher marginal tax rates. None the less, that is an important strategic objective.

In the meantime, as elderly, frail and poor pensioners often pay income tax, it is important to focus on the specific problems and to give them help through the Inland Revenue to complete the forms and deal with the complexities involved. That is still relevant despite the language improvements in the measure.

I am neither a tax lawyer nor a professor of linguistics, so I have nothing of great substance to contribute to the debate other than to welcome the Bill as a useful piece of legislation, which we support.

There have been constructive and supportive comments from both Opposition parties. I appreciate the shadow Chief Secretary's welcome for the Bill. He described the project as a model for approaching the challenge of producing clearer, easier, more comprehensible and intelligible tax legislation. I welcome that. I am sure that the House appreciates the sense of history that the hon. Gentleman brought to the debate. Some might say, however, that he and his party are backward rather than forward looking—the party of the past still struggling to become the party of the future.

May I tell the hon. Member for Twickenham (Dr. Cable) that, although it is not really my part to stand up for the shadow Chief Secretary, the hon. Member for Tatton (Mr. Osborne) was able to contribute to the debate for almost 20 minutes in large part because he and his colleagues have given rather more scrutiny to the content of the Bill and its progress through Parliament than the Liberal Democrats? Nevertheless, I welcome his general support for the Bill.

I turn to three or four of the specific issues raised by the hon. Member for Tatton, although this is Third Reading. He talked about the need for a single tax form that would allow taxpayers to declare foreign and domestic sources of income. Especially under Her Majesty's Revenue and Customs, we will consider how to improve the process, particularly the forms that taxpayers must use, but a separate entry for foreign income is still likely to be needed because of double taxation relief, which is confined to foreign income.

On clause 882, as the hon. Gentleman explained, the issue that he raised was one for the Bill's previous stages, both Second Reading and the consideration by the Joint Committee on Tax Law Rewrite Bills. The clause has been examined carefully during the Bill's progress to date and in the Joint Committee. It is designed to make technical changes. However, I am happy to confirm, as I did to the Joint Committee, that it is our intention and our undertaking to introduce regulations under that clause only with the agreement of the tax law rewrite project's steering committee.

The hon. Gentleman believes that some issues may warrant the attention of the tax rewrite project in the future. Of course, such work is for future decision, but the project consults widely on its future work, and I am sure that it will note the hon. Gentleman's comments.

We have discussed schedule 22 before, but the value of such tax rewrite Bills is that they make it easier to fit in changes to tax legislation, while keeping the tax legislation clear in the future. New or amending tax legislation will generally be fitted into the draft structure and the style set out in the Bill. Schedule 22 was introduced in unfortunate circumstances—they were not ideal—and in large part to deal with a severe problem of tax avoidance, but I assure the hon. Gentleman and the House that we do our best to produce a good standard of legislation in Finance Bills and to maintain the style and structure established in such tax rewrite Bills, and we will continue to do so in succeeding Finance Bills.

The Bill is a milestone in the work of the tax law rewrite project. There is widespread and well-deserved recognition of the work of all those involved in producing this income tax rewrite Bill, but in drawing this Third Reading debate to a close, I wish to pay tribute, in particular, to Lord Howe of Aberavon, who has chaired the steering committee, and to the steering committee, which overseas the project. There are representatives from the Labour party and from the Opposition—my hon. Friend the Member for Falkirk, West (Mr. Joyce) and the right hon. Member for Fylde (Mr. Jack).

I pay tribute to the members of the consultative committee—a crucial part of the tax law rewrite project's structure that reviews the project's work and contains leading representatives of accountancy bodies, legal bodies and representatives of taxpayers, too. I welcome the contribution that many other individuals and bodies have made to the consultations. I also pay tribute to the right hon. and learned Member for Rushcliffe (Mr. Clarke), who started the project in 1996. He has maintained his commitment to it and has recently chaired the Joint Committee, as part of the Bill's scrutiny.

Finally, the real work—the day-to-day, week-to-week and year-to-year work—is done by the project team. Dedicated, detailed work is undertaken with great care by Inland Revenue officials, led by Robin Martin, with great distinction. I pay tribute, as many others have, to the project's work and to his leadership. This is not a tax reforming Bill, nor a tax simplifying Bill, but it is, as hon. Members on both sides of the House have said, an important Bill. It will make things easier for everyone who uses tax legislation. I commend it to the House.

Question put and agreed to.

Bill accordingly read the Third time, and passed.

I inform the House that I have selected the amendment in the name of Plaid Cymru and the Scottish National party.

I beg to move,

That this House takes note of European Union documents No. 11607/04, Commission Communication: Financial Perspectives 2007–2013, No. 11741/1/04, draft Decision on the system of the European Communities' own resources and draft Regulation on the implementing measures for the correction of imbalances, No. 11745/04, draft for renewal of the Inter Institutional Agreement on budgetary discipline and improvement of the budgetary procedure, and No. 11752/04, Commission Report: Financing the European Union—operation of the own resources system; supports the Government's efforts to refocus the European Community budget towards the Union's key priorities in line with the principles of subsidiarity and European Union value added and stabilise the budget at no more than 1 per cent. of European Union Gross National Income; shares the Government's concern over proposals for new flexibility instruments; opposes the Commission's proposals for a Generalised Correction Mechanism; and in particular supports the Government's view that the Commission's overall proposals are unrealistic and unacceptable.

I welcome the opportunity to examine the Commission's communications for the next financial perspective of 2007 to 2013, its draft proposals on the system and operation of the European Community's resources and on the implementing measures for the correction of imbalances, and its draft on the renewal of the inter-institutional agreement. Taken together, the documents outline the Commission's proposals for the policies and financial decisions that underpin negotiations on the future financing of the European Community budget. This will be the first full financial perspective for a European Union of 25 members, so we are at a significant point in the history of the EU. It is thus appropriate that the debate is taking place on the Floor of the House and at a time that will allow it to inform the negotiations that will take place in the next few weeks.

The Government take the view that the next financial perspective is an important opportunity to increase the effectiveness and transparency of EU expenditure and to consider how allocations within a limited budget can best be applied in support of the European Union's priorities, especially the Lisbon strategy. That is why we have proposed that all budget spending be focused on objectives, with an emphasis on policy outcomes rather than simply budgetary inputs. Decisions should be based on evidence with a proper evaluation of budgetary policy. The budget should be based on a proper assessment of both existing and new areas of spending. It should be decided whether the Union is the best institution to tackle specific matters. We have proposed that there be sound financial management and budgetary discipline, and we should make sure that spending throughout the EU is distributed equitably.

That view has put us at the forefront of calls for further reform. The budget should be stabilised at no more than 1 per cent. of European Union gross national income, or €815 billion over seven years on a commitments basis. That represents a 6.5 per cent. real-terms increase compared with the current financial perspective, and we believe that it is both realistic and affordable.

Will the Minister clarify whether the 1 per cent. limit is a firm commitment? Will the Government refuse to budge from that and give an undertaking that, if necessary, they will veto any proposals that would take Britain's contribution beyond the present level and the budget beyond 1 per cent.?

The Government are making such a firm commitment, and I am pleased that that is gathering support from other member states—six countries signed the letter containing the 1 per cent. aim. As I shall say in a moment, there is a clear indication that several other member states are moving in the direction of supporting our position on that.

While we respect the Brussels agreement to press for a more liberalised and market-focused agricultural sector, including the reform of the sugar and dairy sectors, and support further modulation, we want to refocus the structural and cohesion funds of the lowest-income member states within an overarching framework agreed by all member states. Spending should be refocused within internal policies on a smaller number of initiatives with demonstrable added value, particularly research and development, freedom, security and justice. We also aim to improve the effectiveness of external actions in support of the EU and UK external objective—external to the EU—to which the millennium development goals are central, while retaining flexibility to cope with crises such as the tsunami if the need arises.

The Commission has not as yet responded adequately to the challenge that those aims present. In its communications of February and July 2004, which are before the House today, the Commission proposed a total budget for 2007–13 of more than €1 trillion. That is a real-terms increase of 34 per cent. compared to the current financial perspective, with little justification being provided for such a large increase and little prioritisation between the different elements. For example, despite the fact that, with enlargement, the richest parts of the Union would become more than 10 times richer than the poorest, the Commission proposes that less than half of the structural and cohesion funds go to the new member states, where they would have the greatest effect.

Despite our commitments at Monterey, the Commission proposes a regionally based policy approach to external actions—external to the EU—which would make it harder rather than easier to refocus the budget on low-income countries and the millennium development goals.

Does the Commission not propose to focus the vast majority of structural funding on the poorest regions within the EU, including poor regions within relatively prosperous member states? It proposes that the vast bulk of the funding go to the poorest regions within Europe overall.

The hon. Gentleman will recognise that there is not much value in rich EU countries swapping funding between themselves in the interests of their own regions. It makes much more sense for the Governments of the better-off countries to fund their regional development. As the hon. Gentleman knows, we have given a domestic guarantee for regional funding in the UK.

For all these reasons, I suggest to the House that the Commission's current proposals are neither realistic nor acceptable. The proposals for increased flexibility instruments are not necessary, as they would hamper sound budget discipline. Responding to unforeseen needs is best done through reprioritising spending and agreeing appropriate budgets for each heading.

The Commission also proposes some major changes to the financing of the EC budget, with its suggestion of a generalised correction mechanism. The intention would be to replace the UK abatement and, according to the Commission, reduce differences between net contributors at comparable levels of prosperity. That is completely unacceptable. It is neither fair nor principled. As proposed, it would widen rather than narrow the disparities between the large net contributors, and would cost the UK €5 billion a year by 2013. The proposed mechanism would also institutionalise the failure to redress the inequities on the expenditure side of the budget. Large receipts are going to countries of similar wealth to the UK, which receives the least in per capita terms. This means that the abatement remains fully justified. The continuing inefficiencies and inequities on the expenditure side of the European budget and the resulting unfairness of the UK position mean that the abatement is not up for negotiation.

As I said to my hon. Friend the Member for Glasgow, Pollok (Mr. Davidson), I am pleased to tell the House that, as the negotiations progress, our views on both budget discipline and reform are gaining increasing support among other member states, including the newest members. The Dutch presidency progress report to the European Council in December showed that there is widespread dissatisfaction with the Commission's proposals among member states. The documents before the House contain information on the advances achieved by the Dutch presidency. The progress report also demonstrates that a budget of 1 per cent. of EU gross national income is viable, credible and affordable. As I have said, we are working closely with the other five signatories of the 1 per cent. letter—France, Germany, Sweden, Austria and the Netherlands—to make sure that the principles of budget discipline continue to form a central part of negotiations.

I am a little bemused. Since the Community's accounts have not been qualified by the auditors for the past nine years, how can we say that it is behaving responsibly?

My hon. Friend makes an important point. This is the 10th year in a row in which there has not been a satisfactory statement of assurance about the EU accounts. However, there has been progress in the right direction, particularly after the reforms that Neil Kinnock initiated when he was a Commissioner. Since January this year, an accruals accounting system has been in place, and it is a welcome step forward. To be fair to the Commission, it managed to implement it much more quickly than was widely expected or than has been the case in the UK. From that point of view, there is evidence that the Commission is putting its house in order, but my hon. Friend is right that there is some way to go before people across Europe can be confident that member states' financial contributions are being used properly.

Does the Minister agree that one example of the absence of joined-up thinking in the Union is the disparity between what is said on the subject of development and poverty reduction by the European constitution and what is demonstrated by the composition of the European Commission and the allocation of responsibilities? Is he aware that Commissioner Michel, who is responsible for development, has good reason to object to the fact that important parts of what ought to be his portfolio and his responsibility for expenditure are, in fact, in the hands of the Commissioner for External Relations? Is that not an example of the way in which important objectives end up being watered down or compromised by the competing political ambitions of people within the Commission?

I would not want to take issue with the hon. Gentleman's expertise on the Commissioners' portfolios, but there are important concerns about heading 4 of the EU budget, which applies to external actions and to which there is reference in the documents before the House. In the next financial perspective, we need an external budget structure that allows us to meet our priorities effectively and enables the European Union to be an influential and effective international development player. A number of issues need to be addressed if that is to be achieved successfully, and the hon. Gentleman may well have hit on one of them.

Obviously, all hon. Members would want the vast majority of EU development budgets to go to the poorest countries, and the Government have held out for that strongly in discussions with the Governments of other member states. However, there is concern, particularly in Spain, Portugal, France and Italy, about the Maghreb. It is almost the 10th anniversary of the Barcelona protest, but there has been remarkably little progress. Many nations regard the Maghreb countries as our neighbours, who need close attention if they are not to become asylum, immigration and terrorism problems for us.

I agree that we need to give a higher priority to low-income countries to meet the millennium development goals. Those are objectives to which the whole world has signed up. The European Union needs to play its part and we need a budget structure to develop that. I also accept that there are issues around the European neighbourhood topic to which my hon. Friend refers, but my view is that those can be satisfactorily addressed within the parameters that we proposed—the 1 per cent. figure that I set out—by working closely with countries that have the characteristics that my hon. Friend mentioned. So I caution him against a view that large additional spending is required in order to address those concerns. I am not persuaded that that is the case.

Of great advantage to the countries around the borders of the Mediterranean, such as Algeria, are the Euro-Med agreements, which encourage trade and have a civil rights and democracy input. I am sure the Minister would agree that that is a valuable part of the role of the European Union in developing those countries.

Yes, I do agree. I had some exposure to that process when I was Energy Minister previously. I agree with the hon. Gentleman about the value of those arrangements.

The next financial perspective gives us a valuable opportunity to make sure that the future activities and priorities of the EU and the principles on which they are based are right for the Union as a whole and for each of its member states, and right for the EU's relationship with the rest of the world, as we have just been describing. We are determined that that opportunity should be realised. The proposals that have been tabled so far do not meet the bill. We are determined, however, that we will reach a satisfactory conclusion. The European Council aims for political agreement on the 2007–13 financial perspective by June. We would welcome that timetable being achieved, but hon. Members will agree that the priority must be that we end up with the right deal for all member states. We are ready, if need be, to take that work forward in the UK presidency in the second part of the year.

I thank the Financial Secretary for his opening remarks and I share his concerns that

"the Commission's overall proposals are unrealistic and unacceptable."

However, this is an extremely important debate as it is not only the future nature of the European Union that is at stake, but the impact on Britain's public finances. Last year we paid £11.8 billion gross and £4.8 billion net after the £7 billion rebate. Even with the rebate, Britain has been a disproportionate contributor ever since we joined the European Community.

The Government have problems with that already, without the European Commission's proposals which would increase the amount that the UK must contribute to the EU, even if the Government succeed in defending their own budget. I therefore commend the European Scrutiny Committee for recommending the debate. The Committee recognised the significance of the documents before us.

The Committee tells us:

"The new Financial Perspective for the EU will determine the overall revenue and expenditure of the EU and the expenditure on each category of EU activity for the seven years from 2007 to 2013. It will also largely determine the net contribution to the EU of each Member State, and the future of the UK's budget rebate. It will in practice be binding on the parties to it for those seven years. It is therefore one of the most crucial forthcoming EU decisions, with important consequences for enlargement and the draft constitutional treaty."

Because of the importance of the issue, we encourage the Government

"to adopt a robust negotiating position."

The Government have been high on rhetoric on this issue in the past. In a similar debate in June last year, the Paymaster General described the message being conveyed to EU Foreign Ministers by the Chancellor of the Exchequer as "uncompromising". She claimed that the Chancellor

"made it clear that, when each member state has to take tough decisions on spending and show fiscal discipline, it is unacceptable and unrealistic for the Commission to propose a 25 per cent. increase in its spending."—[Official Report, 15 June 2004; Vol. 422, c. 704.]

Nine months later, however, the same proposals are on the table in a more advanced form. It is time for the Government to translate their rhetoric into action at the European Commission, which is why we want a robust negotiating position to be spelled out. Words are not enough, because the matter is extremely important from a financial point of view.

To illustrate how little progress has been made—we seem to have travelled backwards since the issue was first debated in June last year—I shall briefly examine the history of EU financing. In the 1980s, tension between the two budgetary authorities within the Community, the European Parliament and the Council, disrupted the annual budgetary procedure, which led to a series of budget crises. The result was negotiations between the Community institutions, which led to the first financial perspective in 1988.

The framework lays down a maximum ceiling for spending under different expenditure headings. The current financial perspective, agenda 2000, covers the period from 2000 to 2006, so a new perspective is required. The European Union website states:

"Since the European Union's public finances underwent major reform in 1988 and the financial perspective was created, there has been little change: the financial framework has simply been carried over with a few alterations to accommodate new priorities. It was time to start afresh and think hard about the Union's policies and the nature and number of instruments at its disposal".

We do not doubt that logic.

Since 1988, the EU has expanded, with the accession of 10 new member states on 1 May last year. Enlargement, a policy instigated by Baroness Thatcher and John Major, and, to their credit, continued by the current Government, was an historic moment. Like the Government, we object to the nature of the reforms proposed by the Commission. The Commission's first proposals were published in February 2004 in the Commission's communication, "Building our common future—policy challenges and budgetary means of the enlarged Union, 2007–2013", which was debated on the Floor of the House on 15 June last year.

In "Building our common future", the Commission considers the enlargement of the Union, rather than proposing a reduction in the maximum size of the EU budget from 1.24 per cent. of gross EU income to 1 per cent., which is the figure that the Government and the Opposition want to see. The Commission proposes that the ceiling should remain at 1.24 per cent., and it cites commitments that have already been made, such as payments in the agricultural sector, cohesion policies in the accession states and accommodating Bulgaria and Romania, as an excuse.

In June, the Paymaster General told us that the Commission's proposals were "politically unrealistic and unacceptable". She said:

"It has failed to grasp the opportunity offered by the negotiation of a new financial perspective to increase the effectiveness and transparency of European Union expenditure and to consider how allocations within a limited EU budget can best be focused on adding value at the EU level, including underpinning the Lisbon strategy for European economic reform." —[Official Report, 15 June 2004; Vol. 422, c. 704.]

We agreed. My hon. Friend the Member for Hertford and Stortford (Mr. Prisk) stated:

"The Conservative party supports many of the stated aims of"

that day's

"motion, especially on limiting total spending and on the 'unrealistic and unacceptable' proposals for future spending priorities."—[Official Report, 15 June 2004; Vol. 422, c. 718.]

We can, and do, oppose and improve on the Government's mistakes in the UK Parliament, but by definition, as the Opposition, we cannot formally oppose or improve the European Commission's proposals in Brussels.

The Government promised that they would fight the Commission's proposals on EU financing:

"It is the Government's strongly held view that the Commission's current proposals are not a basis for . . . negotiation. The Government are working with other member states that share many of our principles and areas of common interest".—[Official Report, 15 June 2004; Vol. 422, c. 712.]

What was the outcome of that work? Were the proposals deemed to be not even a basis for negotiation, and scrapped? No—they have been built on. The Government were forced to admit that the Commission's new communication

"fails to respond to the diversity of views held by Member States, including the group of six Member States, including the UK, that wrote to President Prodi calling for the budget to be stabilised at 1 per cent. of EU GNI. It also fails to recognise the need for reprioritisation, so that funds are redirected where they will have most effect."

We now have four documents before us. Two are reports—one on the EU's financial perspective for 2007–13 and one on altering the own resources decision—but two go a step further than mere reports. They are draft proposals. The European Commission is proposing a clear programme for a change that goes against the grain of thinking in Britain and on both sides of the House. Is that what the Government mean by "Forward, not back"? I hope not.

I would like the Minister to explain. Now that we have actual proposals before us, rather than the less concrete plans of "Building our common future", how does the Commission intend to take those proposals forward? What room for negotiation is there in the proposals? How long is the period for negotiation likely to be? When does the Commission plan to issue what I hope will, by then, be substantially altered proposals for agreement? To put it another way, what is the deadline for an agreement to be reached? Can the Minister confirm that, if the worst comes to the worst, the UK or any other member state will have the right to veto the proposals? I sincerely hope that that scenario will not come about, but if a member state used a veto, where would that leave the framework for financing the EU? Is there a fall-back position of annual negotiation of the EU budget? I hope he can provide us with answers to those questions. If not, I hope that the Minister will undertake to write to me.

My hon. Friend will recall the intervention of the hon. Member for Crewe and Nantwich (Mrs. Dunwoody) who highlighted the disgraceful fact that for nine successive years—this year will be the 10th—the European Court of Auditors has refused to sign off the European Union's accounts. Is he aware that for the year 2003 the Court of Auditors' report found that no less than 89 per cent. of the EU's humanitarian aid expenditure to Zimbabwe was lost through currency manipulation by that corrupt regime? On that specific example of waste and misuse of public funds, what is the Commission doing to ensure that it is not taken for a ride in future, as it has been in the past?

I am grateful to my hon. Friend for making that point. I shall touch on the question of how international aid has been handled by the European Union.

On the essential point made by the hon. Member for Crewe and Nantwich and my hon. Friend, it is beyond disgrace that we contribute substantial sums of taxpayers' money to the functioning of the European Union when it is impossible to square the accounts. In any private company, that would quickly result in its bankruptcy or a lawsuit. It is greatly to our regret that, despite all the promises, that situation continues.

My questions are important because, as the Government freely admit, the Commission's proposals are unacceptable in their current form. It seems that no progress has been made on improving them since June last year, so it is useful to know what scope there is for achieving improvements and how long we have to achieve them. The crux of the matter is that it is essential that the Government explain how they will achieve improvements in the proposals. We need significant improvements on both the main issues at stake.

I want to speak about those two issues: the proposal for a new own resources decision and, first, the proposals for renewing the inter-institutional agreement setting out a new financial perspective for the period 2007–13.

I note that in the context of the new IIA, the Commission proposes a new classification of expenditure to increase flexibility by avoiding unnecessary ring-fencing, with five main expenditure headings. The explanatory memorandum to the European Scrutiny Committee states that

"The Government welcomes the Commission's proposal to retain the fundamentals of the previous IIA . . . breaking down expenditure by broad categories called headings".

Does the Financial Secretary agree with the headings proposed? Similarly, I note the Government's concerns regarding the new proposals for flexibility, expressed in the motion. I am a little perturbed that expressing concern is not exactly the same as expressing opposition. While in his memorandum he states that he rejects proposals for a procedure to revise ceilings through a trialogue meeting between the Parliament, the Council and the Commission, and states that there is no need for a growth adjustment fund, he appears equivocal on the issue of the replacement for the current flexibility instrument. He states that he

"will consider the Commission's proposals for a new reallocation flexibility, replacing the existing 'flexibility instrument.'"

Has he now carried out that consideration? If so, what were his conclusions?

Perhaps a bigger issue is the ceiling on the EU budget. The financial framework set out in the "Proposal for the renewal of the Inter-Institutional Agreement"—the IIA—sets a maximum ceiling on the budget of 1.24 per cent. of EU GNI. I believe that that is the same as the ceiling at the moment. Slightly alarmingly, the ceilings proposed by the Commission in December 2004 appear to be higher: the maximum is 1.3 per cent. and the Commission's proposed spending amounts to 1.26 per cent of GNI.

As the Financial Secretary has said, those ceilings are too high. We should be aiming at a budget of 1 per cent. of GNI. The letters sent from the Governments of the UK, France, Germany, Sweden, the Netherlands and Austria to Romano Prodi in December 2003 made the point that a 1 per cent. limit would still allow for annual increases in the EU budget above the growth rates of national budgets in most member states.

The issue of the EU budget is particularly thorny, because—as my hon. Friend the Member for Buckingham (Mr. Bercow) made clear—the EU has a reputation for spending its money badly. Fraud is one reason for that, but I will not dwell on that point as my colleague the shadow Paymaster General spoke on it in Committee very recently. Suffice it to note that for the 10th year in succession, the European Court of Auditors felt unable to sign off the European regional aid funds.

In the explanatory memorandum, the Government flag up four issues on which they think that the EU should reform its approach. The issues raised are the common agricultural policy, structural funds, the Lisbon strategy and overseas aid. I am unclear as to whether those are the priorities to which the Government refer in their motion calling on the European Community budget to be refocused

"towards the Union's key priorities."

Perhaps the Financial Secretary would confirm that or, alternatively, explain to which priorities the motion refers.

In any case, the four issues to which the Government refer in the memorandum are undoubtedly major issues and I shall make brief comments on them. As I understand it, under the Commission's proposals, the amount earmarked for the CAP reflects the agreements reached at the Brussels European Council in October 2002. That was the occasion when right under the nose of the British Government, France and Germany stitched up a deal to keep CAP spending unchanged up to 2013. We should not forget that more than 40 per cent. of the EU budget still goes on the CAP. The Economist noted on 5 March:

"Yet it may be possible to reopen the Chirac Schroder deal . . . it sets ceilings not targets for spending. In the Doha round of trade talks, the EU has offered to scrap export subsidies for farm products. And, because past reforms of the CAP switch spending from production linked subsidies to direct payments, the case for financing these nationally, not at EU level is growing. If France's Government wants French farmers to have higher incomes than Greek farmers, why not pay for them themselves."

What would be the Conservatives' target figure for expenditure on the CAP, if we were to have a Conservative Government?

I was about to move on to our policy, so I thank the hon. Gentleman for pre-empting me.

The Government claim to be a leading advocate of CAP reform. According to the Paymaster General, the Chancellor has

"told Finance Ministers that it would be wasteful and inefficient to increase spending on current Commission programmes that do not match the European Union's economic reform priorities and in some cases, such as the common agricultural policy, work against them."—[Official Report, 15 June 2004; Vol. 422, c. 704.]

Since the debacle of 2002, the Government have had some success in achieving reform, and we welcome that. However, the CAP results in artificially high prices for consumers, harms the interests of third-world producers and leads to low incomes and red tape for farmers. My party has long campaigned for its reform, and the recent decision to break the link between farm subsidies and production is good news. CAP reform must now be taken further, and cross-compliance conditions should be reduced. I would welcome a commitment from the Minister that that process is under way.

British farmers must be given the freedom to produce for the world marketplace. We will therefore press for the full decoupling of subsidy from production across the EU and for an end to trade-distorting export subsidies in all appropriate cases. Our first target will be the appalling waste of £600 million of taxpayers' money in subsidising tobacco production annually.

We support the new single farm payment and press for it to be implemented with a minimum of bureaucracy and red tape. We will simplify the rules on cross-compliance and work for the return of more local and national control over agricultural policy, and we will stop the gold-plating of European legislation by British officials in the Department for Environment, Food and Rural Affairs.

Perhaps I missed it, but I failed to catch the figure that a Conservative Government would want to be spent on the CAP by the EU as a whole. Will the hon. Gentleman give us a figure that he believes that the Government should be aiming towards?

I have laid out what our policy will be when we win the next election in a few weeks' time—I am sure that that is why the hon. Gentleman is concerned about the issue. After that, and after the vote on the European constitution, which the good sense of the British people will reject, there will inevitably be a negotiation process about all the structures of the European Union.

What is the figure?

I cannot give one, because we do not know exactly what the final budget will be. We have clearly set out the direction that we wish to follow. I cannot give a precise figure, and it would be absurd to try to do so when the budget has not been finalised, but the hon. Gentleman can rest assured that we will commit ourselves to fighting Britain's corner, as did a former Conservative Prime Minister, Margaret Thatcher, to return the rebate to this country. We will do that with all the energy that has ensured that although we have remained a very big contributor, our contribution would otherwise have been much greater. We will do the same on CAP reform.

Although the hon. Gentleman, like everyone else, does not know the total of the budget that will be agreed, can he tell the House what percentage of the EU budget his Government, if they were indeed elected, would want to have as CAP spending?

If the hon. Gentleman would like to answer this question, we might find common ground: what is his Government's objective on that percentage?

I am happy to answer that it would be the minimum. During the time of this Government, it has fallen from about 60 per cent. of the EU budget to about 40 per cent. What would the hon. Gentleman's target be?

The hon. Gentleman and I do have something in common, as it would be the minimum.

On structural funds, I again welcome the Government's approach. I agree with their policy of taking back control of structural funds. More national control over those funds would enable us to target them where they are most needed and to reduce the bureaucracy that surrounds their use. Philip Bradbourne MEP, Conservative spokesman on regional policy in the European Parliament, summed up our view as follows:

"It is no surprise to me that the funds have yet again not been signed off.

With ten years of dodgy accounts, including €5.3 billion going unused into Commission coffers from the Regional Aid Budget in one year, devolving grant aid back to Member States seems the only viable solution to an ongoing problem.

This would allow British Ministers to properly determine where and how this money is spent."

However, I believe that the differences will begin to show on Lisbon and international aid. The Lisbon agenda's economic objectives can only be supported, but economic reform is proceeding slowly on some matters and is frankly non-existent on others. I appreciate that the Government acknowledge that. The Prime Minister has taken the trouble to recognise it every year since setting out the Lisbon process. In the 2003 Treasury assessment of progress on Lisbon, his foreword admitted that

"there remains a daunting amount to be done . . . Reform on this scale is never easy."

In the 2004 assessment, he claimed:

"We have made significant, but not sufficient, progress . . . we need to go further to meet the standards being set by our competitors elsewhere in the world."

The 2005 report was published last month. The Prime Minister commented that

"we need to go further and faster."

The Government produce many fine words on Lisbon, and have done so since the agenda was first agreed five years ago, but little or nothing gets done. I welcome the fact that José Manuel Barroso, the new European Commission President, has presented a programme to re-energise the Lisbon process. It is vital that national Governments get a grip and push ahead with economic reform, on which the EU's future prosperity relies. Ministers pay lip service to Lisbon while eroding the UK's competitive position at home through ever increasing burdens of taxation and red tape.

I want to consider aid. It is essential to make more effective use of the money that is currently spent multilaterally. There is a strong case for increasing national control over the aid funds currently spent by the European Union. In 1990, 70 per cent. of EU development aid went to the world's poorest countries, but that has now fallen to 52 per cent. Half the EU aid budget is spent on middle or high-income developing countries. That cannot be the best use of our overseas aid, which should help the poorest people in the world. To its credit, British aid does that; European aid, in many respects, does not.

The former Secretary of State for International Development, the right hon. Member for Birmingham, Ladywood (Clare Short) agrees. She said that

"anyone who knows anything about development knows that the EU is the worst agency in the world, the most inefficient, the least poverty-focused, the slowest, flinging money around political gestures rather than promoting real development."

I believe that the EU should commit itself clearly to devoting the great bulk of its budget to the poorest countries and the most impoverished citizens. We should not tamely accept the status quo. Britain should set an example and press other member states to follow it. I call on the Government to publish a detailed annual assessment of all EU aid expenditure, describing Britain's involvement, the procedure for monitoring each project and an assessment of the results.

I thank the hon. Gentleman for allowing me to intervene before he perorates—if there is such a verb. He makes the point that others have made in similar debates, that most international aid budgets should go to the poorest countries. However, does he accept that, in some instances, such as support for the Palestinian Authority or in the Balkans, some of the policies that we in this country tried to pursue ended up with commitments that the EU met on our behalf?

I understand the hon. Gentleman's point, but there are many mechanisms whereby the EU can deal with political and economic development in, for example, the Palestinian Authority, including Euro-Med agreements, which are helpful. I also believe that, in such a process, some assistance can be given. However, I think that he would agree that poverty and all that flows from it is the challenge of international aid giving in the 21st century, and that we should focus on that more than anything else. The problem is that the EU has not been efficient in doing that either managerially and functionally or in terms of the principles that underlie the aid programme. We handle these matters better in this country, and if that could be replicated in the European Union, it would not be the target of so much criticism.

My hon. Friend makes a superb case, but he is characteristically inclined somewhat to understate it. Will he take it from me that an illustration of the problem in relation to the European Union aid budget came when I tabled a number of questions—admittedly about 300—to the current Secretary of State for International Development, asking him for his assessment of the efficacy and value for money of the European Union aid projects to which Britain was contributing? The Secretary of State could manage only to provide an answer that referred me to a website. Does not that demonstrate the paucity of accountability, and suggest that if any savings that we make in the agriculture budget by getting rid of trade-distorting subsidies are to be spent on aid projects, they should be spent on bilateral aid projects rather than on multilateral ones?

I am grateful to my hon. Friend for his intervention. A few minutes ago, I made the similar point that we needed greater transparency with regard to what exactly was happening to Britain's contribution to the EU aid budget. I pay tribute to my hon. Friend, whose knowledge and understanding of this matter greatly enhances the proceedings in the House. I agree that the focus that he describes commends itself to the House as we consider this important matter.

Does the hon. Gentleman agree that aid spending ought to be about assisting the poorest, and that those who seek to divert money earmarked for aid into financing the development of an EU foreign and defence policy—however worthy that might be—are in fact distorting priorities? There is no way in which aid money should be going to any other than the poorest people.

I could not agree more with the hon. Gentleman. We all agree about giving aid to the poorest, and the governance of the countries involved is crucial in that regard. There is no point in giving substantial sums of taxpayers' money to the poorest if it is being skimmed off and not reaching them. The institutional underpinnings for economic development and human rights in some of those countries certainly need to be improved, and there must be a linkage between that and aid. On the hon. Gentleman's point about wasting money on some futile exercise in creating a foreign and defence policy under which we would lose our national control of such matters, I agree implicitly with what I believe he was saying: it would be absurd. I can assure him that when we are in government in a few weeks' time, that will certainly not happen.

I should like to conclude by saying a few words about the Commission's proposals for a new own resources decision and its plans to scrap the UK rebate. Hon. Members will know that member states' financial contributions to the EU are based on the provisions of the own resources decision. The UK's contribution is adjusted by the rebate secured by Lady Thatcher, she of blessed memory, at Fontainebleau in 1984—

She is still alive.

Yes, and I hope that she will remain in blessed memory in hon. Members' minds for ever, whether she is alive or whatever, in the future.

My intervention might be only tangentially related to the future of European Union finance, but before my hon. Friend digs himself in any deeper, may I assert that, in the minds of many, Lady Thatcher will never die?

I could not agree more with my hon. Friend. Indeed, as always, he has expressed so much better than I did what I was trying, however inadequately, to say.

The UK deserves the rebate, as it is ill suited to funding the EU through the current mechanisms. The Commission disagrees, however. Its report on "Financing the European Union" claims that

"in any event, granting a correction on an exclusive basis to one Member State appears to be unjustified, especially when taking into account the expected evolution of the net budgetary balances in the enlarged Union under unchanged conditions."

As a result, the Commission proposes to scrap the rebate, and to replace it with a general correction mechanism. As I understand it, that system would be available to any member state making what the Commission describes as "excessive budgetary contributions", but, unlike the current system, it would be entirely conditional on the application of what is called "the threshold" and all member states would be required to contribute.

I am glad that the Government claim not to accept that. As the Secretary of State for Education and Skills said when she was Financial Secretary:

"The Government believes that the current UK abatement remains justified and necessary to correct for the UK's disproportionate budgetary imbalance."

Likewise, the Chancellor of the Exchequer has commented:

"The abatement rebate is fully justified. We made that clear in Berlin in 1999 when the last EU budget was fixed and that continues to be the British position."

I am grateful to the hon. Gentleman for allowing me to intervene. If the UK was unable to obtain a suitable arrangement whereby it retained exactly the same size of rebate, would he—if he were in government—cease to pay into the Community budgets money over and above the agreed sum? Can he make that clear?

I can assure the hon. Lady that this situation will not arise—I am confident, and I return to what will happen in a few weeks' time—because such will be the clear message from the British Government on these matters that it will be known that any attempt to move beyond this will be firmly and utterly rejected.

Most recently, the Financial Secretary stated:

"In terms of the Commission proposal for a new Own Resources Decision, the Government's view is that the proposals are unrealistic and unacceptable. The continuing inefficiencies and inequities on the expenditure side of the budget, and the resulting unfairness of the UK position, mean that the abatement remains fully justified and is not up for negotiation."

But these are all words. The Commission's proposals are still on the table. Nothing seems to have been achieved.

Recently, there have been worrying reports that the Government have secured a deal with European leaders to postpone negotiations on the rebate until after the general election. Why is this? What have the Government got to hide? It seems to me that the only possible reason for putting this off until after the election is that the Government are preparing for yet another possible surrender of British interests in Europe. I hope not. It may well be that Britain, holding the EU presidency, may have to take the leading role in resolving this issue, if, as seems likely, Luxembourg is unable to secure agreement by June.

In the unhappy event of Labour winning the election, British taxpayers will be landed with a bill not only for the black hole in the public finances, but potentially, although I certainly hope not, for the loss of the rebate. The Conservative party is as totally and absolutely committed to defending the rebate as a previous Conservative Government were to winning it in the first place.

Many of our colleagues in the House probably think that the relevant documents are somewhat esoteric. I am not one who would say that they are necessarily completely wrong on that matter, but, even if they are esoteric, that should not diminish their importance. I rather think that the issues contained in those documents and the policy outlined in the Government motion are central to the important debate that the country will have on the European constitution and, perhaps one day, on the euro itself.

There are more fundamental issues in those documents as to the size of the European Union budget and how the budget is spent than in all the constitutional changes, which I have always seen as methodological. I do not see them as fundamental to how the EU runs and what it does. Not just in Britain, but throughout the EU, people always say, "What are we going to get out of it?" In a way, we are all to blame in that respect, and I concede that I am as guilty as others, or I certainly was in the past.

I recall the public discussion in 1975 on whether Britain should remain in the European Union. In a sense, the earlier vote in 1972 on whether we should be in the EU was more honest. The issue got distorted in 1975 by the question of a little bit of money or a little bit of authority here or there. As a consequence, the British public—we are not unique, as other countries also have this approach—thought that the case for the European Union was wholly dependent on how much money we could get out of the organisation by belonging to it. Before the nationalist parties pursue their amendment, they should think a little more carefully about that. I shall perhaps mention later the importance of the EU to Scotland and Wales. We need to be cautious, however, about arguing for the European Union on the basis of how much money we get out of it.

In my view, the European Union is about doing things together, not subsidising each other. Clearly, there must be an exchange of resources as different issues are tackled in different eras in the development of the European Union. As I think that the Financial Secretary said in response to an intervention, however, it is not about rich countries cross-subsidising each other so that the poorer parts of Germany subsidise the poorer parts of Britain and vice versa. That makes no sense at all. When considering the EU budget, we need to identify more clearly what are the priorities of the EU. We need to ask what the EU is for as we move forward in the 21st century. Until we do that, our arguments about the financing of the EU will be rather sterile. I shall mention later the context of public opinion, in which finances are important.

Before the public are asked to judge on the finances, however, they should be aware—we all have a responsibility to encourage that awareness—of what the European Union is. I believe that the most important thing for which the European Union stands is the binding together of European countries to protect, to bring stability and security in Europe and to contribute to world security and stability. That is why I am in favour of the European Union—it is absolutely essential that the countries of Europe bind themselves together, and there is no other organisation to do that.

The second argument, in my view, is that a large international organisation, which claims to have, and should have, a major security and stability role, cannot do that without having an important economic role, as the two go together. That is why the European Union must have a major economic role, too. That major role does not need to cost a lot of money, however. Some of the things that the European Union does are costly. Stability and security involve costs, but not colossal ones, because most of the contributions in that area are made by individual members. Some countries in the Union might be better at naval interventions, some at troop interventions, and some, in certain parts of the world—for example, the French in Africa and Britain in some other areas—at contributing to aid programmes and so on. A lot of the resources for that come directly from member countries, but those countries cannot work together unless they are bound by as common a policy as possible. We will not get international security and stability at all if the European Union cannot even agree on priorities in a relatively rich area of the world. Therefore, there are costs in relation to security.

Economic policy can have costs, depending on how it is designed. As long as there is agricultural support, whether in the current common agricultural policy or some other regime, common funds will need to be raised to be disbursed according to rules and regulations agreed by everyone. So there will always have to be discussions about the size of the agriculture budget. Other measures, however—such as the economic initiatives of which, perhaps, a few more should have resulted from the Lisbon agreements—do not involve much cost, apart from a measure of administrative cost. They involve no huge subsidies.

If the enlargement of the European Union is to fulfil the hope of many of us throughout the House that the countries that entered in the last wave will establish values and standards similar to those in existing EU countries, and will aspire to the same economic conditions—if they are to be brought into the house, as it were—there will be some costs to the rest of us. As one who represents a relatively poor part of the United Kingdom, I can say that there will be costs even to areas such as the north-east of England. The structural fund regime that we in the north-east may have expected in the past cannot continue for ever, because of other important priorities in some of the new EU countries.

Some may ask, "What is the point of our being in the EU if we in Tyneside are not getting the deal that we used to get?" They should bear in mind the importance to Tyneside's electrical and manufacturing industries not just of inward investment following active participation in the EU, but of defence contracts for such things as aircraft carriers, which are largely dependent on European security and stability. I do not believe that those contracts depend solely on NATO, although I am a strong supporter of NATO; I think that, in today's world, the EU must play a major role.

As my hon. Friend said, his area—like mine—has received considerable support from structural funds and from the EU. Perhaps he will also point out that by allowing greater economic prosperity in some eastern countries in the new enlarged EU, we are helping them to compete in the bargain basement and thereby to deprive areas such as his and mine of jobs.

That is absolutely true, but when considering the economic consequences of Latvia, Poland or the Czech Republic joining the EU, we should bear in mind the opportunity that it gives the British economy to trade with them at a higher level in future. Some may say that that is pie in the sky, but that does not apply to trade flows between Britain and Portugal and between Britain and Spain. There has been a vast increase in activity in both directions, but to our advantage in many respects. If I were speaking from the Dispatch Box, I would check the figures before making that assertion, but I think it is broadly correct.

There are many other spheres in which we must act together, which I think are important to democracy and civilisation in Europe and which involve minimum cost. Costs are involved in asylum and border policy—another important issue—but if we are to have public support in the west of the European Union, the people in the west must be satisfied that the same standards of asylum and border control obtain in the east. If some of the eastern countries cannot fund those standards at present, there must be a degree of payment transfer in the short and, possibly, the medium term. Many important things that the EU does, however, do involve minimum cost.

Members are bound to mention aid, and they can make that as big an issue as they want. Of course aid involves cost, which must be kept in reasonable proportion—although I support a common European policy on some aspects of aid. I am involved in the sugar regime because of constituency interests in the chocolate industry. I think that it would be wrong to restructure that regime without considering the consequences for the various poorer countries that are affected. If the European Union decides to restructure the regime—which I think it should—it must take account of those consequences. The process will not work if everybody in the EU is bound by the new sugar regime but not by the aid regime. So it is important to take common action within the EU on this issue and I strongly support doing so, although I recognise that there have to be limits. It is a question of bargaining with the other countries and of looking at what is acceptable to public opinion across Europe.

I am grateful to my hon. Friend for giving way on this important point. He has spoken very sensibly on the question of solidarity within Europe and across the world as a whole, but surely the test of financing via the European Union is whether or not it adds value. The objection that many of us have to giving ever-increasing sums to the EU is not that we do not want co-operation, but that such money is sucked into a morass of fraud, corruption and inefficiency. As a result, we obtain less bang for the buck than would otherwise be the case.

I thank my hon. Friend for his intervention, with which I partly agree. The EU needs to decide the borders of the territory within which a common aid policy is to be implemented. Such borders will be movable, depending on world events. For example, there is a need sometimes to be involved in, say, Bosnia, and it is perhaps worth considering funding such undertakings from a security budget, rather than from the aid budget.

I want such money to be audited effectively and spent well. I know from past examination of such matters that it has not always been spent well, which is why, often, the auditors will not sign it off. But that issue is separate from the question of whether we should spend such money; rather, it concerns ensuring that if we do spend it, it is spent properly, and that there is proper accountability. I hope that my hon. Friend the Member for Glasgow, Pollok (Mr. Davidson) agrees that we need to draw that distinction.

But let us consider the example of a local authority supported by large sums of money, raised through taxation measures implemented by this House. If, over a period of 10 years, there was clear evidence that the people taking in that money were not conforming to proper auditing rules, were unable to account for much of it and were frequently making it clear that they had been involved in fraud and corruption, would my hon. Friend accept that?

Perhaps my hon. Friend could clarify her question. Would I accept what?

Would my hon. Friend accept such behaviour? Would he accept such an arrangement in respect of any other organisation with which this House has dealings—or in respect of any other form of taxation, be it local or national—if there was clear evidence of fraud and corruption, and if the auditors refused for 10 years to sign off the accounts?

Of course I would not, and as I tried to say in response to my hon. Friend the Member for Glasgow, Pollok, this issue must be tackled. There is a need to improve the EU's auditing process and its financial planning, but that is an argument not for getting rid of the EU or for curtailing its activities, but for ensuring that, once we have defined what its responsibilities and priorities should be, the budgets are fairly tightly geared towards them. That can be done, but such things are more difficult to do at international than national level.

On the point raised by my hon. Friend the Member for Crewe and Nantwich (Mrs. Dunwoody), if a local authority were questioned about auditing, there would be discussion and argument among the various political parties and institutions in the city in question as to whether taking serious action against the authority was worth the candle. Hopefully, the answer would be yes, but a lot of negotiation has to take place before such action can be taken. However, I hope that my hon. Friend understands that in the EU, one has to multiply that process by the large number of member countries within it, which makes such discussion and the decision-making process more difficult. I do not say that to defend inefficient procedures or unaudited accounts, which I believe should be dealt with.

Before finishing, I want to mention a few important aspects of what the EU does that do not cost much money. Technology exchange and university links are significant developments within the EU that can help to bolster our industries. The aircraft carrier provides an interesting example. It is now unthinkable that such a complex and costly project could be developed within one country alone. The aerospace industry needs to look at the broader sphere. Technology transfer can be beneficial not only to the relatively well-informed technological nations of the EU, but to the less well-informed ones. The costs are minimal, but the EU has a fundamental role to play. Those are the arguments that we have to put before the public.

rose—

I may give way in a few moments.

The EU has also had an important role to play in respect of human rights. We cannot talk about human rights throughout the world unless there is a system based on human rights within the EU. Again, systems based on human rights do not cost a lot of money, just relatively low administrative costs.

Environmental issues can be costly if major improvements are being sought in either the private or the public sector, and that applies whether or not those improvements are being implemented at the country level or the EU level. I believe that we have to strike an appropriate balance over funding, but the rules governing power station emissions and all the rest of it must be determined at European level. The only organisation in Europe that is capable of achieving that is the European Union. Many other examples of projects that do not cost much money could be cited.

If the question is how much money should be spent, the answer is that, in a sense, we can never spend enough. All the issues that I have articulated in my speech—they have also been articulated by Front Benchers and others in the debate—potentially cost money, and the amount of money needs to be controlled. There needs to be an ongoing public debate to justify the importance of what the EU does and to gain public support for the funding. We should justify the EU in the same way as we continually justify the importance of the national health service. Very few people argue against the need to finance the NHS, though there may be arguments about the effectiveness of the spending, and we have to make exactly the same arguments in favour of the EU. We need to bring EU budgets to a level that is acceptable to public opinion.

I ask the Minister to tell us a little more about the timetable for taking the process forward—the hon. Member for West Suffolk (Mr. Spring) asked the same question—and to explain in greater detail what Britain intends to do during its six-month presidency.

I am delighted to follow the hon. Member for Newcastle upon Tyne, North (Mr. Henderson), who said many things that I agree with. His comments are made on the basis of greater experience than I have in this particular area of policy. What he said about the linkage between aid and trade was particularly important. I heard the Front-Bench spokesmen debate the matter earlier and I broadly concur about the national role in comparison with the Europe-wide role. That is a perfectly fair point, but we should all recognise that no one is blameless in the matter.

No country's aid programme under any Government has been as effective or as well targeted as we would like, not least because it has occasionally been supplemented by arms sales policies that definitely do nothing to promote the right relationships between Governments. On that score, I agree with what the hon. Member for Newcastle upon Tyne, North said, and I also accept what he said about the constitution. The sooner Europe has a constitution that limits and codifies the different roles and governance, the better. I hope that we will achieve that—[Interruption.] I can hear some sedentary contributions from the Conservative Benches. However, the argument that the hon. Member for West Suffolk (Mr. Spring) made on behalf of his party actually led to that conclusion; we need more effective codification of the different financial responsibilities in Europe.

The hon. Gentleman talked in most helpful terms about the context. I want to say a few words about the financial context. As I understand it, the EU budget is limited to about 1 per cent. of total national income in member states, compared to an average of about 45 per cent. for national Government budgets. That is a different cup of tea—a different scale of operation. Furthermore, the EU budget has risen about 8 per cent. since 1997, which is less than the rate of inflation, at a time when the UK budget increased by between 60 and 65 per cent. The common agricultural policy takes a whacking 45.8 per cent. of the whole EU budget—a point to which reference has already been made. That is a huge figure, yet in a sense it is outwith our discussion this afternoon. I shall come back to that point in a moment. Incidentally, those figures do not even include support for the common fisheries policy.

Built into the main document before us, "Financial Perspectives 2007–2013", is an implicit tug of war between two distinct approaches to regional aid programmes—structural funds, which have already been a feature of the debate. I represent an area that already benefits from objective 1 status. Other such Members are in the Chamber. I am well aware that in Cornwall, mid and west Wales, south Yorkshire and Merseyside we are subject to an explicit threat from the Treasury. It is for that reason that we have some sympathy for the amendment tabled by the hon. Member for East Carmarthen and Dinefwr (Adam Price). Unfortunately, by excluding the whole second half of the motion, the amendment would remove any hope of retaining the UK rebate. I do not know whether that was intentional. As the Minister said, the figure would be £5 billion by 2013. The Welsh nationalists are prepared to sign that away, so I am afraid that we cannot support the amendment.

Does the hon. Gentleman agree that the European Union has had a remarkably good effect both on regional development and because countries such as Ireland started off being in receipt of large sums of money but will soon become net contributors? Is not that a remarkable achievement, given how much more successful they were than the British?

The right hon. Gentleman is right. I am delighted to agree with him. Some years ago—possibly when he was a Minister—some of my colleagues from Cornwall and I visited Ireland to examine precisely what good use had been made of EU structural funds. We came to the conclusion that if we could complete the border between Cornwall and England by taking a bulldozer towards the Irish sea from the Tamar, to shift or tug ourselves over and attach Cornwall to Ireland we should be doing better than under the right hon. Gentleman's Government.

The success of Ireland is welcome and I have many Irish constituents who agree. However, given that the net contributions from the European Union to Ireland amounted to 5 per cent. of gross domestic product, which in Britain would be more than £50 billion every year, and that Ireland joined the euro at a relatively low parity for its currency and had to reduce interest rates, it is hardly surprising that the economy boomed.

I understand the point that the hon. Gentleman is making. I was not suggesting that England, or indeed Wales and Scotland, should join Ireland and benefit—simply Cornwall.

At present, there is a clear plot to undo some of the good work that the right hon. Member for Suffolk, Coastal (Mr. Gummer) and I agree is going on in some parts of the United Kingdom. The Library briefing shows that some real economic progress is beginning to come through from the objective 1 process. GDP per capita in Cornwall, for example, is up from 70 to 72.6 per cent. of the EU average in just two years. That is more than the whole of the previous six years. The situation is similar in other objective 1 areas although, of course, we all started from a low base and the improvement is painfully slow. To pull the plug on the objective 1 process in the period between 2007 and 2013 would deal a devastating blow to our economic and employment activity rates just when they are showing signs of sustained progress.

Unfortunately, UK Ministers constantly bad-mouth such programmes. In the debate in the House on 15 June last year, the Minister for Industry and the Regions said that she wanted

"to get away from the stifling effects of Commission bureaucracy on structural funds projects."—[Official Report, 15 June 2004; Vol. 422, c. 747.]

However, Members from all the objective 1 areas know only too well from our contact with the local communities, local authorities and their partners that the problem is not the bureaucracy in Brussels, but the bureaucracy up the road in Whitehall. We constantly face that problem. I accept that there is a trade-off because, of course, the bureaucrats say that they are monitoring and auditing everything that is going on, but to complain about the bureaucracy in Brussels is completely misplaced in this respect.

As a result of what is now proposed, there is a well-founded suspicion that the Chancellor has set his sights on the repatriation of regional support funding programmes, not so much to save taxpayers' money, but to gain control of the direction of such investment, first, to concentrate it where it can be of political benefit to the Labour party—regretfully that clearly will not be in Cornwall—secondly, to limit the Treasury's match funding commitments and, thirdly, to avoid longer-term investment in specific areas of the UK.

The Chancellor and his ministerial colleagues have done nothing to remove our fears, and almost all MPs from objective 1 areas have expressed serious concern about the complete lack of realistic guarantees. The objective 1 group in the House has, for example, pointed out that the EU programme lasts for seven years, but that the Treasury can promise only three years of assistance, with no commitment to match funding comparable with what we have experienced in phase 1. So are the savings sought by the Government, within the package and implicit in what we are considering now, real and realistic?

Incidentally, I find it odd that the Conservative spokesperson, the hon. Member for West Suffolk, assumed that we could do nothing about all this. He even seemed enthusiastic about what the Chancellor is up to in respect of objective 1 areas. It happens that Cornwall is a Tory-free zone—indeed, as are most of the other objective 1 areas—but to deny the useful contribution that objective 1 status has made to our economy and so on seems extraordinary.

My colleagues and I have met officials from the appropriate directorate of the Commission in Brussels who believe that such savings are neither real nor realistic. Unless the Chancellor is prepared to preside over a sharply reduced impact on regional development in the UK and is successful in persuading the majority of the other 24 member states to do the same, this attempt at a unilateral break-out is clearly doomed. Meanwhile, the effect of the Government's refusal to compromise is delaying vital decisions and leaving UK local authorities and their partners in a state of dangerous confusion—they simply have no idea what will happen or when—and the potential for avoidable waste and dissipation is immense.

We seek an explicit reassurance from the Minister. What will happen and when to such regional funds? What guarantee is he prepared to make? Frankly, given the Chancellor's obstinacy, there is little prospect of finding any solution to the problem before the end of June. If he thinks that he can bully his opposite numbers into agreeing with him during the British presidency, many MEPs, from all parties, are simply convinced that that is wishful thinking.

A great deal has already been said about the CAP. As I made clear at the outset, the CAP is the real meat of the EU budget. The 2002 deal, which was referred to earlier, struck between the French and German Governments has resulted in a continuation of many of the least satisfactory and least sustainable aspects of CAP expenditure. Reference has been made to the sugar and tobacco regimes, both of which are clearly undesirable in the medium to long term. The sugar regime is not finalised and could still be revised much more effectively.

I recall that the then Minister for Europe, now the Leader of the House, whom I shadow, said that the CAP's

"quick reform is imperative, and it will not bear the weight of enlargement without it."—[Official Report, Westminster Hall, 16 April 2002; Vol. 383, c. 121WH.]

We now have enlargement, yet the CAP is not fully reformed. That is unfinished business.

Where were the United Kingdom Government when the latest Franco-German CAP deal was struck? Did our Ministers, let alone the Chancellor, fight for effective restraint on that huge element of the overall Brussels budget? They seem to have been conspicuous by their quiet acquiescence.

I agree with the hon. Gentleman about the need to reform the CAP. What is the amount he believes that the European Union should allocate to the CAP?

If the hon. Gentleman has farmers in his constituency, he will know that we are in a difficult transition period. I think that he will agree that change should have taken place under the previous Conservative Government.

What is the figure?

I am trying to explain the situation to the hon. Gentleman because I am not sure how many farmers he has in his constituency. The process of transition is, by its nature, expensive—change is always expensive—so I do not expect a reduction to below 40 per cent. of the total EU budget during the transition period. However, we should certainly aim for such a figure after that period and thereafter I hope that we will see real improvements. I hope that that satisfies the hon. Gentleman. I also hope that he will note that the most important thing for both farmers and consumers is not the CAP, but tackling the problems caused by middlemen in the food process. Although it would be inappropriate to discuss that matter at length today, the processors and the retailers are creaming off money that should go to the original producers.

I am just a simple country boy, so I do not understand from that long answer the amount that the Liberals want spent on the CAP. Can he just give me a figure?

I do not think that the hon. Gentleman is listening. I explained carefully that the process of transition—it should have started much earlier and it is unfortunate that it did not happen under the previous Government—will be expensive. I cited a reduction to about 40 per cent. of the total budget by the end of the process and hope that it will come down further after that. I hope that that satisfies the hon. Gentleman.

Is it not noticeable that Labour Members are extremely good at attacking the common agricultural policy without recognising the important changes that have taken place, the effect that those will have on farmers and the need for farmers to have a reasonable time to adjust to them? At the same time, those people expect to have farmers' votes.

I entirely agree with the right hon. Gentleman, who speaks as a former Minister. The transition process is not easy. He has a big agricultural community in his constituency, as do I, so he will agree that if the process had been started earlier—I am not blaming him and his Government for that—things might have been easier, especially given what has happened over the past 10 years with bovine spongiform encephalopathy and foot and mouth. The livestock industry has suffered a lot of blows, although that might not worry him as much as me. The change process is not painless and will take time.

The European regional development fund to which I was referring is, frankly, small beer alongside the CAP. Only a small improvement to the application of the CAP would be effective, which is why those of us who represent objective 1 areas are worried, nay apprehensive, about the way in which the Chancellor seems to be targeting the development and structural funds rather than the CAP. We are far from convinced that the Government have either identified the right targets for reform and retrenchment, or secured the necessary allies to achieve that.

Anyone who doubts the wisdom of carefully extending the application of qualified majority voting should take a hard look at the way in which only a few Governments of member states have managed to stymie radical reform of the CAP and the common fisheries policy with the use of their vetoes. Surely such reform requires a consensual approach rather than unanimity.

Budgetary discipline is the subject of another of the papers before us. To a non-accountant, the paper seems to be dangerously complacent, and that was reflected by the exchanges between the Conservative and Labour Front-Bench spokesmen. The mechanisms might seem to be "an efficient tool" to those in Brussels, but the outcomes suggest otherwise. As hon. Members have said, the European Court of Auditors has refused to sign off the EU accounts for the 10th year. That is outrageous, as the hon. Member for Crewe and Nantwich (Mrs. Dunwoody) has reminded us several times this afternoon.

Surely the UK Government should concentrate on achieving an effective audit trail in all member states for all EU funds. Until then, it might be more reasonable to insist on a freeze on the budget as a share of gross domestic product in the Union. That would allow a real increase, but only in line with the growth of the EU economy. I find it difficult to understand why that explicit statement—using both a carrot and stick—is not deployed more effectively by European countries that are worried about the lack of effective budgetary discipline. It should surely be said openly—it should have been said in the famous letter of 2003—that until the EU gets a firm grip on its budgetary disciplines, there should be no question of an increase in overall expenditure.

If the hon. Gentleman is now so keen on budgetary discipline, why was it that no Liberal Democrats or their allies tabled or supported amendments to the European Convention to improve the scrutiny process or to strengthen budgetary discipline in the European constitution?

I cannot answer that question because I do not know the details. I can tell the right hon. Gentleman that my colleagues on the Economic and Monetary Affairs Committee have been making a specific proposal to link any consideration of any increase in the overall budget to the issue that is before us. That is specific within the European Parliament. I cannot speak for the Convention, but the European Parliament has the same sort of responsibility for the scrutiny of the budget, but perhaps not to the same degree as we in this place in terms of the UK budget, and perhaps not as much as the right hon. Gentleman and I would like, and initiatives have been taken. I agree entirely that fraud continues to disfigure the reputation of the EU.

The lack of clear management accounts is clearly an obstacle to the scrutiny of spending. It seems odd that there is not a specific linkage in the Government's proposal, and in the motion, between that and the issue of the overall budget.

I move on briefly to the issue of a general correction mechanism and the own resources system. The two papers, and the Government's response to them, raise fewer issues of principle, at least to my mind, but as always, the devil may be in the detail. The Minister may be able to tell us that there are still some difficulties. I think that there is unanimity across the House that we must stand firm. That is why I find it unfortunate that the amendment to which the Welsh nationalists have put their names would seem to undermine that position. I hope that the amendment will not be carried.

Enlargement has been mentioned several times. The Government, and the Conservative Government before them, have been enthusiastic about enlargement. I have always believed that the reinforcement of budgetary control should have preceded the expansion to 25 rather than followed it. Deepening should have been given precedence over widening. However, we have to live with the world that we now have.

The Commission is now saying that the larger budget that it is seeking is necessary to consolidate and continue the process of enlargement and to achieve better cohesion with the economies of the new entrants. We have yet to see how it can persuade other Governments, including our own, that it has not wished the end without supporting the means. As has been said, the Lisbon agenda is also extremely relevant.

The core issue should not be only "How much?" but "What for?" We have the famous 2003 letter to the then President of the Commission to which there were six signatories, including the UK Government. It was remarkable in that it made no direct reference to CAP reform. It assumed that the Franco-German deal was a done deal and could not be reopened. That was a grave mistake. It was extraordinary that it did not make any direct reference to better financial management and audit supervision.

This morning, in The Guardian, Lord Hattersley quoted Mr. Gladstone, whom I suppose I could call my right hon. Friend. He made a sensible and sane statement some 120 years when he said:

"Things are done best by those who believe in them."

To us, the Chancellor seems all too anxious to carve up the most cost-effective EU regional programme while failing to insist on CAP pruning and meaningful audit tracking of waste. We just wish that he would believe more in the EU and less in his own omniscience.

The connection between politics and taxation is a direct one. Parliaments exist not only to collect taxes, but to decide the priorities for those who are involved in how those taxes should be spent. There is a direct relationship with elected Members, in terms of the decisions that are taken, that is emphasised by the fact that in a Parliament such as this, we are constantly presenting ourselves for re-election. We say to the electorate, "We want your taxes for these purposes. If we do not fulfil them, we shall offer ourselves for re-election and you may then decide whether we have fulfilled the programme that we offered you at the last general election."

It is therefore extraordinary that we should be debating, with the assistance of some extremely good reports by the European Scrutiny Committee, an arrangement that for a period of well over 10 years has not been audited properly and has resulted in the collection of considerable sums of money from the taxpayer. That money has been spent on a series of initiatives, some of which have rather strange priorities, but the Commission is still not capable of demonstrating in a clear or transparent manner how it controls its own finances. I asked my hon. Friend the Member for Newcastle upon Tyne, North (Mr. Henderson) a question about what he would do if a local authority could not demonstrate how it had spent taxpayers' money and which projects it had supported, for the simple reason that the principles of accountability are the same whether the organisation is local, national or international. It is extraordinary that year after year, we have debates, sometimes attended by very few Members of Parliament—although that fact is of practically no importance—in which we consistently agree that we need more transparency, better audit trails and more control over the way in which the Commission makes decisions. We decide, however, not to take action that week or the week after. We might even fail to take action in a few months' time, but people need not worry because we will do something eventually.

Is my hon. Friend not aware that the European Parliament has a Budgetary Control Committee? Indeed, even though the auditors have not signed off previous budgets, the European Parliament is made up of directly elected Members from this country and 24 other member states who can stop the budget in its tracks, and have occasionally threatened to do so?

I spent four and a half jolly years in the European Parliament, and I can assure my hon. Friend that not only do I know about the tricks and games of that Committee but I know that the European Parliament's powers, which could be used to control the Commission, are rarely used, because they are blunderbuss powers. There has been only one attempt to discipline the people in charge, so my hon. Friend's argument is singularly unconvincing.

Is not the reality that Ministers in Governments across Europe, and, indeed, in the European Parliament, do not want to kick up too much of a fuss for fear of being seen as non-communautaire and guilty of shaking the whole arrangement to pieces?

I am afraid that I cannot answer for any Minister, thank God. It is many years since I was a Minister. However, I would like to say something about one or two important matters.

I have listened carefully to my hon. Friend the Minister, and I accept that he and the Chancellor are strongly committed to the securing of a sensible arrangement. We should welcome the fact that they will not go above 1 per cent.—indeed, they should sing it from the rooftops as loudly as possible. Nevertheless, I have one or two questions for the Minister. If, for any reason, our position is not accepted by the other member states after the election, what will be the attitude of the United Kingdom Government? Will it be the same attitude adopted by the present Administration, who will not contribute a sum over the amount specified by the Chancellor? If so, how do we intend to maintain that position? Is it true that in moving to a different arrangement for the payment of regional funds we will insist that the community provide a buffer and a suitable amount of cash to ensure that UK regions that receive support will not lose it without a targeted and tapered programme?

Is it not possible for the Minister to say that if we are required, at the end of another 12-month period, to accept accounts that are not qualified or audited properly, a demand for extra money for a larger budget and a change in the way that the United Kingdom retains its rebate, we—the United Kingdom—will take action to protect the sums that are going into Community organisations?

It is all very well to say to the taxpayers of this country that, in comparative terms, we are dealing with a small sum of money. I noted in the papers before us the wonderful phrase that it is only 1 per cent. of budget, whereas, after all, the individual states are spending 48 or 49 per cent. more. Whatever the size of the budget, what happens to that money should concern us. We know that in certain cases, and certainly in relation to overseas development, money is not only squandered, but frequently lost. We know that in relation to many of the individual institutions, there is open corruption and frequently very little accurate accounting for the sums of money that are put into various developments. Beyond that, we also know that as a Parliament, for the first time in almost 800 years, we are being required to do something that would be unacceptable in any other sphere. We are being asked to tax the people of this country, to use that money by transferring it to a much larger organisation and to be unable to assure ourselves that those sums are being correctly, honestly and effectively spent. How long can that state of affairs be allowed to continue?

I beg to move amendment (a), leave out from "resources system;" to end and add

'and reaffirms the need to continue EU structural funding.'.

It is an honour to move the amendment in my name, and a rare privilege for Plaid Cymru and the Scottish national party. The issue is vital to West Wales and the Valleys, and we wanted to focus on the structural funds and regional policy. May I say to the hon. Member for North Cornwall (Mr. Tyler) that it is always difficult to knit an Opposition amendment into a paragraph that eulogises the Government, and I am sorry if I failed on this occasion. We thought it was important to give hon. Members an opportunity to divide on an issue that is of such great importance to our communities before the general election and before decisions are made. That is the intention of the amendment.

Regional policy is important not just to my community; it goes to the heart of the European Union that we are trying to create. Implicit in the Government's policy is the notion of the renationalisation of solidarity. Solidarity is an important component of the notion of European citizenship that we are trying to create. We are grateful to the hon. Member for West Suffolk (Mr. Spring) for pointing out that the spectre of Thatcherism, if not the spirit of Mrs. Thatcher, still haunts us.

In the experience of my community, European regional policy provided a valuable safety net through the terrible, devastating years of Thatcherism. It provided practical value to our communities in the form of individual projects, and was also a beacon of hope because it showed that another way was possible—that there was a different model for society and the economy, and that the neo-liberal model that was on offer at the time could at least be ameliorated by European regional policy, and we are grateful for that.

The hon. Gentleman is rewriting history a little. Massive inward investment into Wales was secured in those years, particularly from the Japanese, which transformed the manufacturing base in south Wales, much to the benefit of the economy of Wales. I also remind the hon. Gentleman—I hope he has the generosity to accept this—that there was during those times a regeneration of the Welsh language and an acceptance of Welsh broadcasting that had not happened before.

If I were to respond, I would be going rather wide of the subject that we are debating. In the past few days, a report from Sheffield Hallam university showed that only half the jobs that were lost in heavy industry, mining and steel have been replaced through inward investment in manufacturing, so sadly they do not make up for the terrible policy of breakneck de-industrialisation under the Tories.

We were fortunate in those days that we at least had the safety net of European aid. That is why it is so important that we uphold the principle of an EU-wide regional policy. I have no appetite for the return of a Tory Government. I have no appetite for the present Government's dalliances with neo-liberal policies either, but I am certain of one thing: there is more economic security for our communities if we retain the principle of EU-wide regional policy.