With permission, Mr. Speaker, I shall make a statement about the European Council held in Brussels on 16–17 June.

This European Council was essentially about two subjects: the consequences of the no votes in the referendums in France and the Netherlands; and the financial perspectives, the budget ceilings for the European Union for 2007–13.

In respect of the constitutional treaty, the 10 member states that had ratified were anxious that ratification continue. But realistically, given the no votes in France and the Netherlands, ratification cannot succeed unless and until those votes change. Moreover, the Dutch Prime Minister, rightly and inevitably, said frankly that there was no prospect of his bringing back the treaty for any sort of new decision in this Dutch Parliament. As a result, whatever words are used in the Council conclusions, standing the results of the French and Dutch referendums, the treaty cannot proceed. It is therefore sensible instead to have a period of reflection, in which the critical questions as to Europe's future direction are debated.

On the future financing package, the UK approached the negotiations with several objectives. First, we wanted an overall budget which demonstrated a responsible and prudent approach to spending, at a time when national budgets across Europe are under strain. Secondly, we wanted a commitment to a comprehensive reassessment of the structure of the EU budget.

Europe faces an immense global competitive challenge. Quite apart from the established economies of America and Japan, the rise of China, India and the other Asian economies is creating a wholly new economic environment. It simply does not make sense, in this new world, for Europe to spend over 40 per cent. of its budget on the common agricultural policy, representing 5 per cent. of the EU population producing less than 2 per cent. of Europe's output. Indeed, we are spending seven times as much on agriculture as on research and development, science, technology, education and support for innovation combined. This is not a budget fit for purpose in the 21st century. Even at the end of the next financial period—by the beginning of 2014—we would be spending 40 per cent. of the budget on the CAP. Europe just cannot wait 10 years or more for the change that is necessary.

It is in that context that the issue of the British rebate must be examined. The rebate arises because of the distortion of the budget. Over the 10 years to 2003, France's net contribution to the European Union was €18.8 billion; Britain's was €42.4 billion. Without the rebate, it would have been €78.7 billion. In the next financial period—2007–13—even with the rebate, Britain would be paying around €13 billion more. Without it, Britain would pay nearly two and a half times as much as France, and slightly more even in money terms than Germany. But it is also true that the rebate is merely a correction mechanism, designed to address an underlying imbalance in the budget. As the European Union has expanded and Britain has become more wealthy than countries such as France, it is right that it changes.

Our position, therefore, was not to refuse any change to the rebate, to rule out a discussion, or to disown our responsibility to pay for the enlargement of Europe—an enlargement that we passionately support.

On the contrary, I made it clear that we should deal with both anomalies; the rebate and the CAP. I proposed that we have a fundamental review of the EU budget, reporting in time for us to be able—midway through the next financial period—to alter fundamentally the structure of the budget, dealing both with the rebate and the CAP. In the meantime, of course, we would ensure that we paid our fair share of enlargement.

The presidency proposal from Luxembourg fell way short of such a solution. The terms of the review were expressed in language so vague as to be meaningless. In addition, the words meant, effectively, endorsing the 2002 common agricultural policy package up to 2013. It has been said frequently in the past week that this 2002 agreement ruled out further CAP changes, and that therefore it was unfair of the UK to try to reopen it. But in October 2002, it was expressly stated that this agreement was without prejudice to the future financing arrangements and, at that time, the UK made it clear that on the basis of such a package there could be no change to the rebate.

So the review offered was inadequate. What is more, the cost to the UK of the Luxembourg proposal would be over €25 billion, meaning over the next financial period that instead of parity with similar sized countries, we would have been back to, for example, a €23 billion deficit with France. That money, incidentally, would not have gone to poorest countries, but would have been redistributed among the wealthy ones.

This is a deal I simply could not have recommended to the House. It was not the right deal for Britain. It was not the right deal for Europe. Four other countries rejected it, and several more made clear their dissatisfaction.

I fully understand the concerns of the new European countries. They want an agreement. We will do our best to secure such an agreement and to make sure it is one that meets their needs. Britain championed enlargement; Britain will continue to do so. But let us not forget that, on any basis, around 80 per cent. of CAP funds and almost 50 per cent. of structural and cohesion funds will continue to go to the original 15 countries, not to the new accession countries.

It is said that the failure to reach a deal has deepened Europe's crisis; that Europe's credibility demanded a deal. No. Europe's credibility demands the right deal—not the usual cobbled-together compromise in the early hours of the morning, but a deal that recognises the nature of the crisis. This crisis is not about the failure of Europe's leaders to reach agreement with each other. The crisis is about the failure of Europe's leaders to reach agreement with the people of Europe about the issues that concern them.

People in Europe see the world changing around them, economically and socially, and want answers to the challenges they face. They worry about globalisation and organised crime and they do not, at present, see Europe giving a credible response. If we answer these concerns, Europe will strengthen. We need a strong Europe to bolster the strength of individual nations. It is those who believe in Europe most who should be the most ardent advocates of changing it. The European Budget should not be separate from that debate, but part of it. It is that debate that we will look forward to in our presidency.

When the Prime Minister returns from a European Union Council, it is customary to start with those aspects of his statement with which we can agree, and I am grateful to the right hon. Gentleman for giving me advance sight of the statement.

On this occasion, I am delighted to say there are more aspects than usual with which we can agree. As the Prime Minister said on a different occasion, "The kaleidoscope has been shaken." I sense—I hope that I am not mistaken—a real change in the way in which he and some of his Ministers are approaching reform of the EU. If that conversion is genuine, no one would be more delighted than me. Let me first congratulate the Prime Minister on protecting the rebate. He was right to insist that Britain's rebate should remain intact. We fully support him on that. But will he explain to the House what he said to the BBC on Friday: that if he gets the deal that he wants,

"very bluntly Britain would pay more, not less, because of the way it would work out"?

Those are his words, not mine. We agree that the CAP needs radical reform, but if the European Union does less, should not the British people also pay less?

With the benefit of hindsight, does the Prime Minister now accept that he was wrong in October 2002 to sign up to the existing CAP arrangements, under which 40 per cent. of the EU budget still goes to an activity that employs just 5 per cent. of the people, as he said? But is there not something even more important than the reform of the CAP? The Prime Minister has talked about a European Union "fit for purpose". I agree. Should not Europe's leaders first decide what that purpose is, and only then how best to deliver it?

The 2001 Laeken declaration, which set up the Convention that led to the constitution, was clear. Europe's citizens

"want the European institutions to be less unwieldy and rigid . . . more efficient and open. Many also feel that the Union should"

not involve itself in every detail

"in matters by their nature better left to Member States".

Is it not true that Laeken asked the right questions, but that the constitution was the wrong answer? As Labour's own representative on the Convention, the hon. Member for Birmingham, Edgbaston (Ms Stuart), said last week,

"The Constitution was an overambitious attempt to consolidate an outdated political and economic vision of Europe. Our mandate was to bring Europe closer to its people and we ended up alienating them even more."

Does the Prime Minister now accept that he has wasted the last two years trying to sell an outdated vision of the European Union, when he should have been making the case for a more flexible, liberal Europe of nation states?

The no votes in France and Holland provide us with an historic opportunity to have a much wider debate about the future of Europe, but to do that we must put the European constitution behind us. Only last week, the Prime Minister was talking in this House of finding a way round the votes in France and Holland. Will he now emphatically renounce such language and reject any such attempt?

For the last two weeks, the Prime Minister has refused to say whether he thinks that the constitution is dead, yet on Friday he signed up to a statement that made it clear that the no votes in France and Holland

"do not call into question the validity of continuing with the ratification processes."

If he thinks it still valid to continue with those processes, what does he intend to do about it? Does this mean that we will, after all, proceed with a referendum in this country? If not, what on earth does he mean by that phrase, which he agreed with the other European Union leaders?

Last year, the Prime Minister told this House that opponents of the constitution wanted to

"marginalise this country in the European Union"—[Official Report, 20 December 2004; Vol. 428, c. 1925.]—

that we would end up having to accept associate membership. So has he sent France and Holland their application forms for associate membership? Does he now accept that he was wrong, and that the constitution would have taken Europe in completely the wrong direction? Why else did the Foreign Secretary say last week that we had reached a "turning point", and that Europe had been "trapped in the past"? Would it not be much better for the Prime Minister openly and honestly to accept that the constitution is dead, and that the European Union should abandon its attempts to smuggle in any further removal of power from the nation states, such as through the creation of a diplomatic service?

The Prime Minister has rightly called for "fundamental change and reform" in the European Union. Will he confirm that during that process of "fundamental change and reform", Britain will continue to support EU enlargement—including sticking to the timetable for Romania and Bulgaria to join, and starting talks on Turkey's future accession? Does he agree that

"the British view is that there should be a modern, flexible, reformed Europe; a Europe ready for the challenges of the 21st century; a Europe that is truly free, based on co-operation and not coercion; a Europe that transfers power back from Brussels to the nation state"?

A year ago, when I put that case in those words to the Prime Minister, he responded by accusing me of "prejudice" and of

"a transient populism that betrays the very national interest that it says it safeguards."—[Official Report, 21 June 2004; Vol. 422, c. 1085–86.]

But he said on Friday night that he was not now prepared to accept that there is only one view of what Europe is. We welcome that, and we trust that whenever anyone presents a vision of the European Union that differs from his, he will no longer routinely accuse them of wanting to leave the EU.

A recent report for the European Commission concluded that the EU faces the "exit ramp of history". In his new spirit of openness, conceding that there is more than one view of Europe's future, will the Prime Minister now accept that while some member states may want to integrate more closely, it should not mean that everyone has to? Does he agree that we will create a truly flexible EU only if Europe's leaders adopt a "live and let live" approach in future? Will he now accept that the status quo is a recipe for certain economic decline and that we need urgently to create a decentralised outward-looking deregulated European Union—a Europe that would be better placed to cope with the competitive challenges of globalisation and the emerging economies of the east? Will he also now accept that people of whatever country want to feel a sense of solidarity with and pride in the institutions that serve them, and that the institution that best provides such solidarity and sense of pride is the nation state?

If the Prime Minister uses Britain's presidency to take a lead in Europe, arguing for a more flexible and more accountable EU with powers returned to the nation states, we will support him every inch of the way.

First, let me thank the right hon. and learned Gentleman for his initial comments when he said that he agreed with much of the position that we have taken. Despite that, I still think it is the right position. However, the right hon. and learned Gentleman put his points in a perfectly reasonable manner, so I shall respond to them in kind.

The right hon. and learned Gentleman spoke about my statement on Britain paying more for enlargement, but we must be very clear about this matter. As the EU enlarges and takes in countries that are much poorer than ours and as the budget is placed on a sensible basis, the wealthy countries will clearly have to pay more and the poorer countries less. I personally think that that is entirely justifiable as long as the EU budget is spent on sensible things. People will then understand it, but what they will not understand is Britain paying more in respect of a budget that is completely distorted by the injustices of the past. As to the CAP reform of 2002, others had the veto in those circumstances, but in this case, we had to give our agreement in order for a deal to be done.

I do not disagree with some of the right hon. and learned Gentleman's remarks about the difference between the Laeken declaration and the subsequent debate. Indeed, that point has often been made. In respect of the constitution, however, let me make one thing very clear to the right hon. and learned Gentleman. Some of the reasons why people voted no, particularly in France, were not reasons that either he or I would support—among them was opposition to Turkish membership of the EU, for example. So we need to be careful, in discussing the no votes in France and Holland, that we do not assume that every person who voted no was somehow endorsing a particularly British view of Europe. It is not as simple as that.

There is a real debate in Europe now, which is not limited to just two simple positions. Some are opposed to Europe on grounds that might recommend themselves to some of the right hon. and learned Gentleman's party but not to him—people who are against enlargement, against immigration and against the very concept of the EU—and then there are some who want a federalist superstate. However, most people in Europe recognise that the EU has an important role and want to see it strengthened, but also want Europe and its institutions focused on the issues that concern them now rather than on issues that rightly concerned people in Europe 50 years ago. The issues are not the same in the Europe of today. Enlargement provides a tremendous opportunity in that regard.

Let me make one final point to the right hon. and learned Gentleman. Our approach to Europe over the last couple of years has allowed us to be in a position whereby, despite the attacks from some quarters over the last few days, we went to the European summit with allies and we went out of it with allies—[Interruption.] Well, four countries joined Britain in voting against, but many more countries expressed their dissatisfaction. It is important to keep those alliances going forward. Many of the new countries in the enlarged Europe would have preferred a deal last Friday—let us be clear about that—and we have to explain to them why our opposition to the deal last Friday was not an opposition to enlargement or to Britain paying its fair share, but an attempt to put Europe on a more rational footing. In doing so, diplomacy as well as strength will be required: we will need both.

Naturally, those of us in the fundamentally pro-European camp feel a degree of pessimism about the present state of affairs. However, as Britain takes on the presidency of Europe it is our responsibility, as the Prime Minister will undoubtedly agree, to try to build a new consensus and a new sense of optimism about the European project. Surely, the Council was right to call for a much broader debate among member states during this "period of reflection" over what happens to the constitutional treaty. Does the Prime Minister agree that being pro-European in no sense precludes being pro the reform of European institutions for the better, and that the two in fact go hand in hand?

On Thursday, when the Prime Minister addresses the European Parliament, he will be required to set out his vision of how Europe will develop. Can he give us some more detail this afternoon about what that vision will be? In that regard, does he agree that, especially in the Balkans, the prospect of EU membership is a great driver for positive change as well as for regional stability? Will he ensure that under his presidency Britain maintains the momentum for that enlargement?

The Prime Minister was undoubtedly correct over the past few days not to agree to a fudged deal over the budget. There is still time to agree a new package before 2007. But the Prime Minister did not begin to make the public case for reform, especially of the common agricultural policy itself, until it became clear that the United Kingdom rebate was under threat. In retrospect, surely that was a mistake. Why did he wait so long to make that coherent case for reform? What are the prospects for a deal on the budget under the British presidency, and will he bring forward specific proposals, during our presidency, for a reformed budget?

Despite all the difficulties, however, the agreements made on international development at the summit, especially the increase in aid to Africa, were welcome. Will the Prime Minister take this opportunity to confirm that the UK will meet the United Nations target on aid of 0.7 per cent. of gross domestic product before the EU deadline of 2015?

On the latter point the answer is yes. We have set a target of 2013 on international development. The arrangement by EU Development Ministers—the agreement to double aid and increase it by $40 billion—is an indication of Europe working well together, and one should not lose sight of that.

The important thing is to present the case for reform in Europe from a pro-European perspective. The Leader of the Opposition did not do a great deal of this when he spoke earlier—and that was the right thing for him to do—but if we were to make the case for change in Europe simply on a traditional Eurosceptic basis, it would carry no conviction at all. It is important to realise that it would not carry conviction with the new countries that are our allies on that. Towards the end of the evening, at one point there were offers by east European countries to pay even more into the budget if that would help to get a deal, but I made the point then—and I repeat it publicly—that there was no way that Britain was asking the east European countries to stump up more money. That was not the issue, and it is important that people in Europe understand that. The issue was the distribution of wealth among the wealthy countries and how it was divided up on a fair basis, with a proper budget.

Let me just make this point to the right hon. Gentleman finally: it has again been said that we never made the case for the reform of the common agricultural policy until a couple of weeks ago. I do not have to hand all the times that I have made that case at the Dispatch Box, but I think Britain has been arguing the case for CAP reform for a very long time. We should not allow those people who are opposed to our position in Europe somehow to put away the idea and have it running throughout the European Union that we only raised the CAP a couple of weeks ago. We have never stopped raising the CAP, but if people wanted to make changes to the British rebate, it is obviously right that we deal with the underlying reasons for that. It is true that the amount spent on the CAP has come down significantly over the past 20 years. It was well over 65 per cent.; it is now just over 40 per cent., but that is still far too much for a policy that, in today's world, does not really correspond with the needs of the European economy.

Let me just make this point as well: we do not and did not say either, as was being said by some other countries, that somehow, last Friday, we thought we could renegotiate the entire change in the CAP. That is not what we were asking for. What we are asking for is a fundamental reassessment that allows us to change this coming financial perspective. If we do not do that, it will be 2014 before we get any proper change in the European Union, and that is too long to wait.

Is the Prime Minister aware that, notwithstanding the many reasons that he advanced for the no vote particularly in France and in Holland, there is a growing political vacuum in every one of the 25 nation states in the European Union? That is exemplified here as well as anywhere else. For 30 years, there has been a tendency, both in the Common Market and the European Union, to race ahead of its people, and for most of that time, they have been able to get away with it. My view is now that there are no political certainties any more in this growing political vacuum. The halcyon days are over, and if the Prime Minister wants to have six months of a presidency that will be marked, it had better not any longer be one of any grand gestures that race ahead of the people. It must be in line with what can be sold. If the Prime Minister does that, he may be able to find a way forward to reduce the burden of the CAP and all the rest, and it will need a lot of luck to go with him.

That is certainly true, anyway.

It is also true to say, though, that this change in Europe will not be achieved unless we recognise that, in my judgment, people support the concept of the European Union. What they do not support is its present reality, but that is a very different thing from saying that we should break the whole thing up.

Against the background of this historic opportunity, does the Prime Minister recall the words of William Pitt, who said in 1801:

"England has saved herself by her exertions and will, I trust, save Europe by her example."?

In the light of what the Prime Minister has said, does he also recall that it is highly improbable that William Pitt would have signed the constitutional treaty, but that Churchill said that we should be "associated but not absorbed"? Will the Prime Minister take this opportunity to take up the message that Churchill issued and then say that he would agree to co-operate with those of us who have just set up the European reform forum to look at all the existing treaties and then find the way forward? This is an historic opportunity. Will the Prime Minister help us to co-operate in finding the way forward in the interests of this country?

rose—

Order. May I ask hon. Members to co-operate with me by asking far briefer supplementary questions?

I think that William Pitt went about things in quite a military way, as I seem to recall, and I do not think that we are quite at that point. The only difficulty with Winston Churchill on the subject of Europe is that quotes of his that support virtually most positions on Europe can be found. The basic point is that, yes, we can make a real difference over the next six months of our presidency, but I repeat that we will only do so if we are arguing from a mainstream position in Europe.

As I will be in Warsaw this weekend, may I welcome the Prime Minister's generous statements about helping eastern Europe and contrast them with the rather mean approach of the Leader of the Opposition when he said that we should pay even less to Europe to help poorer countries? Is the Prime Minister aware that 19 out of the 25 member states are now governed by sister parties of the Conservative party? The report in The Times today saying that leading Conservatives have set up their latest no campaign to renegotiate the treaties and pull us out of Europe is thus deeply alarming? While Britain should be extending its influence in Europe, the Conservative party wants us out of the European Union.

That is why this is important. If we were to start talking about renegotiating the existing terms, it would be disastrous for our ability to gain any leverage in the debate at all. That is why it is sensible for us to work with other political parties and Governments in Europe from a pro-European position.

Does the Prime Minister accept that, right through his premiership, he has lectured us that the difference between him and his predecessors is that he will always put this country at the heart of Europe? Amid all the smoke, confusion, chaos, re-enactments of the battle of Waterloo and all that stuff, can he tell us exactly what now differentiates his position, in terms of attitude and style, from that of John Major 10 years ago?

I can tell the hon. Gentleman exactly. In the latter part of the last Government, I am afraid that Britain was completely isolated in the European Union, but it is not isolated today. Britain has allies both on the nature of the reforms that we want to achieve and on the budget debate. If, as I assume, he is saying that we should have accepted that deal last Friday—

How many allies?

Would the hon. Gentleman have accepted it or not?

The question is what your style is.

What my style is? It is the budget we are debating, not fashion.

May I congratulate the Prime Minister on fighting so hard to preserve the British rebate? I realise that a period of reflection is important, but will he pledge to continue pushing forward the reform agenda? That relates to not only the CAP, but the Lisbon scorecard and the Tampere and Hague programmes, which, if implemented, will bring real benefits to millions of people throughout the European Union.

My hon. Friend is absolutely right. If we were making real strides forward on economic reform, dealing with organised crime and drug and people trafficking, and issues to do with terrorism, and if we were ensuring that we had the right defence capabilities in Europe, the people of Europe would see us addressing their concerns and worries. He is absolutely right that that is the way to make the case.

I suppose that the events of the past few days have turned us all into Eurosceptics, but the question is how we now react. In Paris last week, it was clear that many French business people recognised that the French social model was not the basis for Europe. Indeed, as one commissioner said, it would endanger us to the point at which we could become a suburb of Shanghai. On a more general point, during the next six months, will the Prime Minister try to ensure that the European Union has the right allocation of resources so that we can continue to do our job of trying to stabilise Europe? One country that has not been mentioned that must be in our sights is Croatia. If it thought that there was no chance of coming closer to the European Union, there could be further instability in the Balkans.

It is for precisely that reason that we need to push forward with enlargement. The point that the hon. Gentleman makes is right, but the Eurosceptic position, which is to say that Europe should be merely a free trade area, is certainly not the position of the Government. That is not my position and I do not believe that it is his, either. Our position is that there should be a social dimension to Europe. I believe that very strongly, but it must be a social dimension for today's world. If we had a proper social dimension in Europe today, we would be spending the European budget on things such as research and development, technology, skills, innovation and support for small businesses. If we did that, we would of course get enormous support from people in Europe.

I do not accept at all, and I know the hon. Gentleman does not really either, that a Eurosceptic position of saying, "Let's move Europe to a free trade area," is one that we endorse—we do not. I know that our position over the past few days has been characterised in certain countries as arguing for that, but that is just nonsense. As I said at the Council when someone tried to say that our position was that we just wanted a market Europe, we do not simply want a Europe that is a free market. We want a strong social dimension and I want a strong foreign policy and defence dimension to Europe. I believe in those things for Europe, but we can get a better deal for Europe, never mind Britain, in today's world than the one that we have.

In supporting my right hon. Friend, I put it to him that we should not lose sight of the achievements of the European Union. Does he agree that the accession of the eastern European states is a major advance and that making a success of enlargement should be a key priority in the years ahead?

Yes, my right hon. Friend is right. What is more, it is important to realise that the new accession countries are not in favour of a Europe that is simply a free trade area. If we put our argument in the wrong way—if we conduct the debate in the wrong way—we will lose their support when we need it.

Does the right hon. Gentleman agree that the controversy raging over the Common Market and the common agricultural policy is a smokescreen to cover up the real issue, which is the rejection of the European constitution? Will he assure the House and the people of this United Kingdom that there will be no renegotiation of the rebate because a pistol from Europe has been put to his head or our head and that he will only go forward for that which is best for Britain, because what is best for Britain will be best for Europe? Will he assure the farming community that what they have been promised will come to them and that, if anybody has to be de-CAPed, it is not British farmers, but French ones?

I sort of agree with some of that. What is important is that the deal on the common agricultural policy in particular has got to be fairer and right for the future. Incidentally, it is also a fact that no one is saying that countries cannot take a decision to support their farming industry. The question is what should Europe be doing about the amount of money that it puts into the CAP.

The Prime Minister has done a pretty good job in Europe over the past few days, but how on earth will Europe persuade the French farmers to cut half their subsidy, knowing their militancy?

We have to decide what is in the interests of everybody in Europe. As I said, it is not that countries cannot decide to support their industries and communities. That is fine. The question is what should Europe be doing. The trouble is that the CAP in its current form is a big distortion of expenditure.

Surely the Prime Minister is being too modest. I welcome his belated application to join the Eurosceptic club, to which most of our fellow countrymen are already subscribers. I invite him not to leave the European Union, however discredited it may become, but instead to carry through a great swathe of changes in our legislative relationships with Europe so that Britain can continue its historic role as a friendly, commercial, self-governing democracy.

I do not think that the hon. Gentleman and I really agree on the European Union. I still believe that it is essential for the British national interest. As someone once said,

"the United Kingdom's membership of the European Union is vital to our national interests, to our position in the world, to our nation's economy and . . . to the peace of Europe."—[Official Report, 20 June 1996; Vol. 279, c. 1095.]

Not my words, Mr. Speaker, but those of . . .

That is right, they are not my words, but in this case they are not Margaret Thatcher's words either, but the words of the right hon. Member for Haltemprice and Howden (David Davis). That may be the new dispensation by which he is to be governed.

Building on the questions asked by my right hon. Friend the Member for Edinburgh, East (Dr. Strang) and my hon. Friends the Members for Leicester, East (Keith Vaz) and for Bolsover (Mr. Skinner), and the suggestion of the Leader of the Opposition, would it not be appropriate to have a debate in our country? We welcome the Prime Minister addressing the European Parliament on Thursday, but can we have a debate that tells our people about the prosperity, jobs, trade and the human rights platform that come from the European Union? Would not that be an appropriate way to fill the political vacuum referred to by my hon. Friend the Member for Bolsover?

I am sure that, as we should be, our country will be a major player in any debate about the future of Europe.

Central to opposition to the European Union has always been the question of democratic and accountable governance. Now that the people have come to realise that the network of treaties, institutional arrangements and European courts has denied them the opportunity to form the laws that they want, will the Prime Minister honour the pledge that he gave on the Floor of the House of Commons to have a referendum, notwithstanding what other countries did, so that we can finally drive a stake through the heart of those anti-democratic propositions?

I think that we have already gone through the position on the referendum. On his first point, the hon. Gentleman and some of his colleagues should be careful before endorsing and embracing entirely all the elements of the no votes in France and Holland. As I keep saying, many of those who voted no did so for reasons that have nothing to do with the position of British Euroscepticism.

Will the Prime Minister put my mind at rest? [Interruption.] Well, perhaps he can help me. I watched with interest the press conferences on Friday night. Toward the end of his contribution, the Prime Minister set out his vision of what Europe is about and talked about a competitive global economy. To my regret, he said nothing about environmental protection in Europe, protection of living standards and a welfare state, or the living standards of people in other parts of the world that have been damaged by the global market economy. Will he give us some idea of a vision of a more social Europe, rather than a free market Europe?

To put my hon. Friend's mind at rest might be too vaulting an ambition, but I can tell him that the social Europe in which I believe is, for example, a Europe in which we make it easier for people to transfer their skills across the EU; a Europe in which we invest in active welfare programmes, as we in this country are doing in the new deal for the unemployed; a Europe that spends more of its budget on science, research and development, so that in industries such as biotechnology, where we will face fierce competition from countries such as India and China, we can ensure that the industry grown here in the EU is strong. There is a range of social policies on which we can co-operate. However, what I do not think will bring a more competitive economy, either in this country or in Europe is, for example, supporting the provisions of the working time directive that were recently debated. That is a different vision of the European social model, not a vision that abandons that social model.

Is there not a danger of enormous collateral damage resulting from the row? Is not one of the areas most at risk the World Trade Organisation talks on a new trade round, which could collapse because of disputes about agriculture—an issue on which Europe has to make a very large move if the talks are to progress? What will the Prime Minister do to make sure that those incredibly important talks do not become a victim of Europe's internal rows?

The right hon. Gentleman is right to say that there are all sorts of risks and dangers in the debate. We have to make sure that enlargement countries understand our position, for example, and that people understand our position on the rebate, which is not that we are not prepared to discuss it or any changes to it, but that such discussions must take place in the context of a different approach by the EU. He is also right about the trade dangers. However, I think that we have reached the point where, unless we have the debate about what type of EU we want and conduct it from a pro-European perspective—the only perspective that will carry any weight in the rest of Europe—we will not get the right decisions on any of the issues, including the WTO. It is important that, at the end of the year, we have a strong European position on reform at the WTO. We will have to use every lever available to ensure that that happens, but we have passed the point where we can pretend that the debate is not needed.

I commend my right hon. Friend's position on retaining the British rebate until the CAP is reformed further. In a year when Africa is top of the political agenda, the CAP in its present form is an obscenity. Will he comment on the front-page article in today's Financial Times, which says that the British presidency of the European Union will work to get a budget agreement before the end of the year?

It would be unrealistic to think that we are going to get agreement on an entire reform package over the next few months. What we can get—and this is all that we have sought—is a process of reform that allows us in the coming financial perspective to reorder budget priorities. We can say that, until we get such agreement, we are not discussing or debating the rebate. That is the right way to lever in change, and our ambition to secure that process of reform is achievable.

For as long as we exercise our veto on the removal of our veto, France will veto CAP reform. That is difficult enough with 15 member states, but with 25, there must be a new modus operandi or constitution. How does the Prime Minister see a way forward towards that?

That is why the constitution, in our judgment, represents a sensible set of rules for the future, but it has been rejected in two countries, and we must take account of that. On the other hand, I do not think that we will ever reach a decision that the European Council will not take such decisions on the basis of common agreement. If we had been in a position where we had agreed this deal last Friday, I really do not think that I could have recommended it to people. It was wrong in terms of the reform package, it was wrong in terms of finances for this country, and it was wrong in terms of the refusal to link those two things together. I do not think that we had the option of agreeing a deal, and it is unfortunate that our proposals, which were reasonable, were rejected.

The Prime Minister rightly said that this is a case of reaching agreement not just among the politicians of Europe but among the people of Europe. Would that process not be helped by accepting the votes in the Netherlands and France and saying that the constitution was no longer on the table? That would allow him to focus on the important message: making Europe's economies fit for the 21st century and delivering jobs and economic prosperity. Then people will grow closer to the concept of the European Union.

I understand entirely what my hon. Friend is saying. Most people are now concentrating on the debate in the European Union. It is difficult when 10 countries have ratified the constitution, as they are naturally sensitive about being in a position where the rest of the Europe says that the constitution is over and done with. As I keep saying, one could have a theological argument about the state of the European constitution, but the fact is that the French and Dutch voted no. Those votes are there—unless they are got round, that is it.

In light of the Prime Minister's call for a fundamental review of the European Union, its purpose and fitness for that purpose, can he explain why he continues adamantly to rule out the possibility of any return of powers and competences from the European institutions to the member states?

Because if we started a debate now about renegotiating our own treaty obligations to the rest of Europe, at a stroke we would lose any possibility of influencing the argument in the rest of Europe. I am sorry, but that is simply true. I will not bother reading out quotations from Conservatives when they were in government, as there is not any point in doing so. [Interruption.] Perhaps the right hon. Gentleman never made such statements, but I can assure him, without embarrassing too much the people who were in government at the time, that even the speech by Mrs. Thatcher at Bruges, if it were given today by a Conservative aspiring to the party leadership, would be considered rampantly pro-European. That is the truth. If we want to conduct the debate in a such a way as to suggest that the real point is how we get rid of the existing powers of the European Union, we would lose it before we started it, and that would not be sensible.

Does my right hon. Friend agree that the most important aspect of our commitment to Africa is not the pressure, albeit that that is important, to increase aid, but our target of ending agricultural export subsidies by 2010? How can we end export subsidies by 2010 without fundamental reform of the common agricultural policy?

My hon. Friend is right, and that is exactly what we should do. As I said, it is perfectly reasonable to say that, as part of the refinancing of the European Union, the budget, everything in it, the CAP and the rebate, should all be looked at.

The Prime Minister knows that there is little support in this country for using our taxpayers' money to support French farmers or to support subsidised exports of foodstuffs to the developing world, but he is aware that British farmers are already grappling with the biggest change in agriculture policy since 1947. Is he aware that his remarks in the past few days have caused considerable uncertainty and confusion at home among our farmers? In the light of his comments a few minutes ago, is he telling the House that if the CAP were to result in further reductions to farmers' payments above and beyond those already in train, the British Government would make them up to the level already planned?

Any budget decisions must be taken at a later time, but I understand the concerns of British farmers, as well as of European farmers. I am not standing here in order to have a go at French farmers and the support. What I am saying is that, unless we put in place a reform process that allows us over time to adjust the budget of the European Union, in the end we will find that we have an unsustainable position. That is the problem. If we do not have such a reform process in place, it will be 2014 before we can agree changes to the CAP. I am not advocating—this is important—changes tomorrow in the payments made to UK or other farmers. I am saying that, by the time we get to midway through the next financial perspective, we should have a clear plan as to how we are to make changes to the CAP. At the same time, we can work on other ways of supporting farmers in a more rational way.

May I press the Prime Minister on the issues of globalisation and the environment raised by my hon. Friend the Member for Islington, North (Jeremy Corbyn)? Now that we must have a complete rethink, how can my right hon. Friend use his presidency to make sure that we put environmental issues and sustainable development at the heart of the budget that will have to be reformed?

What my hon. Friend says is right, in the sense that the environment is one area where Europe must act together. There is no point in Europe taking measures to deal with the challenge of global warming unless other countries are part of that. That is why we are trying to use the G8 to restart the process of binding in other countries—America, and obviously China and India as well. This is an area in which Europe can develop measures such as the emissions trading system, and where we can take common action to protect our environment. People talk about what is wrong with Europe, but as a result of the changes made in the regulation of the water industry, we have enormously improved the quality of our rivers, our drinking water and so on within the European Union. There is much that we can do. My hon. Friend is right—that is one area where it is important that Europe acts together.

How long does the Prime Minister define a pause to be?

As long as it takes.

The need for CAP reform will clearly bounce back at the G8, because development and trade justice for Africa will be impossible without a substantial reduction in subsidy. At €10 billion, le chèque franc"ais is considerably greater than le chèque britannique. Did the Prime Minister ask President Chirac why French farmers need almost twice as much aid from the common agricultural policy as France gives to poor people in Africa, Asia and Latin America?

I did not quite approach the matter in that way. It is important to say, not just for the audience in the Chamber, but for the audience outside as well, that it is unreasonable to expect the whole system to change overnight. It is reasonable to expect that we have a process in place to change it. That is what we are asking for. In certain parts of the rest of the EU, it has been said that we were demanding an immediate, overnight change of all the priorities and trying to renegotiate the whole CAP on Friday night. That would be absurd and no one ever suggested it. What we are saying, however, is that we cannot wait until 2014 before we confront those issues.

I understand why the Prime Minister has closely linked the possibility of the reform of the rebate to the reform of the CAP, but it looks like that linkage might be rather difficult to achieve. Issues such as the elimination of external tariffs, the genuine completion of the single market, the services directive and the completion of the Lisbon agenda, which he promoted, are tremendously important to us and would be hugely beneficial to the British economy. Would it not be worth negotiating the rebate in the context of some or all of those issues?

I agree that those questions are important, but the financing deal must be fair to this country as well as to everyone else in Europe. We currently face a blockage on all fronts, which is a situation that must change. However, the hon. Gentleman is right that some other issues are every bit as important for the British economy, in the longer term at least.

Does my right hon. Friend accept that many of the British electorate believe that EU funding is not only unfair and chaotic, but, frankly, corrupt? Will he use the presidency to ensure that the funding system is open, accountable and fair? Does he believe that the great European project could be fatally damaged if we do not achieve such a system?

I understand the points raised by my hon. Friend, and I will do my best.

Does the Prime Minister appreciate that one consequence of failing to set the budget is that west Wales and the valleys will lose up to £3 billion in objective 1 funding over the next seven years? If that is the case, will he give the House an unequivocal assurance that the Department of Trade and Industry will provide equal funding? Finally—in asking this question, I am hoping against hope—has he received any representations from the First Minister in Cardiff?

I do not think that the hon. Gentleman's point is right. It is important to emphasise that, for the last financial perspective, it was agreed at an equivalent time to March 2006. In other words, the fact that we have not reached an agreement now, in June 2005, does not mean that we cannot reach an agreement before the financial perspective comes into effect. The hon. Gentleman's description of the impact of not achieving a financial perspective is inaccurate. If we do not reach a proper financial perspective, the accession countries will have the real problem, which is why I am keen to resolve the situation.

I welcome the Prime Minister's statement that this country will continue to champion enlargement, but will he assure me that the accession talks with Turkey will open at the end of the year and that those talks will not be blocked by opponents from other countries? Will he also reassure me that the EU will continue to be a beacon for democracy and good governance in the countries of the former Yugoslavia, otherwise we face a resurgence of nationalism in this continent?

It is important that we keep to our obligations in respect of Turkey, which we intend to take forward in the proper way in our presidency. My hon. Friend is right to say that, if we were to block off further enlargement, it would have a damaging effect on our relations right across the world.

Will the UK Government table a paper on the budget, in a spirit helpful to our partners, pointing out that, according to the auditors, the sums lost through fraud and waste are more than twice the size of the British rebate? Would it not be productive to obtain agreement from those partners to tackle fraud and waste, in which case we would have some money to sort out whether other countries should get rebates or whether we should back certain worthy programmes?

I thank the right hon. Gentleman for that helpful advice, which I shall pause to reflect on.

The Prime Minister is surely right to say that there should be a period of reflection, but does he worry that too long a period of introspection in the European Union could lead to greater political and economic sclerosis? We must take swift action on many issues, because China and India are unlikely to hang around waiting for us to reform our economies, and security in the Maghreb must be significantly enhanced. How does the Prime Minister propose to get back on track over the next six months?

My hon. Friend is right that we need to make progress quickly, particularly on the economic reform agenda, and one way to do so is to raise the issues that he mentioned. As I shall say to the European Parliament on Thursday, economic competition cannot be considered introspectively, and we must assess the fact that major countries outside the EU are offering new and different competition.

I congratulate the Prime Minister on treading the familiar path for British Prime Ministers from uncritical acceptance to a realistic Euroscepticism. May I invite him to take one small further step by admitting publicly that 25 free countries cannot be squeezed into a single centralised European structure? Will he instead be creative and bold by taking a lead in Europe and publishing alternative proposals for a treaty relationship—he can call it "new Europe" if he likes—that celebrates diversity and would not only be more democratic but stop the ridiculous rows at European summits that are caused by the endless rush towards centralisation?

I suppose that realistic Euroscepticism is better than unrealistic Euroscepticism. However, the problem with the programme that the right hon. Gentleman outlines is that we would not gain support for it in the rest of Europe—it would alienate people in the rest of Europe. Furthermore, if we were to retreat to such a position and make Europe the type of area that he is thinking of, that would not be to the benefit of this country or of Europe. I caution him against thinking that the no votes in France and Holland are a vote for the type of vision that he outlines—I really do not think that they are.

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

I rise to invite the House to give a Second Reading to the Violent Crime Reduction Bill. As colleagues on both sides of the House will know, the introduction of the Bill was a manifesto commitment at the general election. It reflected deep concerns that existed in many parts of the country and were in turn reflected in the election debate. I believe that the steps that we are setting out today will make a contribution towards addressing those concerns in a serious and positive way.

It will be clear to everyone that violent crime takes a wide variety of forms, ranging from common assault, often fuelled by alcohol, through to more serious crimes such as sexual assault and crimes where guns, knives and other offensive weapons are used, which can lead in extreme cases to homicide. Although the British crime survey data show considerable falls in violent crime since 1997—by about 26 per cent.—it remains the case that in many parts of the country there is high, and genuine, concern about the level of violent crime, and a strong desire, reflected, I am sure, by Members on both sides of the House, to take the most appropriate steps to deal with it.

The proposals in the Bill are part of our ongoing work to tackle violent crime in all forms and to make the country much safer for its law-abiding citizens. The overall objection of the legislation is to provide the police and local communities with the powers that they need in two specific areas: first, alcohol-related violence; and secondly, the use of weapons, particularly guns and knives.

I want to deal first with alcohol-related violence and disorder. It is obvious, I think, that alcohol misuse is closely linked with a wide range of crime, disorder and antisocial behaviour. It is a highly visible part of the night-time economy and, moreover, a phenomenon no longer confined to weekends. The British crime survey shows that 33 per cent. of stranger and 25 per cent. of acquaintance alcohol-related assaults happen on weekday evenings and nights. The effects are widely apparent and have an impact on large numbers of people in a variety of ways.

I welcome the proposals in the Bill, but cannot the Home Secretary see the inconsistency between these measures to tackle alcohol-related crime and the expansion of the consumption of alcohol through 24-hour drinking?

There is no inconsistency at all, for reasons that I am about to explain.

It is obviously true that responsibility for ending the binge-drinking culture must ultimately lie with the individual. That is the point in relation to the hon. Gentleman's intervention. I am sure that he has many friends who, late at night after a meal or going to the cinema, might welcome the chance to have a drink afterwards with their friends in a way that is absolutely no threat to the security of the community in which they live. That is true throughout the country and it is a reasonable part of civilised life. In this country and throughout Europe, we have seen that that can happen in a proper way. The point is to distinguish between such perfectly civilised activity and the binge drinking and horizontal and vertical drinking culture that is such a serious problem. [Interruption.] I meant vertical drinking, which leads to horizontal drinking. That was the confusion in my language on which hon. Members picked up.

The Anti-social Behaviour Act 2003 gives local authorities the powers to try to prevent the cumulative impact of a concentration of places where people might drink standing up or lying down. I hope that all local authorities will be serious about trying to apply those powers.

In the Wirral, there is another concern. On weekday and weekend evenings, part of the centre of the Birkenhead resembles the wild west on speed. We are worried that such centres will spread to other parts of the Wirral where there are currently no licences. If the local authority and local Members can devise a suitable amendment, will my right hon. Friend consider favourably granting local authorities the powers to refuse the first licence if they fear that the relevant area will go the same way as the centre of Birkenhead?

We will consider such aspects. The Licensing Act 2003 and the Bill allow local authorities in the Wirral and elsewhere, working with the police, to define matters of greatest concern. As I shall explain shortly, I hope that the Bill gives the powers that are needed. However, the short answer is yes; if necessary, we shall consider amendments to deal with such an eventuality.

Responsibility must ultimately lie with the individual. However, the industry and licensed premises also have a role to play—that is a critical point. Legislation, therefore, has a firm part to play. I shall set out the five provisions on alcohol-related violence that the Bill includes.

My right hon. Friend mentioned the responsibility of the licensees and the licensed premises. Does he know about the scheme in Blackpool, whereby the Licensees Forum works constructively with the local authority and the police, who then police licensed premises in the Blackpool area? Will he consider the expansion elsewhere of such schemes, for example the excellent night safe scheme, and of good practice, so that the licensed premises, the police and the local authorities genuinely work together to ensure the safety of those who want to drink in the evenings?

I agree with my hon. Friend. Blackpool is one of the parts of the country where all sectors of the community, including the people who run businesses and know that they will be successful only in a climate that is secure for the wider community, work together. People have come together in a scheme to which I pay tribute. In my constituency in Norwich, a similar relationship operates in the nightclub areas. That has been positive. I believe that the provisions will encourage people to consider the example of Blackpool and elsewhere and make progress in their communities.

The Bill contains five specific provisions to deal with alcohol. The first is drinking banning orders. The measure provides for a new civil order, called a drinking banning order, which can be made against an individual who is engaged in criminal or disorderly conduct while under the influence of alcohol, and when such an order is necessary to protect other people from further harm. The order could impose any provision to protect others from criminal disorderly conduct while under the influence of alcohol. The length of the order will be between a minimum of two months and a maximum of two years. The order will be much more targeted than antisocial behaviour orders. Although ASBOs may be relevant in some circumstances, drinking banning orders will be more appropriate when the basic problem is binge drinking and alcohol-fuelled behaviour, pure and simple, and when there is a need for more flexible time limits on a ban.

As I understand it, under current legislation, magistrates can impose a drinking ban on somebody convicted of an offence on licensed premises. However, it is also important to be able to impose a ban on those who are convicted of offences such as disorderly behaviour outside licensed premises. Will the Bill allow that to happen?

My hon. Friend is entirely correct, and the short answer is yes, it will. The drinking banning order is necessary precisely for the reason that he implies. It is important to deal with disorder within premises, but it is also important to have powers to deal with disorder outside premises in areas in which a large number of premises are grouped together.

Will the Home Secretary explain how the new offence will differ from the offence involving drunk and disorderly behaviour?

Drunk and disorderly behaviour is specifically an offence relating to someone's drinking. The new offence will allow a drinking banning order to be put in place when the problem is not simply one of drunkenness but of other antisocial and disreputable behaviour in the locality. I regret to say that such instances are only too common.

The Home Secretary will remember that, when we were discussing the so-called 24-hour drinking proposals, we suggested that they should be held off until the effectiveness of these alcohol disorder zones and drinking banning orders had been proven. Will he assess their effectiveness regularly during the early part of their implementation?

Very much so. We shall look very carefully at their effectiveness not only before the legislation comes into force but throughout their existence. We shall also ensure that there is every opportunity for licensees to behave in the way described by my hon. Friend the Member for Blackpool, North and Fleetwood (Mrs. Humble), and to get their act in order. That would be the best solution for many of the places that we are talking about.

The second measure in the Bill involves the direction to individuals to leave a locality. The Bill also provides for new powers for the police to issue a direction to leave a locality to an individual aged at least 16 who is in a public place, and to prohibit his or her return for up to 48 hours. A direction could be given if the presence of the individual in the locality was likely to cause or contribute to alcohol-related crime or disorder, or to its continuation or repetition. A direction could be given to a person involved in any offence or disorder where alcohol was involved, and the provision is not limited to those offences relating specifically to drunk and disorderly behaviour.

I am trying to understand the place of local authorities in the strategy that is being put forward. There is an oddity in the Bill that I cannot explain, but I hope that the Home Secretary will have an explanation for it. In relation to the drinking banning orders, clause 11 gives a role to county councils but not to district councils where a county council exists. However, it is the other way round in clause 17, which deals with alcohol disorder zones. I fail to understand the purpose of that distinction.