With permission, Mr. Speaker, I shall make a statement about the European Council summit that took place in Brussels on 8 and 9 March.

There were three main agenda items for the summit. First, the Council agreed to cut the administrative burden arising from EU legislation by 25 per cent. by 2012. This has long been a key British objective. It was a major part of the United Kingdom presidency of the EU in 2005, and it mirrors our own Government’s decision made last year. This decision makes another clear break with traditional European policy on regulation, and is hugely to be welcomed. It follows up a recent Commission decision to withdraw some 78 pieces of legislation—the first time that the EU has done that. I congratulate the Commission, and especially President Barroso and Commissioner Verheugen, on their determination. The decision has full British support.

Secondly, the Council agreed on an action plan to liberalise the energy market. The centrepiece is to free up the distribution of energy across the European Union to create a genuinely competitive, interconnected and Europe-wide internal energy market. That will bring major benefits for EU consumers, improve the security of supply, and strengthen European competitiveness. The European Council decided in particular that supply and production activities should be separated from network distribution to allow competition on the networks, as already happens in the UK.

Ever since the Hampton Court summit of October 2005, energy liberalisation and security of supply have been key objectives of ours for the European market. It is true that we still need to do more in Europe, especially in respect of the vertical integration of energy companies. Nevertheless, this means that for the first time, at least at distribution level, British companies can compete on equal terms with French or German companies—in particular, in France and Germany, not just here in the UK. That will bring reduced costs to business and to customers, and again it has our full support.

Thirdly, and most importantly, the European Council committed itself for the first time to a binding Europe-wide environment target: a 20 per cent. reduction in greenhouse gas emissions by 2020, compared with 1990. Moreover, the European Union undertook to go further and achieve a 30 per cent. reduction in emissions by 2020, if this was part of a wider international agreement. Until last week, no group of countries had committed itself to such deep reductions. This is a landmark decision, which will mean changes in all member states' domestic policies.

The Council also agreed on a binding commitment that renewable energy will comprise some 20 per cent. of overall EU energy consumption by 2020. However, the agreement allows for differentiated national targets within that overall EU objective. In particular, it recognises that for some member states, nuclear energy will play a significant role in achieving overall climate change targets.

The Council agreed a 20 per cent. increase in energy efficiency, again by 2020. It also recognised the importance of clean coal technology. We welcomed the Commission's undertaking to support, by 2015, the construction and operation of up to a dozen commercial-scale clean coal demonstration plants, with a view to all new coal-fired power stations’ being fitted with carbon capture and storage technology by 2020. That technology must be a crucial element in the overall response to the climate change challenge, and it is important that we signal that to investors now. Clean coal can be part of the future.

All these targets impel us towards a far more ambitious European emissions trading scheme. The Commission President is currently negotiating country-by-country caps on emissions for 2008 to 2012. Britain, as he has acknowledged, has helped by setting an ambitious cap for itself. The Commission has proposed that after 2011, aviation should also be within the ETS. We want to make the scheme more transparent, and we want it extended after 2012 to 2020 and beyond. All these proposals are set out in our recent paper to our European colleagues, and we are actively building the alliances in Europe to ensure that they are implemented.

Of course, these European commitments must be part of wider international action. As the Stern review demonstrated, without concerted international action there will be disastrous consequences for global economic development. The European Council therefore reaffirmed the importance of agreeing a long-term framework to address climate change. It set out a coherent and united vision for how such a wider international agreement would work. It paves the way for further action on climate change at the G8 summit in Germany in June.

This is, in the end, the crucial prize. It is important that we take action here in Britain, as tomorrow's climate change Bill will show. It is critical for the EU then to show leadership, as it did at the summit in a remarkable and groundbreaking way. For those who doubt the relevance of the European Union to today's world, last week's Council meeting and its historic agreement on climate change is the best riposte. It shows Europe following the concerns of its people, and giving real leadership to the rest of the world.

Ultimately, only an agreement that is global and includes America, China and India will halt the damage of rising greenhouse gas emissions. Everything else is, of course, justified in its own right, but this is, most of all, a means to that end. The G8 plus 5 dialogue which was started at Gleneagles under the UK presidency in 2005, and which has all the main countries within it, is the forum in which new principles for an international framework can be agreed. The summit in Germany this June will be the time to agree those principles, including a stabilisation goal, a route to a truly global carbon market, support for new technology, adaptation measures and action on deforestation. This is the next stage of the journey to effective multilateral global action on what is the single biggest long-term threat to our world.

Let me conclude by paying tribute to the leadership of Chancellor Merkel at the European summit. The agenda was bold and she carried it superbly. Unsurprisingly, as the matters it addressed were all fundamental British objectives, we were able to give that leadership full and active support. Once again, that shows the significance of strong, constructive and positive engagement in Europe.

May I thank the Prime Minister for his statement, and may I also do something that he is perhaps not always used to from the Leader of the Opposition after European statements, and congratulate him on helping to negotiate a successful outcome to the European Council?

We very much welcome the agreements on deregulation and liberalisation of the energy market. We have long shared those goals. The Prime Minister said that they had been goals of the British Government since 2005; I can well remember their being goals of the British Government in the 1980s. We welcome in particular the agreement to cut EU greenhouse gases by 20 per cent. by 2020. In our view, that is an essential step towards ensuring that there is the necessary international and domestic action to combat climate change.

The Prime Minister and I have many disagreements on European policy—no doubt we will continue to do so—but some issues go right across parties and across countries, as these negotiations show. Indeed, I have found out something over the last year, whether in talking to Nicolas Sarkozy, or the Swedish Prime Minister, or the Nordic Foreign Ministers, or the Greeks—[Hon. Members: “Or the Czechs?”] Yes—or indeed the Czech Prime Minister. They all agree. There is a growing consensus on the need to take action on climate change. Indeed, the agreement negotiated in Brussels at the weekend was unanimously agreed by leaders in Europe belonging to all parties and all countries right across the political spectrum, from Spanish socialists to Dutch Christian democrats and from the Italian centre-left to Polish conservatives. It is a consensus that I know that the Prime Minister welcomes as much as I do.

I have some detailed questions on how we make the 20 per cent. target, which we support, a reality. Clearly, we need to make the EU emissions trading scheme work better. In particular, does the Prime Minister agree with me that further steps need to be taken to stop European Governments issuing too many carbon permits? Will he confirm that those steps can be taken and that that does not require some deep institutional reform of the EU? Will he agree to a progressive tightening of the cap on such permits?

We also need to ensure a long-term price for carbon throughout the European economy. In order to make that happen, will the Prime Minister push for the completion of the third phase of the emissions trading system—the phase from 2012 to 2020? The Prime Minister talked about 2008 to 2012, but I would be grateful if he would explain when he thinks the next stage will be completed. Is it not the case that emissions trading needs to be aligned with the new 20 per cent. carbon reduction target?

Turning to the steps that we need to take domestically in the UK to meet the 20 per cent. target, does the Prime Minister agree that we need a critical path in order to hit that target? I know that he has set his face against these, but will he look again at whether there is a need for annual targets? Does not the recent experience of long-term targets show that such an approach is necessary? The Government have committed themselves to a 20 per cent. cut in emissions by 2010 three times in their manifestos, and we now know that that will not happen. Does not that show that annual targets are necessary? Clearly, all targets need to be backed by independent auditing. What measures will be taken to ensure that targets are independently set and independently audited so that we do not fail to meet them?

The summit also rightly concluded that we need a separate target for renewable energy as a share of energy consumption. When will we see the country-by-country allocations—[Interruption.]

Order. Please allow the Leader of the Opposition to speak. We gave our courtesy to the Prime Minister; the right hon. Gentleman should be able to respond.

The shadow Leader of the House has lost his deputy, and he is taking it out on the rest of us. [Interruption.] I am sorry—I meant the Leader of the House. I am getting ahead of myself: he is soon to be the shadow Leader of the House.

The 20 per cent. target for energy efficiency is also welcome. Performance in the UK on this issue has been disappointing, and it will take a step change to meet the target. The agreements that were reached at the weekend on renewables and energy efficiency have effectively changed Government policy. The Prime Minister said as much in his statement. When does he expect the Minister for Energy to set out the steps that we need to take to meet those targets? In particular, is he planning to change the national grid system to help to decentralise the domestic energy market? What is his plan to ensure that the renewable obligation favours the development of all renewable energy and not just onshore wind power? Above all, does not this European summit show clearly that when the EU focuses on real issues such as climate change and global poverty, rather than on centralisation, institution building and agreeing a new constitution, it can take real steps forward that are agreed by everybody?

I agree that it is important that Europe focuses on those key questions. May I deal first with domestic policy issues? I am against binding annual targets because they are too inflexible. Changes in temperature and in the cost and price of fuel can make a dramatic difference to the economy’s ability to cope with such a binding annual target. We have to strike a balance the whole way through between what we do to give leadership here, and not putting our industry in a position where it becomes uncompetitive or our consumers in a position where they get clobbered.

I am dubious about the right hon. Gentleman’s proposals to put VAT on air travel, or a new tax on airline fuel, because they might hit consumers and businesses in this country very hard, while having a small impact on CO₂ emissions worldwide. It is important to get right the balance between what we do here and what we do by international agreement, because on it will depend whether we give the right leadership on this issue, as this country has in the past few years, but also whether at the same time we make our businesses uncompetitive and harm our consumers, which would be unfair to them.

We will set out steps for introducing more measures on energy efficiency, as we have already done in respect of new buildings. For example, it would plainly be sensible to build into the building schools for the future programme, through which we will rebuild or refurbish many schools in the country, measures for the use of environmentally sustainable energy and for energy efficiency. That is very important and is right. Of course, we will also be improving and increasing the amount of money that we devote to research on renewables and to our use of renewable energy.

I basically agree with the right hon. Gentleman’s points about the European emissions trading system, as that is precisely what we are trying to achieve in Europe. We are trying to get a progressive tightening of the cap, and to ensure that there are policies in place for post-2012 and that we extend the scheme. Bringing in aviation will play a major part in that.

By way of conclusion, I say to the right hon. Gentleman that we will need alliances to build all this. It was interesting, when we got to the discussion about what would be in the Berlin declaration, that there was a general agreement that we should put in a measure on climate change and protecting the environment. I must say that the only Prime Minister who spoke against it was—[Interruption.] It was indeed the Czech Prime Minister. To be fair, however, I must add that he made a very strong statement in favour of nuclear power, so I warmed to him on that.

The basic point, surely, is that if we want to get this done in Europe—I totally understand what the right hon. Gentleman says about what Europe focuses on; I make the same points myself a lot of the time—we have to recognise that this European relationship is the only way in which we can take critical action and make a critical difference to climate change. If we put at risk the European relationship in any shape or form, we diminish our capability to take that effective action on issues such as climate change. I really believe that this summit, particularly under the leadership of the German Chancellor, has indicated that over the years the agenda that we have been pressing for from this country—some of it, I agree, under previous Governments—has the chance now of really leading the agenda in Europe. We simply do not want to do anything that puts that at risk.

I, too, begin by congratulating Chancellor Merkel on achieving an agreement on the environment, which many people predicted would be difficult, if not impossible.

I welcome the review of the single market and the efforts to strengthen internal competitiveness. Does the Prime Minister agree that those are a necessary response to the challenges of globalisation and, in particular, the challenges of emerging economies such as India and China? I, too welcome support for a new transatlantic economic partnership, not least because it may be able to create a better political relationship across the Atlantic than the one we have had in recent years. There will be agreement on both sides that reducing the administrative burden of EU legislation by 25 per cent. by 2012 will be welcome, but does the Prime Minister agree that that needs to be matched by Whitehall with resistance to gold-plating and over-interpretation of EU legislation here in the United Kingdom?

In the discussion of the Mecca agreement and a Palestinian Government of national unity, can the Prime Minister tell us what practical steps, if any, were considered to maintain the momentum of that agreement as a contribution to the middle east peace process?

It is clear from the Prime Minister’s statement that the agreement on the environment was the most significant outcome of the Council. Does he agree that the real test lies not in the fact of the agreement, but in whether it is fully implemented? That leads me to ask him what additional measures the United Kingdom will adopt to meet those targets. I hope it is not too late for him to draw to the attention of the Chancellor of the Exchequer the advantages of using the tax system to encourage environmentally friendly behaviour. Can the Prime Minister tell us whether there is any greater role for the European Union than promoting energy efficiency, and whether he sees any opportunity for the United Kingdom to promote industrial development in renewables such as tidal and solar power?

Finally, what is the Prime Minister’s response to the Council’s research and development target of 3 per cent. of gross domestic product by 2010?

On the latter point, we are, through the research and development tax credit, improving the amount of support we give to industry in increasing its R and D, and the big increase in the science budget has made a difference too.

In relation to Whitehall, we have made it clear that gold-plating is no longer on the agenda—indeed, we are going back. We have a whole series of mechanisms in place now to prevent it. Occasionally it still crops up, and I assure the right hon. and learned Gentleman that we are vigilant in ensuring that it should not and does not, as there is no point in our over-interpreting European legislation.

In respect of the national unity Government and the Mecca agreement, what is important is that any such Government, if we are able to support them, are consistent with the Quartet principles in the position that they adopt vis-à-vis Israel. We wait to see whether that takes place.

As for the United Kingdom, the single most important thing that the UK can do is to be part of a progressively strong European emissions trading system. That is the best thing for us to do and, as I said to the Leader of the Opposition, we have to be careful; we have to strike a balance. We must be careful not to punish our own business and consumers, without ensuring that the measures are also taken at European level.

On China and India, it is important, of course, to do what we can to encourage them to be part of this wider agreement, but there is another point that is very important indeed. The latest figures from China indicate that it is building a new coal-fired power station every four days. China on its own, incidentally, is also due to build something in the region of 40 airports over the next few years. The single most important thing is to develop the science and technology and then to have the proper method of transferring that technology to the Chinese and the Indians. That is why we need to get an international agreement involving China, India and America that incentivises, through a carbon price and a stabilisation goal, the right science and technology, and then to share that. I am sure that China and India want to grow sustainably, but they will not put at risk their determination to reduce the poverty of their population. That is a reasonable position, which is why the G8 summit in June will be so important.

This is a good outcome that demonstrates the value of full engagement with the European Union, and one of the EU’s strengths. At last month’s meeting of the Washington legislators forum, there was a real willingness among legislators from the G8 plus 5 to sign up to the idea of stabilisation goals and global carbon markets. Does the Prime Minister think that that will be reflected by the leaders of China, India and the US at the forthcoming G8 plus 5 meeting, because that will be an important way of building support for a proper outcome post-2012?

First, may I pay tribute to the work that my right hon. Friend has done on this issue, especially at the recent meeting in Washington, in which he made an outstanding contribution, for which I thank him? Yes, that is precisely how we ensure that China and India come into this. As I was saying to the leader of the Liberal Democrats, China and India want to play a big part and we have to encourage them. However, they will not take action unless America is part of this—as is the case vice versa. We will not get further than this at the G8 summit in June, but if we get that far, agreeing the principles of a new deal will be a very big achievement. Part of that will be the technology transfer that those countries crave.

Was the Prime Minister personally involved in the drafting of the presidency conclusion on Palestine, which says that the European Union would deal with a Palestinian Government who

“adopts a platform reflecting the Quartet principles”?

Does he accept that that is, in a characteristically European way, a fudge, and will he give a clear assurance that the British Government will not deal with Hamas as long as it continues to support suicide bombing and the complete destruction of the state of Israel—which is, indeed, what it reaffirmed in a statement this morning?

The position certainly has not changed at all. All sorts of words are used in respect of the national unity Government, but they all amount to the same thing: that such a Government must be in line with the Quartet principles, which means that they must accept the right of Israel to exist, and that the way to pursue a settlement is through negotiation, not violence. That will remain our position. The issue for us is whether, in this national unity Government, it is possible to get Hamas to understand that we cannot support people who attempt to achieve their aims through terrorism and that we cannot, in particular, take forward negotiations on two states if Hamas is saying that one of those states does not have the right to exist. That is our position, it has been our position, and it will remain so.

The Prime Minister mentioned leadership in his statement. Is this not an example of the European Union showing world leadership before the G8 plus 5 and the United Nations conference of Kyoto protocol states in December? The Leader of the Opposition mentioned the European emissions trading scheme. Is that not the appropriate mechanism through which to ensure that, by 2020, we reach the 20 per cent. reduction target without penalising or interfering with our manufacturing industry?

I entirely agree with my hon. Friend—that is exactly the way to do it. If the European trading scheme develops in the right way over time, it is perfectly possible that we can get other countries or states in the United States to join. For example, the state of California has not ruled out the possibility of joining the system at a later time, and given that it has the sixth or seventh largest economy in the world, that would be of huge benefit.

It is reported that the most important decision taken at the summit’s Friday night dinner was to remove the word “constitution” from the European constitution. If the EU wants to earn a more important description as a democracy, will the Prime Minister insist that it respects the clear verdict on the substance of the constitution by the French and Dutch electors, who said no? Will he ensure that the European Council does not smuggle through bits of the constitution by changing its name? If he wants to put the matter beyond doubt, will he hold the promised referendum in this country, to give the people a final say?

I am afraid that, not for the first time in our deliberations about European summits, the right hon. Gentleman has been somewhat misinformed. That was certainly not the purport of the dinner on Thursday night. We agreed that it was important that the Berlin declaration did not get tangled up with issues to do with the constitutional treaty, which will come up at the June summit. In respect of the French and Dutch no votes, I can assure the right hon. Gentleman that the European Union as a whole is well aware of the implications of those verdicts.

May I congratulate the Prime Minister on the part that he played in securing an environmental agenda and agreement, but does he accept that a unilateral imposition of tax on fuel by the UK would make us a laughing stock, as airlines could import the oil from countries that do not pay the tax? Does he agree that a global agreement is necessary? I welcome the fact that aviation will be covered by the EU emissions trading scheme by 2011, but will the Prime Minister take it from me that there will be a bit of ducking and diving by the airlines when it comes to reaching a realistic price for carbon emissions, and will he assure colleagues and me that he will be firm in achieving that realistic price?

My right hon. Friend is absolutely right. As I say, we have to strike a balance, which is why I think it is very important that we do not take measures that harm our own industry or our own consumers, but at the same time ensure that we play our full part. He is right again in his implication that it is through the trading system that we will be able to do most, because that is on a common basis.

I welcome the statement as a positive step forward, and I welcome the reference to clean coal technology. The Prime Minister rightly said that much will depend on the wider international agreements that are reached through future debates. How well placed is Britain to take full advantage of clean coal technology and, importantly, to be able to transfer that technology to people in India and China?

We can certainly play our part with the rest of Europe in doing that. There is a certain expertise in the technology in Britain, but it is found elsewhere in Europe and the world, too. The hon. Gentleman is right to imply that the single biggest benefit of developing the technology is the possibility of exporting it to India and China—and America as well, of course, which has huge reserves of coal. Clean coal technology could offer a wholly different future for our own coal industry.

May I add my welcome for the Prime Minister’s statement, and particularly for the introduction of a mandatory 20 per cent. cut in emissions by 2020? However, it follows behind our voluntary target of a 20 per cent. cut by 2010 by a whole decade. Does my right hon. Friend detect any enthusiasm among other European states for voluntary cuts above the baseline—and it should be considered a baseline—of the mandatory target?

I think we should take it stage by stage. The targets are very challenging for the European Union; there is no doubt about that at all. The renewable energy target is particularly challenging, which is why I think it is just as well that we are able to take account of different member states’ energy mixes. My hon. Friend is right that once things really get under way, particularly if the European emissions trading system incentivises business and industry to do more, all the evidence is that people can be more bold and more radical than hitherto they thought they could be. The argument has already changed dramatically in the past few years, and I think that it will do so further in the next few years.

It makes sense to cut CO₂ emissions, but has the Prime Minister had the chance to watch or be briefed on last Thursday’s Channel 4 “Dispatches” programme? There are eminent scientists who dispute the orthodoxy on the causes of global warming; one may or may not agree with them, but their voices are out there. Does the Prime Minister agree that before we take steps that might damage economic growth in the third world, where poverty is the main problem, we should ensure, on an ongoing basis, either nationally, or through the Commission or the EU, that all scientists are given a voice, so that we take the right decisions?

I have not been the greatest watcher of Channel 4’s “Dispatches”, for pretty obvious reasons, over the years. The hon. Gentleman is right: there are people who still dispute the science on climate change, but there is a problem. In most respects, I am a fan of people who are prepared to be iconoclastic and say things that are unpopular, even if the conventional wisdom is all one way, so I do not dispute his right to raise those issues at all. However, the fact is that all people who advise us say that the science is becoming increasingly clear, not less so, and the fact is that, should we not take action, and it turns out that the warnings of climate change are right, the implications are enormous. Even on a precautionary principle, it is as well to take avoiding action now. The debate will carry on among scientists, but as I have watched it develop in the past few years, the body of opinion has moved very solidly in favour of this threat being real. Therefore, the implications of it being real are so enormous that we would be foolish not to sit down and take action now.

May I welcome my right hon. Friend’s statement, which is of potentially huge significance and will be enormously welcomed by British manufacturing industry? Does he agree that crucial to its success are, first, mechanisms to ensure that European countries liberalise their energy markets; secondly, that the Commission is robust in upholding its national allocation plans for emissions trading; and, thirdly, that the Commission consider a sectoral approach to stop certain industries, such as the energy supply industry, hoovering up carbon credits and passing on the extra cost to British manufacturing?

My hon. Friend makes some very wise points. The important thing is that the Commission takes, as he says, the necessary robust action on energy liberalisation, and makes sure that the emissions trading scheme works properly. In that regard, another interesting change has taken place. British attitudes towards the European Commission have not always been clothed in the utmost warmth—indeed we have often regarded the Commission in Brussels as the problem. Interestingly, this President of the Commission—we played a part in ensuring that he became President—has provided us with an opportunity on regulation, liberalisation and issues such as climate change, as he has the necessary tough appreciation of what is right for Europe’s competitiveness, and is prepared, too, to take a long-term view on issues such as climate change. We need a robust European Commission to complete the agenda.

I agree with the Prime Minister and with the Leader of the Opposition that the summit shows that British interests can work in harmony with those of the European Union, which is another justification for our being fully integrated into the Union. I agree, too, with a remark that the Prime Minister just made about the Commission. It is vital, particularly in competition policy, that energy distribution industries are opened up, which means that the Commission must take tough action that is backed by the European Court. During the summit, did the Prime Minister discuss energy security? There are increasingly worrying signs that the Russians are trying to interfere with our key pipeline—both the distribution networks through the pipeline and the source of the oil itself. That sort of Russian politics is becoming quite worrying for the European Union.

It is interesting that the Baltic states—Estonia, Lithuania and Latvia—are coming together to build a nuclear power station to improve the security of their energy supply. Although it was not the main subject at the summit, there was a great deal of concern and discussion about energy security. The hon. Gentleman’s point about the European Commission is right and true, which is why Britain has an unparalleled opportunity in Europe. First, we have an enlarged European Union—again, the hon. Gentleman’s and then our Government fought for that—so that alliances in Europe are far more fluid than they were before. Secondly, the European Commission is increasingly on all fours with the agenda that we want. Both those things give us big opportunities in Europe.

I wish to take up a comment that my right hon. Friend made a few moments ago. Although all Palestinian factions should recognise the existence of Israel’s pre-1967 borders, is he aware that while the European Council was meeting many of us saw on television Israeli troops using Palestinian children as human shields, clearly in defiance of international law? What protest will be made by the European Council, the British Government and, I hope, the United States Government about what the Israelis are doing and what we have seen on television, which is totally unacceptable?

The only way through is to get negotiations going between the Israelis and the Palestinians. I hope that the meetings that are already taking place between Prime Minister Olmert and President Abbas of the Palestinian Authority continue. I know that the US Secretary of State, Condi Rice, is to go back to the region shortly—[Interruption.] I understand what my hon. Friend says, but the only thing that will put a stop to the grief and hardship on both sides is a negotiated settlement.

I warmly welcome the environmental conclusions of the Council. In his discussions with Angela Merkel, did the Prime Minister learn of the fact that in Germany some 200,000 people are employed in the renewable energies industry, largely owing to the much more advantageous terms on which Germans who install renewable systems have their electricity purchased? What plans has he to reconsider how electricity is purchased in this country, to make the installation of renewable technology much more attractive?

The point that the right hon. Gentleman makes is right. People in Germany who generate energy through microgeneration are able to feed any surplus energy back into the system. These matters are all under active consideration, and he may learn more about this in the next few days.

I join the Leader of the Opposition in congratulating my right hon. Friend on achieving his objectives at the Council. The conclusions refer to progress with the Lisbon agenda. Is he confident that the target of 7 million jobs to be created in the next year in the EU will be met? Given his leadership in this area over the past seven years, since Lisbon began, what steps will he take to ensure that our European partners pursue that agenda as vigorously as Great Britain?

Europe has generated millions more jobs in the past few years, but we still have levels of unemployment that are far too high. We also need a labour market that is more geared to employability, rather than a more old-fashioned view of the social dimension. It depends to a great extent on the Commission being allowed, and being given support by member states, to take measures on liberalising the European market and on making sure that we support our work force through training, education and skills—active labour market policies, rather than old-style regulation. That is the agenda that we will push. The good news is that the Commission is on the same track. We need to ensure that all member states are on the same track.

Will not the apparent decision to allow member states to count investment in nuclear power against their renewable energy targets have the effect that the renewable industries have long feared—that encouraging investment in nuclear power will undermine investment in the truly renewable industries?

That it not what it does. The overall target for renewable energy is 20 per cent. for the whole of the European Union. It is in the allocation of that 20 per cent. that account can be taken of the energy mix of individual countries. The 20 per cent. target is at the bold end of the spectrum. We will face considerable difficulties in ensuring that all the European Union meets that target. If the energy mix could not take account of the reliance of the UK, France and other countries on nuclear power, it is hard to see how that could be fairly done. So that is necessary to protect the British interest, and it gives Europe more flexibility in how we meet that target. It does not change the target itself.

Further to the point about the Russian Federation, considering Europe’s heavy dependence on Russia for much of its energy, is it not vital that we get Russia to sign up to the CO₂ emissions action as well, and that we try to persuade Russia to adopt a more secure path in the liberalisation of its market so that people can have confidence in the investment that they make in Russia?

That would be sensible for us and, dare I say it, for the Russian Federation as well, but it is a decision that it has to take. For our country and other European countries, the concept of the common European energy policy has come about in part because people want the strength of countries acting together when we negotiate with those who are going to supply a large part of our energy needs. It is very sensible for us to do that. I also think that if we can get the right type of relationship with Russia, it will make a big difference to our security and, as my hon. Friend rightly implies, to its competitiveness.

I am sure that my right hon. Friend will agree that the summit will have a significant impact on companies that are considering investing in energy-saving technologies and in particular in developing new businesses. At a recent awards ceremony, sponsored by Shell, that I was privileged to attend on this very subject, a number of companies that were the winners displayed products that were near to market and at-market, which could significantly help this country. He mentioned the building schools for the future programme. Will he ensure that such companies are given support in public sector procurement, because it is a way in which the Government can give a lead?

My hon. Friend is right to say that. We must ensure that we give proper support to those companies that have imaginative and near-to-market proposals. The important thing for Governments is not to try to pick the technologies, but to incentivise the development of the technologies. The market will do the rest.

Did the European Council discuss the proscription of the People’s Mujaheddin of Iran? Will the Prime Minister explain his Government’s reluctance to accept the findings of the European Court of First Instance in that matter?

We did not discuss it. I shall write to the hon. Gentleman about the Government’s position.

How do the Government propose to measure the Commission’s action programme for reducing administrative burdens in the EU and the success of the programme? It is easy enough to count directives or regulations merged or scrapped, but what is the cost of European regulation on British business? Do the Government propose to publish figures showing that the cost for that will start to decline instead of carrying on increasing?

The Commission has its own means now of assessing and, I think, publishing—I shall check that in case I am wrong—the administrative costs of legislation. The idea is to reduce the percentage of those costs by 25 per cent. That is its purpose and it is similar to what we have proposed in the UK. The whole point is that administrative costs should be measurable. I agree that it is a big change in what the European Union has done up to now, but I would think and hope that the hon. Gentleman welcomed that.

Given that the Prime Minister has told us that aviation is supposed to enter the emissions trading scheme in 2011, will he or his Chancellor be making proposals to offset their massive increase in air passenger duty against that scheme?

I think that I am right in saying that the increase in air passenger duty will cost significantly less, certainly for most domestic travel, than VAT on airline fuel or the proposals of the Leader of the Opposition. The most important thing is that whatever we do, we do it Europe-wide. I am not saying that we cannot do certain things domestically, but we must be careful to get the balance right, as I said. I think that those proposals do not.

What action are the Prime Minister and Europe taking to ensure that the global price for carbon will enable the carbon trading policies to work effectively?

The way in which the emissions trading system works is to set a cap on emissions for each individual country and trade the permits within that system. Basically, the price is set through the cap. Progressively, we need to lower the cap so that the carbon price is transparent and the necessary incentive is given for business and industry to develop the science and technology to deal with it.

Incidentally, I agree that we have to be careful in the way in which permits are traded, but the single most important thing is to be able, progressively over time, to reduce that cap. If we could get a situation whereby there were other regional emission trading systems and they at some point linked up, that would probably be the best route to a global carbon trading system, which is, in the end, what we need.

The President of the European Commission, José Manuel Barroso, told Der Spiegel on Friday that the EU has no formal competency on energy policies, which it would have only after the passing of the EU constitution. On getting action on climate change, he said:

“With the constitution, it would be much easier”.

Does the Prime Minister agree that he needs to send a message to Mr. Barroso that we do not need to wait for structural change in the EU to get strong collective action on both energy security and climate change?

To be fair, President Barroso is taking action. He is right in saying that energy was part of the constitutional treaty. Irrespective of what is in the treaty, we can take common action at a European level, which is what we have agreed to do. I think that he has shown commendable leadership on that issue.

Does the Prime Minister agree that the effectiveness of the existing EU emissions trading scheme has been undermined by the over-generous allocation of carbon credits to certain member states?

That is probably true, but it is not very surprising at this stage. The scheme has just begun, and it is the first of its type in the world. Just as at a national level we have to be careful that we do not get so far out in front of the pack that we damage our own business and consumers, so at a European level we operate in a globally competitive economy. I think that I am right in saying that European emissions comprise 15 per cent. or possibly a little bit more of the total. In the end, the purpose of the European emissions trading system is, as it develops, to become more effective, which is why President Barroso is trying to set much more ambitious caps for 2008 to 2012. In time, we will bump up against a limit in Europe, unless we can draw in other countries. As the hon. Gentleman will know, it would be an understatement to say that the leaders of European industry are concerned about how the European emissions trading system may develop. We need to take the process in stages. It is important that we achieve an agreement at the G8 plus 5 to the principle of a stabilisation goal and of a global carbon trading system to make the process move forward.

Given that Russia’s increasing authoritarianism and truly lamentable human rights record should be of continuing concern to all EU member states and that regional instability threatens to hinder progress on a wide range of issues from organised crime to nuclear proliferation, will the Prime Minister tell the House about whatever discussions took place at the summit on the need to engage with Russia above and beyond energy matters?

I cannot recall offhand particular discussions on that at the summit, but I think it a fair characterisation to say that it is a running theme of all European meetings at the moment. There is a desire to engage with Russia as a major partner for Europe, but there is also a great deal of wariness for the very reasons that the hon. Gentleman gives. One of the reasons countries around Europe are taking decisions on energy policy, such as some of the decisions that we have taken here, is the concern about that. I hope that Russia understands and realises that its best prospect of playing its full part in the international community, and certainly its best opportunity to be a strong economy, is if it plays by the same rules as everybody else in Europe and America, too. I assure the hon. Gentleman that at every opportunity we discuss the matter both with our allies and, in so far as we can, with the Russians. I think that developments in the next couple of years will be extremely important.

Further to the question asked by the right hon. Member for Leicester, East (Keith Vaz), may I ask the Prime Minister again about the Lisbon agenda? How much discussion took place on the Lisbon agenda? Is it still his Government’s intention to retain Britain’s individual opt-out on the working time directive?

We will not do anything that puts at risk our position on the working time directive. We do want a resolution of this, however, since, as the hon. Gentleman knows, we have real problems with the SIMAP and Jaeger judgments, which are costing our health service a very significant sum every year.

Yes, there was a discussion about the Lisbon agenda, and it forms part of the conclusions. In the end, however, the best way of getting the Lisbon agenda taken forward is to support a strong European Commission. That may not be absolutely to the hon. Gentleman’s liking, but it is the best way of doing it. The whole point about the single market is that what ultimately stands in the way of its completion is the various vested interests of the various member states and their industrial sectors. The only bulwark against that is the European Commission, which is why it is so important that we give full support to President Barroso and his agenda.

On a point of order, Mr. Speaker. I know that you are not responsible in any way for the quality of Departments’ replies to written questions, but I believe that the named day procedure was put in place to limit the number of questions that we ask on a given day for written answer so that we would have a good chance of getting a decent answer to them. In mid-December, I tabled a series of very specific questions about the assassination of Georgi Markov in 1978, bearing in mind that next year the statute of limitations will run out for any possible prosecution of the alleged assassin, Francesco Gullino. I was given a holding answer on 19 December saying that a reply would be given as soon as possible, but I have had to wait until 8 March to receive the substantive answer, which reads:

“The investigation into the death of Georgi Markov is a matter for the Commissioner of metropolitan police.”—[Official Report, 8 March 2007; Vol. 457, c. 2164W.]

I could just as easily have been told that on 19 December and not have lost two and a half months. Is it not part of the deal that if the Department is going to give an answer such as that it should give it on the named day?

I can take the blame for many things, but I am not responsible for the answers that Ministers give.

On a point of order, Mr. Speaker. I wonder whether I can seek your advice. Some 1,400 of my constituents wrote to the Secretary of State for Health about their concerns about the closure of our local general hospital. On 1 February, the Minister of State, Department of Health, the hon. Member for Leigh (Andy Burnham), who is on the Front Bench, wrote to me assuring me that even though acute services would be closed, an independent sector treatment centre would be built in my constituency. Yet on Friday evening, the chief executive of my trust phoned to tell me that the ISTC was not going ahead and my constituents had been misled. How can we clarify such misleading statements from Ministers?

It sounds to me as though the hon. Gentleman should apply for an Adjournment debate. I cannot make any promises, but sometimes the Speaker looks at local constituency matters favourably.

ESTIMATES DAY

[2nd Allotted Day]

First, let me say how pleased I am that we have this opportunity to debate the Health Committee’s report on national health service deficits and the Government’s response. I thank the Liaison Committee and the scrutiny unit of the House of Commons for assisting us in this process. I thank members of the Health Committee, some of whom are in their places this afternoon. They have spent many weeks and months working on the report. I thank the secretariat and the special advisers who helped us to draw up the report, which we published before Christmas.

I would also like to thank the Department of Health. It published not only the response to our report on 20 February, but, by coincidence, its own examination into deficits—[Interruption.]

Order. An awful lot of private, loud conversations are taking place in the Chamber. That is unfair to the right hon. Gentleman.

The Department published a document to explain the national health service deficits. It was conducted by the chief economist of the Department’s corporate analytical team. Coincidentally again, on the same day that the Government response to our report was published, they also published quarter three of the NHS returns for this financial year.

I want to pick up some of the more serious points that we made in the report and consider the Government’s response to them. Let me begin with the introduction in 2004-05 of resource accounting and budgeting. The Health Committee considered that in great detail and took evidence from the Audit Commission, which had also examined the change in accounting in NHS bodies. It and the Health Committee were critical of resource accounting and budgeting.

I appreciate that the Minister of State, Department of Health, my hon. Friend the Member for Leigh (Andy Burnham) will doubtless speak about the matter at some length, but let me cite paragraph 25 of the Government response, which states:

“In this context, the Department is looking seriously at the case for reversing the impact of past RAB deductions for NHS trusts for delivery of financial balance in 2006-07 and at the future application of the RAB regime for NHS trusts.”

Will my hon. Friend the Minister tell the House the Government’s exact thinking on the matter? It worried the Committee, the Audit Commission and many parts of the NHS.

The Select Committee sought the disapplication of resource accounting and budgeting to the NHS. For me—and, I suspect, for the Government—there is a good case for not applying it to NHS hospital trusts run as businesses, or, indeed, to NHS provider trusts. However, there is not a good case for not applying RAB to primary care trusts, which receive a given amount of public expenditure resources. They should live within the overall resource envelope.

As an individual, and not speaking on behalf of the Committee, I accept that all sectors of the NHS—primary or acute sector trusts—have the responsibility to the taxpayer to work within their budgets and their means. That has clearly been difficult for some of them in recent years because of the change to resource accounting and budgeting. The Committee and the Government’s analytical team have considered that in recent months.

Let me make my point clear. All provider trusts in the NHS are businesses. In the course of their normal business, they may well incur deficits and losses on their income and expenditure account one year and surpluses in others. There may be legitimate reasons for that. However, a primary care trust, in its proper role as a commissioner of services, receives a given amount of resources and has a responsibility not to spend more than the resources that are voted to it through the House. The discipline of RAB should therefore apply to primary care trusts but not to businesses that are trying to provide services year on year.

We need to extend the debate. I shall say a little about what the Committee found in some health communities, which told us, “Last year, we were the overspenders and we were the acute sector, so we’ll move it to the primary sector this year and they can be overspenders.” That is an unhealthy state of affairs and I shall mention it briefly again later. We cannot say that RAB is all right for one sector of the NHS but not another.

The hon. Member for South Cambridgeshire (Mr. Lansley), speaking from the Conservative Benches, raised a very important point. Does the Chairman of the Select Committee agree that there is an inherent contradiction between a primary care trust, which has a finite budget to manage, and foundation trusts within that PCT, which have a “payment by results”, more open-ended agenda? There are two conflicting arrangements there, which are certainly not conducive to balancing the books.

At this stage, I would say to the hon. Gentleman that we looked at the issue of payment by results, but whether or not it is a distorting factor has not yet been finalised. If the hon. Gentleman reads the report in detail, he will find that the Government put their hands up in some respects and brought in some elements of payment by results and some tariffs that were clearly off the mark. Some changes were made earlier in this financial year to try to get them back to a more sensible balance.

This has been and remains very much a moving picture. Once we start to make national health service expenditure transparent, as the Government have tried to do, all sorts of things are brought into play. That is not historical, but quite new in respect of payment by results. Other aspects, which I shall come on to in a few minutes if I can make some progress, have been more historical.

rose—

I shall have to give way to the hon. Gentleman, who is a member of the Committee.

Yes, I have the honour of being a member of the Committee of which the right hon. Gentleman is the Chairman. Before he moves on, I agree that everyone should stick within the allotted budgets, but the problem is that the formula in many areas is so bad for trusts that they cannot both stay within budget and produce the care that our constituents deserve.

The hon. Gentleman uses the phrase “so bad”, which I am not sure I would use, but we tried to establish what it was in the formula that led to the problem. Indeed, that is what the Government’s own analytical department has been trying to do. I will refer both to what we found—or, in that particular case, what was not found—and how the Government responded to it in their own report of 20 February.

We all greatly respect how the right hon. Gentleman chairs the Select Committee. I have raised with him the serious problem of historic deficits where the Government order one trust to merge with another trust, which can often lead to a very substantial deficit that the newly created trust then finds it almost impossible to get out from under. The trust has no alternative but to deal with that. Does the right hon. Gentleman agree that the Government really need to find a more sympathetic understanding and a more coherent way to deal with those inherited deficits that does not cause such terrible difficulties later on in the trust’s life?

The hon. Gentleman will see exactly what we tried to do in the report. We dealt with how to manage the situation where deficits, historical or otherwise, are a very high percentage of the turnover of one organisation while at the same time being fair to other organisations in the NHS and to the taxpayer. Basically, deficits are about overspending. Whether historical or not, they are overspend against the budgets allotted to each individual constituent part of the NHS.

My own view—I have said it for many months now—is that that problem has to be addressed in the interest of the taxpayer and in the interest of the NHS. We cannot have all this extra money being invested only to find out that there is still overspending. Often we do not know exactly where the money has gone or whether it is improving productivity and so forth. Under those circumstances, these are big issues. I would not want to argue—neither did the Committee, to its good sense—that where there are massive overspends or deficits, we should not find some mechanism for dealing with them. It is up to the Government, who run the organisation, to find out how they can make people more responsible than they have been in health communities in the past where overspend has taken place.

One of the biggest issues for me—I speak from a personal level—was how the Government decided this current financial year to take on the matter of the overspend or deficits by seeking to balance the books nationally by the end of the financial year. They sought to do so on the basis of top-slicing. It certainly hurt my health community when more than £7 million was withheld from the Rotherham primary care trust, but I am pleased to say that that came out of growth money rather than current services. If it were not for that, I would have been even stronger in my criticism of top-slicing, which was done to bring back some discipline.