The EU Budget needs radical reform and a real terms cut – my Times article with Douglas Alexander

Every country across Europe, including Britain, is having to make difficult decisions about spending — trying to do better with less. And the European Union is not — and should not be — exempt from this challenge.

The crisis in the eurozone and a chronic lack of growth across the Continent mean that EU resources are stretched and priorities must be revised. The challenge for the EU, as for national governments, is to cut spending in a way that is both fair and supports rather than stifles jobs and growth.

That is why the priority for the new seven-year budget must be to promote growth and jobs across Europe. And that is why Labour will argue against the proposed increase in EU spending and instead support a real-terms cut in the budget. We believe these goals are difficult but achievable with the right leadership and the right approach from the UK.

When we speak of budget reform, some will want to focus only on cuts to “EU fat cats” in Brussels. But we should not be distracted by a debate simply about bureaucracy: administration represents only about 6 per cent of EU spending. The big areas for reform lie elsewhere.

Far too much money still goes on agricultural subsidies, instead of on policies to promote growth, cohesion and development or to support the EU’s vital role in international affairs.

So further reform of the Common Agricultural Policy (CAP) must not just be discussed but implemented. The CAP amounts to about £45 billion and the UK makes a net contribution of about £1 billion per year. Although the butter mountains of the past are long gone, the need for reform is no less urgent. The CAP is an obstacle to international trade liberalisation, creates too few jobs and introduces distortions so there is not a level playing field. The EU cannot afford this waste.

EU structural funds — currently used to promote growth and investment in the EU — must be reformed if they are to deliver the vital support that Europe now needs. These funds make up around 35 per cent of annual EU expenditure but are distributed according to overlapping and, at times, competing objectives agreed decades ago. Today that money must be spent on promoting growth and jobs in deprived areas. Schemes that do not meet this threshold can no longer be justified.

We also need urgent action to release money that is currently not spent because poor countries can’t produce the matching funds needed under the existing rules. Co-financing rules must be relaxed, as has been done in Greece, so that these funds can be put to use.

As well as reforming how the EU spends its money, we must also be prepared to reform how it works.

That is why we propose setting up an independent EU auditor whose sole purpose would be to audit every aspect of EU spending in terms of the overall impact it is likely to have on promoting growth in EU economies.

We also need to improve accountability and streamline how the EU supports jobs and growth. We propose one Growth Commissioner to lead the efforts to promote growth, bringing together aspects of this brief currently spread across a number of commissioners’ posts.

The real tragedy for Britain is that at the very time when our leadership is most needed, the UK’s influence has rarely been so marginalised. Our EU partners know that without the British rebate, our net contribution would be significantly higher than that of France. That is why they have consistently accepted in negotiations that the rebate is justified and must be retained.

The issue is not the rebate, which has always been agreed, but long-term reform. And our fear is that the Prime Minister is throwing away a genuine opportunity to deliver a budget that is best for Britain and right for the EU. As a result of David Cameron’s behaviour, those we used to call friends now ridicule the Prime Minister in meetings, shut him out of negotiations and bad mouth him to the press.

Last December we saw him flounce out of negotiations. This month he has resorted to threatening vetoes before negotiations have even begun.

The UK should be arguing for reform in Europe, not suggesting exit from it. British jobs, exports and influence all benefit from Britain’s continued membership of the EU. To contemplate shrinking our home market from 500 million consumers to just 60 million doesn’t make sense.

Historically Britain has often taken a lead in driving forward change at moments when Europe stands at a crossroads.

But sadly for both Britain and Europe, Mr Cameron looks ill-equipped to fulfil that role. A failure to deliver the necessary restraint and reforms will be a missed opportunity for Europe, a setback for Britain and a personal failure for the Prime Minister.

Ed Balls is Shadow Chancellor, Douglas Alexander is Shadow Foreign Secretary

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Posted October 29th, 2012 by Ed