EU BUDGET: BLAIR DEFENDS UK POSITION, SAYS OPEN TO DEAL.

Budget out of touch with 21st century.

The UK Prime Minister repeated his argument from the European Council meeting of June 16-17 saying that it did not "make sense" for Europe to spend more than 40% of its budget on the Common Agricultural Policy which represented less than five per cent of the EU's population and less than two per cent of the Union's economic output. Pointing out that budget proposals would mean spending seven times as much on agriculture as on research and development, science, technology, education and support for innovation, he said the budget was "not fit for its purpose in the 21st century", especially in light of the competitive challenges from China and India as well as the established economies of the US and Japan. Even by the end of the medium-term budget period, the EU would be spending 40% of total spending on the CAP, he argued.

Seeking to justify his defence of the UK rebate, Mr Blair said the rebate existed because of the "distortion of the budget" caused by the CAP. Over the past ten years to 2003, France's net contribution to the EU had been euro 18.8 billion, he said, while the UK's was 42.4 billion. Without the rebate it would have been 78.7 billion, he claimed. Over the next budgeting period, the UK would pay euro 13 billion more but if the rebate were not maintained the UK would pay nearly two and a half times as much as France and slightly more than Germany, he told the House.

The UK's position, he said, was not to refuse any change to the rebate but to deal with both anomalies of the rebate and the CAP. Mr Blair said what he wanted was a "fundamental review of the EU budget", reporting in time the EU us to be able midway through the next financial period to "alter fundamentally the structure of the budget".

The Prime Minister said that offers by the Luxembourg Presidency at the June 16/17 summit meeting on a review clause "fell way short of such a solution". The terms of the review were expressed in language so vague as to be meaningless, he said, and would have meant endorsing the 2002 agreement on levels of CAP funding until 2013. He rejected suggestions that the 2002 agreement had ruled out further changes to the CAP and criticism that the UK had been unfair in trying to reopen it. In October 2002, he said, it was expressly stated that the...