Disciplined budget

Today European foreign ministers will gather in Brussels for a first discussion of the new budget proposals tabled by the UK Presidency for funding the European Union in the next financial period, 2007-13.

These proposals replace the budget tabled at the European Council in June by the Luxembourg Presidency. That budget was unrealistic; it was too expensive and made no attempt to address the challenge of globalisation. Five member states - including the largest net contributors to the budget - rejected it.

What we are now putting forward reflects consultations with member states as well as with the European Commission. It is a budget built on four principles.

First it is a disciplined budget. In 2004, the European Commission proposed a budget of €1,025 billion - equivalent to 1.24 per cent of the total national income of all member states (GNI). The United Kingdom and five other member states - France, Germany, Sweden, Austria and the Netherlands - thought this was far too high. Our proposal is for a budget of €847 billion or 1.03 per cent of GNI.

Second, it is a budget for enlargement. It will provide significant and timely additional investment for the new member states. By helping the countries of central and eastern Europe to build their economies and grow to their full potential, we will all benefit from an increase in the total volume of EU trade, jobs and growth.

It is right for richer, older members to make a larger contribution towards the budget paying for this enlargement. Under our proposal, the new member states will get €150 billion in structural and cohesion funding. That is an enormous increase - about five times what they are getting now. The total funding they will receive through all EU programmes will be twice the value, at today's prices, of the Marshall plan which revived western Europe after World War II - or about €2,500 for every citizen. Poland, the biggest new member state, will receive a net transfer over the seven-year period of the budget of more than €60 billion. Lithuania, one of the smaller countries, will receive about €10 billion.

Historically, new member states (and most older EU states) have not been able to spend anything like the level of funding available to them. Our proposals include very practical steps to ensure they will receive money more quickly and effectively. This means that while the headline figures are lower - by €14 billion compared to the June budget - all these countries will be better able to spend what they have been allocated.

Our preference, as set out by the Prime Minister in June, would have been for a deal which reformed the budget, including the Common Agricultural Policy. In the absence of such reform, this budget deal provides the new member states with a huge uplift in funding and with the certainty and access they need to that funding. Third it is a fair budget. In June some countries were being asked to make a disproportionately high net contribution. That is why five countries rejected it. Under the old proposal, for example, the UK was being asked to pay an extra €20 billion over the seven-year budget.

Our net contribution would have been about half as much again as either France or Italy. And, don't forget, that even with rebate, over the last 20 years the UK has been paying up to twice what France and Italy have paid net.

The UK is willing to pay its fair share - but only its fair share. We have put an extra contribution of €8 billion on the table to help pay for enlargement. There are a number of technical ways in which this contribution can be made but in all cases, the final beneficiary will be the structural and cohesion funding to the new member states.

The new budget would still see the UK as the second largest net contributor in cash after Germany but the gap between our net contribution and that of other countries with a comparable economy would be narrower.

Finally, this is a budget which would put us on the path to a reformed EU, better able to compete in the global economy. At the moment, the EU still spends 40 per cent of its budget on a CAP which goes to only five per cent of the population. So our budget provides for a comprehensive and wide-ranging review, covering all aspects of revenue and expenditure including agriculture.

This would be conducted by the Commission, which will submit a report in 2008. On the basis of the review, the EU would be able to make changes in the 2007-13 financial period. There will be no fundamental change in the British rebate without fundamental reform of the CAP.

Budget negotiations are never easy and these have been no exception. But we remain determined to reach agreement at the European Council in December. The UK Presidency is proposing a fairer and more modern budget for a stronger and more prosperous Europe. It provides a sound basis on which all our citizens can thrive in an enlarged EU.

Mr Straw is the UK's Foreign Secretary.