The EU budget needs to be increased, not cut or frozen - The Guardian

The debate in the House of Commons on Wednesday night saw a united front of Eurosceptic Tory MPs and the Labour opposition demand a cut in the European Union budget. It has – understandably – been greeted by whoops of delight from the Tory right and Ukip. Labour has been left with little more than a schoolboy smirk at the discomfort imposed on David Cameron and an uneasy feeling that it all may rebound against them.

The EU budget debate took place with little or no reference to the real world outside: either to the dire state of the European Union economies (including Britain) or to the political realities of Brussels budget negotiations. One reality is – given the fact that Cameron is not the only EU leader with a veto – the most (actually the worst) that can be achieved is an annual budget freeze but subject to inflation adjustment.

In the British domestic economic debate there is usually at least some reference to the vital role of the public budget in offsetting the crisis of growth and unemployment and also in spearheading investment in infrastructure and research vital in securing growth and jobs. Not so when it comes to the EU budget – even though it could be a very important means of reversing the deepening recession throughout Europe.

When it comes to the EU budget, political discourse quickly reverts to the most basic and ill-informed populism. This was reflected in some of the arguments deployed by so-called "pro-European" Labour MPs who justified their demand for a reduction in the already far too small EU budget that the common agricultural policy pays excessive handouts to the richest landowners in Britain.

So it does. But that is largely a result of the refusal of successive British governments – Tory and Labour – to support proposals repeatedly made by the European commission to impose limits on the per capita subsidies paid to the likes of Prince Charles, the Duke of Westminster and their like throughout the EU.

The current European Union budget – covering 27 (soon to be 28) member states – amounts to barely 1% of the total EU economy. Whatever the benefits that budget brings – for example to the poorer regions, to scientific research and to vital transport and energy networks – it is ridiculously small. As has been argued by economists across the EU, to make a significant impact on the European Union economies it should be increased by a factor of three or four and directed more specifically to overcoming the mounting obstacles in the way of sustainable growth and jobs.

Of course there also need to be far-reaching changes in the way the EU budget is funded. At present it is precariously dependent on direct transfers from national budgets with only a tiny range of EU fiscal "own resources" such as customs duties and other levies. This would mean the introduction of EU-wide taxes – perhaps starting with a financial transaction tax, for which there is significant public support. An agreement by states to raise a higher rate of marginal tax on the largest incomes and other extremes of wealth would also help provide the means to drive forward a sustainable investment-led growth and job recovery. A collective EU backing for loans to finance recovery is also desperately needed.

This would, of course, mean that the European Union is serious about making an economic as well as a monetary union a reality. If Britain and a handful of other EU governments block this development, the 17 members of the Euro area can still press ahead. Indeed, the Cameron government has been urging this course of action – fearing that the UK's uncertain economic prospects will be further undermined without economic recovery elsewhere in Europe.

The hypocrisy of Tory MPs – urging fiscal federalism on others but refusing it for the UK – is well documented. But last night's foray into the wilder shores of anti-European populism by the Labour frontbench has made even some Labour MPs such as Margaret Hodge "sick". Ed Miliband and his colleagues may think they can pour petrol onto the Eurosceptic flames without being burned. They are wrong. The only winners last night will by Ukip and the far right. The day of Britain's final exit from the European Union has drawn a little closer.