HC Deb 02 July 1973 vol 859 cc33-46
The Chancellor of the Duchy of Lancaster (Mr. John Davies)

With your permission, Mr. Speaker, and that of the House, I will make a statement about the main matters considered in the Council of the European Communities since I last reported to the House on 23rd May.

There have been in all five meetings of the Council—two of Foreign Ministers, two of Agricultural Ministers, and one of Finance Ministers. A meeting of Transport Ministers planned for 25th-26th June was cancelled.

The Council has made further progress in the work arising from the decisions of the European Summit Conference of October 1972.

At the meeting of Foreign Ministers on 25th-26th June, agreement was reached on a document setting out an overall Community approach to forthcoming multilateral trade negotiations under the GATT. The Foreign Ministers also made substantial progress towards agreement on the Community's approach to negotiations with Spain, Israel and the Mahgreb in the context of the Community's policy towards the countries of the Mediterranean following decisions taken by the Agricultural Ministers on 18th-19th June on the possible agricultural content of such a policy.

The Council has discussed further the Community's future relations with the developing countries of the Commonwealth and countries already associated with the Community under the Arusha and Yaounde Conventions. These developing countries have been invited to an opening conference on 25th-26th July at which the Community will give a broad outline of its proposals on the form of a new association agreement. The proposals will be subject to further discussion in the Council in July on the basis of ideas put forward by the Commission.

The Council has continued its consideration of a Community policy on development co-operation on a world-wide scale.

The Council has agreed that the provisional location of the European Monetary Co-operation Fund shall be in Luxembourg subject to certain conditions, including a review by 30th June 1975.

The Community Finance Ministers, meeting on 28th June, discussed the current economic situation and the continuing need for action on a Community scale against inflation. They agreed that this was the most serious economic problem facing the Community and adopted a resolution setting out the determination of all member countries to pursue policies aimed at slowing down the rate of increase of prices.

The Finance Ministers also discussed a report by the Commission on the second stage of economic and monetary union, which is due to come into effect on 1st January 1974. The Council reaffirmed the Community's commitment to this move and agreed that there should be further detailed technical study of the Commission's proposals for the second stage preparatory to the subject being considered again in the Council later in the year. The Commission also gave a brief oral account of its reports on reserve pooling and short-term monetary management; these will be discussed at the next meeting.

I now turn to Article 154 of the Treaty of Accession.

As the House knows, under the terms of this Article, the Commission was required to supplement by 1st July its communication of 23rd June 1971, dealing with central and peripheral areas, in a manner which took account of the enlargement of the Community and placed all the member States in the same position over the arrangements for coordination of regional aids in the Community.

At its meeting on 27th June the Commission reached an agreement for this purpose. The effect is that the central areas of the United Kingdom have been defined as our non-assisted areas and our intermediate areas. The precise classification of the remaining areas of the United Kingdom has been held in abeyance pending a major Community-wide review to be carried out by the Commission. Its aim is to determine by 31st December 1974 a more complete and detailed system than that communicated in 1971. This would take account of the variety of different regional problems of the enlarged Community.

Such an intention is wholly welcome to us as contributing in a more sophisticated way to the restraint of excessive bidding and counter-bidding between member States and even regions for mobile investment projects. As is known, Her Majesty's Government's view in this matter is shared by both the TUC and the CBI.

Meanwhile, those areas of the United Kingdom not classified as central will continue to be treated as at present. We shall wish, of course, to keep the Commission informed of the aid we give in respect of major projects. For our central areas, the standard aid will be well within the 20 per cent. authorised.

The Commission has also told us that the present arrangements already allow of higher levels of support being acceptable if cases of special difficulty arise, and in particular it has given us assurances as to measures we might consider necessary to relieve the consequences of major steel redundancies in the intermediate areas.

The outcome of these discussions is wholly satisfactory.

Mr. Shore

I thank the right hon. Gentleman for his statement. I think he is rather more easily satisfied, judging by his last remarks, than are the Opposition by the results of these wide-ranging negotiations.

First, is it not the case that, in the Article 154 negotiations, the intermediate areas of Britain are now to be classified as central areas and subject, therefore, to the limitations in the extent and quality of aid which goes with the definition, but that the British development areas and special development areas have deliberately not been classified as Community peripheral areas—in other words, as the statement says, the matter has been put into abeyance and is to be decided in the next 18 months? In short, I suggest that on this matter we have won, as it were, at best a reprieve.

Since the matter was strongly debated inside the Commission itself and there is no doubt that political pressures from the House of Commons and Her Majesty's Government played a part in the results, will the right hon. Gentleman ensure that long before a decision is finally taken the situation is fully reported and debated again in this House?

The right hon. Gentleman referred to economic and monetary union. Is he really asking us to believe that the second stage of such a union is still scheduled for 1st January 1974? His statement immediately follows a further and unilateral float of the German mark, although it has been re-pegged 5½ per cent. higher up, with the resulting confusion that that will have on the common agricultural policy, and, indeed, with the other obstacles it presents to economic and monetary union. Does the right hon. Gentleman really wish to go ahead with economic and monetary union when, as I understand it, the first aim of Her Majesty's Government is to retain sufficient freedom to continue to float the £and to do their utmost to sustain growth policies in this country?

Turning to the GATT negotiations, are we to believe that the right hon. Gentleman is really satisfied with the negotiating position finally adopted by the Community towards GATT? Is it not the case that the draft finally agreed at this meeting is significantly different from the one presented as recently as April to the Council of Ministers, and that this new draft makes it absolutely plain that no major feature of the CAP is up for negotiation at all and that it is not the aim of the Community to get rid of the common external tariff? In this context of future trade, is it really sensible to press so far ahead with what looks like a new Mediterranean free trade area in advance of these multilateral GATT talks which are shortly to take place?

Will the right hon. Gentleman confirm and make quite clear that in the context of the Commonwealth negotiations these are between the "associables" and the "associated" and are quite separate from and will in no way interfere with the separate negotiations for renewal of the Commonwealth Sugar Agreement which must begin shortly?

Finally, given the wide range of this report, will the right hon. Gentleman please ensure that adequate time is given to debate these important and disparate subjects before the recess?

Mr. Davies

I think that the right hon. Gentleman has got the Article 154 question wrong. The truth is that from this country's point of view there is every interest in having an arrangement which makes a proper distinction between the individual regions and the individual regional problems of the Community as a whole. The 1971 communication dealt in a fairly rough-hewn way with this problem, dividing between central and peripheral areas and based on very different criteria from those which subsist in this country. Is the right hon. Gentleman genuinely trying to persuade me, which he would not succeed in doing, that we would have been better advised to have settled for some arrangement which maintained that division? I can assure him that all the evidence leads me to a quite contrary conclusion. When he pours cold water, as he likes to do, on these matters, the fact is that he is pouring cold water on issues which are of primary importance to us. The interests of our country lie squarely along the line I have indicated.

The right hon. Gentleman posed a fairly doubtful, cynical and sardonic question about the second stage of EMU. Does he realise that this second stage comprises not just an approach to monetary unity but things which are of categoric importance to the country? The whole approach to an effective Community regional and social policy is desirable from our point of view and absolutely necessary to pursue. Again, in seeking to try to lead people's minds into thinking that we are dealing with some- thing which is damaging he is doing no service to the country as a whole.

Turning to GATT, I can only say that I do riot dissent at all from the right hon. Gentleman's statement that the paper which ultimately emerged from the discussions was substantially different from the original draft. I do not think it was substantially worse. It was a perfectly satisfactory basis for the opening of these talks. I draw to the right hon. Gentleman's attention the fact that practically all proposals from the Commission are subject to substantial transformation as a result of discussion in the Council. It is proper that they should be. The right hon. Gentleman is constantly pressing for this House to be heard. I was glad to hear him say that the pressure of the House had been recognised as a force. He is constantly complaining that the House exercises no pressure. I find it difficult to understand the contradictions in what he has to say, but the fact is that the House does exert pressure on Ministers and on the Council and the result is not unsatisfactory.

It is desirable that there should be broad arrangements with the Mediterranean free trade area. The right hon. Gentleman does this country less than justice in failing to realise that we have the greatest interest in trade with those countries. We have every interest in pursuing this.

The right hon. Gentleman asked me a positive question about sugar in connection with the "associable" and "associated" countries. I gather that the question of sugar will be specifically dealt with and is comprised within the broad framework of the arrangements under which an invitation has been put out to "associables" and "associated" countries for a meeting at the end of this month.

Mr. Norman Lamont

Can my right hon. Friend say whether any assurances were given as to when the United Kingdom might join the joint float? Can he also say what is the point of maintaining a European "snake" experiment if frequent changes are to be made within that snake? Since this is the sixth revaluation of the deutschemark since 1969, is it not now apparent that any attempt to integrate exchange rates without first harmonising basic economic policies will be self-defeating?

Mr. Davies

The object of the revaluation of the deutschemark was that Germany should remain within the joint float. It is, therefore, perfectly evident that the Community countries consider it to be a valuable and useful monetary proposition. Although the deutschemark has been successively revalued as time has gone on, it is undoubtedly the case that the whole evolution of economic monetary union, as I was saying in reply to the hon. Member for Stepney (Mr. Shore), is a long process, which involves much more than simple monetary union. I draw my hon. Friend's attention to the fact that it is the purpose of the Community—this has been constantly stressed—that the whole of the development in this area should be a parallel development to economic and monetary activity and not solely devoted to monetary union.

Mr. Pardoe

Is the right hon. Gentleman aware that it is a question of "so far so good" about the decision on the regional areas? Does he appreciate that there will be a profound sense of relief, if only temporary, in the South-West development area? To get the record straight, can he say what would be lost if the worst were to happen? What is the percentage value comparable with the 20 per cent. in the highest rated development area in the United Kingdom? Can he also say whether the British Government are pressing for more areas in the new regional policy for Europe than simply central and peripheral areas in view of our own need to have four?

Mr. Davies

I will not give a specific reply to the question about the exact worth of the special development areas because it is clear that intermediate areas are much more easy to calculate. With the special development area, where the element of selective assistance is liable to be much more substantial, the element of the calculation is much more complex. I doubt whether it would be valid to give a figure. It would certainly be very unsatisfactory from our country's point of view if any of our development areas or special development areas were classified as central in current terms. This is what the Government have sought to ensure did not happen, and they have been successful. I agree with the hon.

Gentleman that it is necessary to have more than two classifiable areas. I described it as a rather rough-hewn agreement to reach anything like a reasonable spread. Recognising the disparity in Europe, it will be necessary to have more than two.

Mr. Biffen

Is my right hon. Friend aware that the agnosticism about European monetary union expressed on the radio last night by my right hon. Friend the Member for Barnet (Mr. Maudling) is widely echoed both within this Chamber and outside? In these circumstances could he say more about that to which we have been committed in these talks concerning the second stage of monetary union? To what extent are we committed to tax harmonisation, and do the Government and the House still possess the right of zero rates of VAT, and indeed to extend the range of commodities to which zero rates of VAT may be levied, if the House so wishes?

Mr. Davies

The quick answer that I can give to my hon. Friend is that no commitment has been made with regard to the second phase at all. The second phase is at this stage in the form of a series of broad proposals made by the Commission to the Council of Ministers, to be considered by the Council of Ministers and then remitted again to the Commission for much greater precision to be inserted into the proposals. Therefore, at this stage there is no commitment whatever. The only broad commitment that exists is that at the time of the Summit last October, which committed us and our partners in Europe to the prospect of economic and monetary union by 1980.

Mr. Jay

Is the right hon. Gentleman aware that what he calls "the paper" setting out the EEC negotiating position for the GATT talks is not even yet available to hon. Members in the Library of this House? Does he not regard this situation as unsatisfactory?

Mr. Davies

I am glad to be able to tell the right hon. Member for Battersea, North (Mr. Jay) that he will now find a copy of a provisional English text of this paper available in the Library of the House.

Mr. Waddington

Will my right hon. Friend bear in mind that there is bound to be some concern in intermediate areas at the fact that they will have central area status? Will he go out of his way to stress that there is no reason whatever for the result of that decision to mean that the level of aid available in the intermediate areas should be reduced?

Mr. Davies

Yes, I can give my hon. Friend the firm assurance that as a result of the arrangements now put forward by the Commission there is no cause for such concern. I have stressed the other assurances that we have been given by the Commission in relation to special problems of the kind I specifically mentioned in my statement.

Mr. David Owen

Will the right hon. Gentleman confirm that the regional fund is due to operate from January next year? Will those development areas which have been held in abeyance still be eligible for money from the regional fund? Have the Government entered into a commitment over proposals for the regions about which there is considerable doubt—for example, the South-Western development area? What sum of money does he think adequate for the regional fund? There has been much comment about a sum of 500 million dollars a year. Will he give a figure for which he thinks the House should be fighting in the Council of Ministers?

Mr. Davies

On the first question, the arrangement which has been entered into under Article 154, in agreement with the Commission, has no relevance whatever to access to the regional fund as from 1st January 1974. They are dealt with as entirely separate issues and there is no inter-relationship at all between them. As for the size of the fund, I would prefer not to venture a figure because this is obviously a matter on which there will be much negotiation. All I can say is that it is essential that the fund should be a very substantial one to start with and should have the capacity to evolve into a much greater amount as time goes by, in line with developing knowledge of regional problems and the need to deal with these matters on a Community level.

Mr. Marten

Is my right hon. Friend aware that there have been five meetings of the Council of Ministers in 5½ weeks and that today is the first time we have had a statement in this House about those five meetings? There is far too much packed into this one statement. Is this not an unsatisfactory way of dealing with these matters? Will my right hon. Friend answer the question put to him by my hon. Friend the Member for Oswestry (Mr. Biffen) about widening the area of zero rating. Are we, or are we not, allowed to do this within the Community? My right hon. Friend said that the Government's views on regional policy are shared by the TUC and the CBI. What about Parliament?

Mr. Davies

On the last question, I cannot believe that Parliament, with all its wisdom and knowledge of these matters, would think this arrangement anything but a highly satisfactory one. I must ask my hon. Friend to try to get away from the idea that this is an unsatisfactory result, since it is quite the reverse. It is in that respect that the TUC and CBI have given unqualified approval to the kind of arrangement that has been entered into. I do not accept the kind of criticism put forward by my hon. Friend the Member for Banbury (Mr. Marten).

On the second issue, I very much regret that there is so much material in the statement, but a great deal has been going on. I come to the House as reasonably often as I can, and I am always willing to submit myself to question. [HON. MEMBERS: "What about zero rating?") Zero rating is a matter for further tax harmonisation, which at this stage has reached no state of commitment.

Mr. Varley

Will the right hon. Gentleman say something more about the arrangements which allow for higher levels of support for areas where steel redundancies are likely to take place—for example, in Shotton, Irlam and Cardiff? For example, if the task forces—which we are told will report fairly soon—recommend that full development area status be given to Cardiff and Shotton so that they can deal with redundancies, may we have an absolute assurance that there will be no European block whatever on this matter?

Mr. Davies

I think I can give a positive assurance to the hon. Member for Chesterfield (Mr. Varley) in this respect. In the existing provisions made under the communication of 1971 there was a provision under which special arrangements could be made for identifiable reasons among the provisions in the classification. There would be the facilities to do so. To that has been added the specific undertaking on steel redundancy areas, which is a matter we raised. I cannot say in so many words that whatever might be decided automatically will be applied as such, but there is every reason to suppose that nothing the task force may recommend will in any way be blocked by the Commission.

Sir A. Meyer

Will my right hon. Friend take the opportunity to emphasise that in intermediate areas, such as North Wales, which are threatened with redundancies, any steel closure areas will not lose anything on account of reclassification as central areas, since the level of Government aid can continue as high as it is at present, and will benefit from the special measures proposed to be taken in the case of steel redundancies?

Mr. Davies

Yes, that is my firm belief, and I can reassure my hon. Friend on that subject.

Mr. Barry Jones

As the right hon. Gentleman knows, my constituency is scheduled to suffer 7,200 steel redundancies by 1980. Is he aware that East Flintshire and Deeside is an intermediate area, and will he commit the Government to scheduling us on Deeside as a special development area? Does he not think that if the redundancies take place the situation will merit such treatment?

Mr. Davies

I know that my right hon. Friend the Minister for Industrial Development is considering the matter to which the hon. Member for Flint, East (Mr. Barry Jones) referred, as indeed he is considering all such matters as they develop in the United Kingdom. Therefore, the hon. Gentleman need have no fear that the area about which I know he has great concern will go by default. However, it is for my right hon. Friend to make his conclusions on this matter.

Mr. Body

I should like to ask my right hon. Friend about regional policy. He will be aware of the growing concern that now exists about the net outflow of capital from this country to the Continent. Does he appreciate that some £800 million of capital is flowing away from this country compared with an inflow of capital from the Continent of only £350 million? Will he accept that this is a danger—perhaps a long-term danger—for some of the intermediate areas, and that. if this trend continues, it will imperil jobs and, indeed, the standard of living of many thousands of people? Will he give an assurance that no regional policy will be completed until we firmly understand the consequences of that net outflow of capital from this country?

Mr. Davies

I understand my hon. Friend's concern about this matter. But it is noticeable at present that, whereas there is considerable investment from Britain going into the Community countries, there is also a very marked upturn in investment in Britain. In fact, the evidence does not support any concern at present that investments placed in the Community are so placed at the expense of investments at home. But I shall keep very much in mind the points that my hon. Friend has raised.

Mr. Michael Foot

Will the right hon. Gentleman confirm or deny the figures given by his hon Friend the Member for Holland with Boston (Mr. Body)?

Mr. Davies

I should require notice to confirm those figures.

Mr. Dan Jones

Consequent upon the matter raised by the hon. and learned Member for Nelson and Colne (Mr. Waddington) about the intermediate areas, if the sentence on these people is to be postponed why is it that the Commission is reviewing the position of these areas?

Mr. Davies

As I have sought to explain, the Commission is reviewing the matter in order to ensure that inducements to investment are not offered in areas which less justify such inducements than in those—for example, our intermediate areas—which have a higher right to inducements in order to attract investment. This, after all, is what the Commission is all about. Incidentally, it is not a sentence. It is a guarantee.

Mr. Edward Taylor

While my right hon. Friend has undoubtedly done a very good job for the development districts in these complex negotiations, may I ask him whether he is in a position to say why the procedure was adopted of not classifying the development districts as "peripheral" subject to review on 31st December 1974, instead of leaving them in abeyance? Was the same procedure adopted for other new member States? Was my right hon. Friend able to establish at these meetings whether in the event of Her Majesty's Government deciding to continue regional employment premium after 1974 the Common Market would allow us to do so?

Mr. Davies

Our areas were not called "peripheral" because it was recognised that our own regional problems were of a kind which did not lend themselves to such very broad forms of definition but required a much more sophisticated analysis. This is what they are getting.

The regional employment premium is a matter about which my right hon. Friend the Chancellor of the Exchequer has already made his position well known. There is no suggestion at present that REP should not be continued on its present terms. But we must leave this matter for further discussion. My right hon. Friend the Chancellor of the Ex- chequer is planning discussions about this matter with the TUC and the CBI before further action is taken.

Mr. English

Since the right hon. Gentleman was rather vague about the revision of the Commonwealth Sugar Agreement, may I remind him that if beet sugar replaces cane sugar there could he many thousands of redundancies as a result, primarily in the development areas?

Mr. Davies

I am grateful to the hon. Gentleman for allowing me to amplify the point. I am conscious of the problems raised for us in two major respects. The first is that to which the hon. Gentleman has referred, that of unemployment in the development areas. The other is in respect of our commitments to the Commonwealth sugar producers. Both are very much in the Government's mind. Very categorical assurances on the subject have been given to the Commonwealth sugar producers and steps have been taken to deal with the continuance of refining cane sugar in this country. The matter is very much in the Government's mind, and every assurance has been given to Commonwealth sugar producers which they on their side have found very satisfactory.