EEC (ECONOMIC POLICY)

HC Deb 03 July 1974 vol 876 cc469-530

7.18 p.m.

The Paymaster-General (Mr. Edmund Dell)

I beg to move, That this House takes note of Commission Documents Nos. R/1253/74, R/1474/74 and COM(74)696.

Mr. Speaker

I have not selected the amendment standing in the name of the right hon. Member for Battersea, North (Mr Jay).

Mr. Denzil Davies (Llanelli)

On a point of order, Mr. Speaker. I do not question your decision not to call the amendment, but may we have your guidance on how these matters might be dealt with in future? The European Secondary Legislation Committee will be recommending debates on various matters in the House. I think that it will be difficult if hon. Members on some occasions cannot amend some of these orders and directives and have to vote either for or against them in principle. I believe that the European Parliament has power to amend directives. I think that it is desirable that the British House of Commons should have the same power.

Mr. Speaker

The hon. Member has raised a serious point. I am proceeding carefully step by step. I have decided that the right course today is not to select the amendments. That does not mean that, as we find our way in this complicated sphere, other procedures may not develop. However, today I have not selected the amendment.

Mr. Dell

I cannot complain that the first debate in this House following a report of the new Scrutiny Committee should be opened by me. As a backbench member of the then Opposition in 1972 I moved amendments to the European Communities Bill which would have required the establishment of a Select Committee of this House to review European secondary legislation. My amendments had no success because they were rejected by the right hon. and learned Member for Hexham (Mr. Rippon). He wished the matter to be left for consideration after the enactment of the Bill. However, the effluxion of time has brought the Scrutiny Committee into existence and it falls to me to open the debate and I understand that the right hon. and learned Gentleman will be intervening in it. It also falls to me to congratulate the right hon. Member for Knutsford (Mr. Davies) on his appointment as Chairman of the Committee.

The guidelines system dates from 1971—before the United Kingdom became a member of the EEC. It forms part of the process of strengthening the co-ordination of short-term economic policies in order to achieve that convergence of member State's economies originally conceived of as one element in progress towards economic and monetary union.

The Government's position on economic and monetary union has been made quite clear by my right hon. Friend the Foreign and Commonwealth Secretary. He has told other EEC Ministers that a good deal of further work will be required before any further decisions can be taken.

However, irrespective of progress towards economic and monetary union, the system provides useful practical machinery for discussing national economic policies and their interaction. In this respect EEC discussion complements discussion in other international fora, such as OECD. These EEC discussions have, inevitably, particular importance for those EEC member States whose economies show a high degree of interdependence with one another.

For the United Kingdom they provide an additional means whereby we can make our views on common problems known in a way which may influence other countries to adopt policies of general benefit. For example, in present circumstances we can seek to influence countries in surplus to adopt policies which will ease the adjustment process in the wake of the oil crisis. But the importance of the guidelines system should not be exaggerated. It is essentially a matter of consultation between sovereign Governments, falling a long way short of the harmonisation of economic policies envisaged as part of full economic and monetary union.

In the explanatory memorandum which was submitted with the draft Council decision on the adjustment to the guidelines for economic policy for 1974 I commented on the impact of this draft Council decision on United Kingdom law, its policy implications, and the intended timetable.

I shall refer, first, to the timetable. The draft decision was expected to be taken at the meeting of the Council of Finance Ministers on 6th June 1974. However, in order to enable the Scrutiny Committee to examine the draft decision my right hon. Friend the Chancellor of the Exchequer put a reserve on this item. The Scrutiny Committee considered that this draft decision required a debate in the House and, following this debate, my right hon. Friend the Chancellor hopes to be able to lift his reserve on the adoption of these guidelines.

As I said in the explanatory memorandum, the draft decision does not directly concern matters covered by United Kingdom law, and requires no changes in United Kingdom law. Some hon. Members may be afrighted by the fact that this is a draft decision and therefore under Article 189 of the EEC Treaty it is binding in entirety upon those to whom addressed". There may have been visions of the United Kingdom Government being hauled before the European Court of Justice should we depart from these guidelines. There is, in fact, no danger of that. The United Kingdom Government remain in control of this country's economic policy, subject, of course, to all the well-known constraints on national economic decision making which make consultation so important a part of international economic diplomacy. That this is the case may be further confirmed as I come to discuss the guidelines themselves.

I said in the explanatory memorandum that the recommendations for the United Kingdom were broadly in line with the policies already pursued by the Government, and that no changes in the United Kingdom's current economic policies would be called for as a result of the draft decision. However, as has been the experience of successive Governments of this country, economic circumstances change—indeed they change over quite short periods—and with them change also the policies appropriate to those circumstances. The guidelines were drafted and discussed several months ago, and inevitably there are some points in them which were reasonable enough at the time but which may be less appropriate in present circumstances. One obvious example, to which I will come in more detail in a moment, is the reference to short-term interest rates, at any rate as it applies to the United Kingdom. I know that some of my right hon. and hon. Friends have put down an amendment, which has not been selected on this point.

It would be wrong to hold up the guidelines yet further in the Council and insist on redrafting to meet all such points; but when we come to lift our reserve it will be made clear that this is on the basis that while they were appropriate to the time when they were drafted and discussed they are no longer necessarily right in every particular in the changed circumstances since then. I think the House will agree that it will be helpful to have this on the record.

The guidelines are concerned with two principal objects: first, achieving a reduction in the balance of payments deficit, and, secondly, stepping up the fight against inflation. I will say a few words about what the guidelines have to say on both these points.

On page 20 the guidelines state: Economic policy"— in the United Kingdom— should have the objective of ensuring that the total current account deficit, in 1975, will be less than £2,000 million. This amount would correspond to that part of the deficit which, in 1974, is attributable to dearer oil. It has never been the policy of British Governments to express targets in this fashion. Their achievement is after all not wholly within our control. However, what the British Government are committing themselves to, and what we expect to achieve through my right hon. Friend's Budget, is, as he put it: … "over time a large switch of resources out of domestic use and back into the balance of payments."—[OFFICIAL REPORT, 26th March 1974; Vol. 871, c. 292] I have noted that the latest forecasts by the NIESR include a deficit on current account of the balance of payments in 1975 of a little over £1,500 million, although I do not of course endorse this forecast.

The guidelines discuss the possible effects of action to reduce the balance of payments deficit on full employment and thus, for example, they say: To stimulate exports, the economic policy of these countries"— that is, the countries in deficit— 'will have to aim at reducing the growth of domestic demand to a rate considerably below expansion of productive capacty by the end of 1974. Although the guidelines foresee some risk that this may in certain cases endanger full employment they recognise that the achievement of full employment is also a priority objective, and, of course, the Government have emphasised the importance of full employment policies.

To ensure the maintenance of full employment it is important that the improvement in our current account deficit can be gradual and that meanwhile the deficit should be financed by borrowing. In his Budget Statement my right hon. Friend the Chancellor of the Exchequer emphasised his commitment to the fullest possible use of the manpower and resources available to us."—[OFFICIAL REPORT 26th March 1974; Vol. 871, c. 290.] The guidelines themselves make clear on page four that a solution to the balance of payments problem can only be a gradual process of adjustment. We accept the guidelines on the understanding that they do not derogate in any way from my right hon. Friend's commitment.

Mr. J. Bruce-Gardyne (South Angus)

The right hon. Gentleman seems to be trying to have the hest of every conceivable world on this point. It would be helpful to the House if he could tell us where, through the emerging conflict between the full employment objective and the balance of payments objective, the Government's priority will lie?

Mr. Dell

The point which I am making, and which should be understood by the House, is that the economic policy of this country will be decided by the Government of this country. That is the simple point I am making. The commitments of the Government are the commitments which my right hon. Friend entered into at the time of his Budget Statement.

Mr. Raphael Tuck (Watford)

I understand my right hon. Friend to say that we accept the guidelines, but I thought that it was intended in the motion merely to take note of these various documents?

Mr. Dell

I was explaining to the House what the Government propose to do, subject to the debate. We have come to the House to discuss these guidelines with hon. Members who wish to take part in the debate, and the Government have expressed their view that they hope to be able, in the light of the debate. to give acceptance to these guidelines.

I have three documents to deal with and this will take me a little while. This is a short debate and I hope, therefore, that there will not be too many interventions.

Mr. Neil Marten (Banbury)

The point that I wish to raise must be confusing some hon. Members. If ultimately, as I understood the Minister to say, the economic policy of this country remains absolutely sovereign to this country, while I can understand that discussions within the Community are useful as a clearing house of different views, why on earth do they have to be reduced to a document like this, which in Article (1) says The Member States shall pursue their economic policies in conformity"? If that is so, surely it goes right against what the Minister is saying. Is it not better just to have discussions, without all this paper?

Mr. Dell

This is part of the Community's system of consultation in which this country takes part. But I have emphasised the terms on which we are accepting the guidelines which have been prepared in this case.

The guidelines also concern themselves with the financing of the balance of payments deficit. Thus, they state: Interest rates should be maintained at high levels, as much to ensure an adequate level of real rates as to maintain a sufficient margin over the rates on the main foreign markets. The guidelines to the United Kingdom say: The balance of payments situation calls for short-term interest rates to be maintained at a level appreciably higher than those prevailing on international monetary markets. This, too, was mentioned in my hon. Friends' amendment.

Since these guidelines were produced we have found it possible to reduce interest rates well below the unprecedented levels left to us by our predecessors. This, together with the rise in interest rates abroad, has meant that United Kingdom rates are now broadly in line with those in international markets. We of course accept the thoughts underlying this part of the guidelines. We have to finance our balance of payments deficit. But very recent experience has shown that an appreciable differential is not essential in all circumstances.

The guidelines suggest that "additional measures" may be necessary in the budgetary field if during the coming months it appears that domestic demand is rising at a rate inconsistent with the required improvement in the current account of the balance of payments. Of course, taking account of the various objectives of economic policy, both those stated in the guidelines and those listed in my right hon. Friend's Budget Statement, particularly the need to maintain full employment as well as the need to rectify the balance of payments deficit, it could be necessary to take rectifying action in either direction, and it is in this sense that we understand this passage in the guidelines.

I come to the guidelines on inflation. The guidelines on page 21 emphasise the need to lay the foundations of agreement on a concerted policy for prices and incomes. The Government's policy on this is well known—that is, that an effective pay policy must rest on consent and on the principles of voluntary collective bargaining between employers and employees.

The guidelines also place great emphasis on monetary policy. On page 6 they say: The restrictive line of monetary policy must therefore be maintained or even tightened. The balance between fiscal and monetary measures in controlling an economy is always a matter of judgment, usually difficult judgment, and it will vary from one country to another. As regards the United Kingdom, it is enough to say that there has been a big change in monetary conditions this year, the extent of which was not fully apparent when the guidelines were drafted.

To achieve a slowing down in the expansion of money supply in 1974 has been a key element in the Budget strategy. There is the reduction in the public sector borrowing requirement. There is the supplementary scheme introduced last December. M3 has grown only 4.5 per cent. between mid-December, when the scheme was introduced, and mid-May compared with 11.5 per cent. in the previous five months. In the most recent months the rate of growth has been slower. We have extended the target rate of growth at the same level for the second half of the year. Thus, the guidelines are in line with United Kingdom monetary policy.

The general guidelines also include advice on the subject of energy and look to special efforts to achieve a more rational use of energy and developing sources of energy capable of guaranteeing the Community a certain degree of autonomy in the longer term, at a reasonable cost. I am glad that the emphasis on the need to ensure "autonomy" is subject to the qualification about "reasonable cost".

Mrs. Winifred Ewing (Moray and Nairn)

Reverting to the subject of energy, would the Minister not agree that there has been a ministerial level discussion on EEC energy policy with a Commissioner, under which the proposal is that the EEC energy policy may control the rate of royalties, the rate of oil exploitation and other fundamentals such as purchasing power? This could ultimately mean that, whoever owned the oil in the North Sea, there would be a prohibition against selling it to America, which may be the best market.

Mr. Dell

There is no question of the EEC controlling this Government's decisions about the rate of royalty or the rate of depletion of North Sea oilfields.

Such an objective about energy policy as appears in the guidelines is not likely to be achieved in the medium term at any rate. However, we accept that there is a need to improve the Community's position in relation to dependence on external sources of energy, and we are taking part in the work which is being done on this in the Community. Our own position will, of course, be in due course guaranteed by developments proposed for the coal industry and for nuclear energy, and by the exploitation of North Sea oil.

I now turn to the draft Council decision on Practical Rules for Prior Notification of Exchange Rate Changes. This instrument is a consequence of the EEC Council Decision on the attainment of a high degree of convergence of the economic policies of the EEC member States, which was adopted on 18th February 1974 and copies of which were communicated to the House. Article 7 of the decision reads: Any Member State intending de jure or de facto to change, discontinue, or re-establish the parity, central rate or intervention points of its currency shall initiate a prior consultation. The consultation procedures, which shall be secret and urgent, shall take place in accordance with practical rules adopted by the Council after receiving an Opinion from the Monetary Committee. The instrument, which has been examined by the Scrutiny Committee, contains these "practical rules". As I explained to the hon. Member for Banbury (Mr. Marten) on 27th June in a parliamentary answer, the members of the EEC Council have been asked to indicate in writing their agreement to these rules. The deadline for this was 10th June, but we have delayed our reply to allow time for parliamentary scrutiny.

The Government have no objection to these rules. They provide for EEC members to give advance notification of exchange rate changes to their partners, so that these partners can make known their views. It is sensible for the Community to have these consultation arrangements. If exchange rates changed abruptly or without warning, there could be adverse reactions by other members and serious disturbance in the markets. The notification procedures reduce the risk of this. The procedures are not new, but bring up to date arrangements in force for the last 10 years, to make them compatible with the currency regimes in operation today. They do not, however, apply to movements of exchange rates by currencies which are floating, as sterling is at present.

The arrangements for consultation do not in any way limit the ability of any EEC member State to make its own national decisions on exchange rate policy. The other members have the opportunity to comment. But they do not have a veto, nor can they delay matters. These procedures should, in fact, be reassuring to those who are concerned that the EEC might be moving dangerously fast towards depriving the members of national control over their own exchange rates.

There may be some question about the confidential nature of these rules and the intention that they should not be published. There is nothing secret about the extent of the obligation to consult; that is plainly stated in the decision on convergence. The actual consultations, when they take place, will certainly be confidential, since otherwise member States would be obliged to reveal their intentions prematurely. Whether this means that the consultation rules should themselves be confidential is less obvious. But the other EEC member States wanted this, and we did not raise objection once we had made it clear that this instrument would be presented to Parliament for scrutiny.

I now turn to the Commission Communication on Urgent Economic and Monetary Measures. This communication from the Commission stems from concern about recent economic developments and their implications for the Community economies. It suggests that the existing framework for consultation on economic affairs between member States should be used to identify and examine areas where the possibility of concerted Community action would be worth considering further, in particular action against inflation and on various monetary issues.

The Commission communication is not secondary legislation. It is simply a submission from the Commission which draws Ministers' attention to certain problems and suggests that the scope for action in a Community framework should be examined further. It is in no way binding on member States. The document was circulated to Ministers at very short notice before the Council meeting on 6th June. At the meeting there was only a first exchange of views. This in no way commits United Kingdom Ministers. It was, however, agreed that officials should examine the suggestions put forward by the Commission. This work is still going on. The results are expected to be reported to the Council at its next meeting, on 15th July. But at this stage no detailed proposals are before Ministers.

The Government's attitude will obviously depend on the particular measures which are proposed. We would agree that it is important for all member States to contain inflation. However, given the wide variation in economic and social circumstances among the member States, no single solution can be offered which will be appropriate for every State. Concerted action does not necessarily imply identical action. What is important is the need for policies which take account of the situation in other member States. Discussions in the Council provide an opportunity for this.

The last four paragraphs of the Commission document R/1474/74 contain proposals for action in the monetary field. These will be considered by the EEC's Monetary Committee before they come before the Council of Ministers on 15th July. The first two proposals regarding capital recycling and concerted borrowing go together, since they are both concerned with the problem of financing the large balance of payments deficits caused by the increased cost of imported oil.

The Commission advocates a discussion of measures which the EEC members could propose to the international community on improving economic and monetary co-operation, particularly in capital recycling. This has the support of the Government. World economic problems have been considered at several international meetings in recent weeks, such as the OECD Ministerial Council on 29th-30th May and the Committee of Twenty meeting on 12th-13th June, as well as frequent meetings of officials. Ideas for recycling the surpluses of the oil producers are under consideration in various bodies—the IMF, the OECD, the Energy Co-ordinating Group of the Washington Energy Conference and the United Nations.

The EEC has already made a useful contribution to these discussions in proposing a special fund for those developing countries in greatest need; the EEC would itself be ready to contribute one-sixth of such a fund, up to 500 million dollars. It is, therefore, valuable for the EEC Finance Ministers to consider what other subjects are suitable for common action which the EEC members could then introduce into wider international discussions.

But the Commission is also proposing a scheme whereby the EEC would help those of its own members with balance of payments problems. This would take the form of large special credits, raised by external borrowing jointly guaranteed by the EEC Governments, and made available to member States in need which undertook to pursue acceptable policies to control inflation and maintain financial discipline. The stronger, more prosperous members of the EEC would be allowing their credit to be used for the benefit of those in need. Detailed proposals have yet to be made by the Commission.

This is an interesting proposal, particularly against the background of possible difficulties in handling recycling arrangements for oil surpluses and deficits. But there are also dangers. It would be essential for any E.E.C. scheme to be compatible with more widely-based recycling arrangements. There would be no advantage if the E.E.C.'s entry into the market made it more difficult for other countries to finance their deficits—or, indeed, for individual E.E.C. member States to borrow outside the collective arrangements. Furthermore, it is not clear what institution of the E.E.C. is equipped or could readily be created to raise and allocate this credit. I must emphasise that we would pay very close attention to any link which might be proposed between the credits made available to member States and requirements which might be imposed in relation to their economic policies.

The Commission's next suggestion is for a system of concerted floating involving not only those currencies still in the "snake" but also those outside it. It has asked for a decision on this by 31st July, but the Council of Ministers on 6th June rejected this. The Commission's ideas have yet to be explained in detail but at first sight they seem unrealistic. It was accepted at successive meetings of the Committee of Twenty that, at a time when so many currencies are subject to extraordinary pressures caused by the rise in oil and other commodity prices, widespread floating is inevitable. Guideline for floating currencies have been adopted. But the Commission seems to envisage that, somehow or other, the E.E.C. currencies should return to a fixed relationship to one another, while they float against other currencies—that is a revival of the "snake", even though under more flexible rules. If this is the intention, we have, at the very least, severe reservations.

The Commission intends to propose E.E.C. action to help Italy, linked to economic policy measures already agreed between the Commission and the Italian Government. This matter has been held up, first by disputes over agricultural trade, which were resolved in the Council of Ministers (Agriculture) on 4th June, and later by the Italian political crisis. But so far the Italian Government have greatly welcomed their co-operation with the Commission, and have made it clear that they would like this formally sanctioned by the Council of Ministers, under Article 108(2) of the Treaty of Rome.

The difficult balance of payments situation in which Italy has found herself is well known. It is by no means impossible that the Italians will need further external assistance in support of the recovery which the measures they have recently been discussing would be designed to achieve. In this connection, the possibility of additional EEC assistance may be suggested. In that event, the United Kingdom would, of course, take part in the discussions as helpfully as possible, but we are bound to bear in mind the difficult financing problem which we ourselves face and the relatively greater external strength of other EEC countries.

It is to be expected that this Communication will lead to more definite Commission proposals which will be considered by the next Finance Ministers Council on 15th July. No specific proposals have yet been formulated, but we expect most of them to be in the form of non-binding recommendations. But the Commission may also propose executive decisions on measures to help Italy. There will clearly be no further opportunity for Parliament to debate a draft proposal before the 15th July Council, and almost certainly no opportunity for a further debate before the recess. The Government will, of course, take full account of any views expressed today. But I think the House will agree that it would be unconscionable to hold up practical decisions of this kind, such as a legislative step to help Italy, until after the recess, solely for this reason. Therefore, if the Council is faced with such a proposal, which the Government, after taking account of today's debate, would otherwise be ready to accept, the House will understand that we may need to agree to it even though the Scrutiny Committee and the House will not have had a chance to consider it.

Finally, I would like to thank the Scrutiny Committee for the speed with which it has considered these documents and wish it well in its future work.

7.48 p.m.

Mr. Geoffrey Rippon (Hexham)

I am sure that we all wish to thank the Paymaster-General for the very full way in which he has opened the debate.

The right hon. Gentleman started by saying that in the course of the discussions on the European Communities Bill he moved certain amendments requiring the setting up of a Scrutiny Committee. At the time I resisted them, for reasons which I think subsequent events have justified—that it would be wrong by Act of Parliament to try to bind the House or subsequent Houses as to their procedure for dealing with these matters. We are free to adapt our procedures as we like from time to time. We are grateful to the Government for their emphasis—and Mr. Speaker made the same point in his introductory remarks—that we are feeling our way in these matters. No doubt, as further discussions take place we shall find between us the most effective ways of handling issues which are of great importance.

The debate enables us to consider documents which the Scutiny Committee considers raise questions of both principle and practice of such political importance that it recommends that they should be further considered by the House. I am sure that that is right. It is important to emphasise that it does not suggest that they raise legal or constitutional issues to which we should direct our attention.

If I may, I shall put forward four general points. First, we should take note that the guidelines for economic policy do not directly concern matters covered by United Kingdom law and do not require any changes in our law. They provide what the Government have rightly described in the explanatory memorandum as a framework for parallel action by the member states … Of course, the Paymaster-General has pointed out, as far as policy implications are concerned, that it is the Government's view that the recommendations for the United Kingdom are broadly in line with the policies already being pursued by the Government and that no changes in the United Kingdom's current economic policies will be called for as a result of the draft decision. It is clear from the terms of the amendment which was not selected that that is a point of which due note has been taken.

In this House we remain entirely free to criticise the Government policies that we wish to criticise. It is equally true, as the right hon. Gentleman has pointed out, that we are free to pursue our own policies and to criticise proposals put forward by the Commission which may affect us in any way. I am sure that he was right to emphasise that there is no need to be afraid of the reference to a Community decision being taken in due course by the Council of Ministers on the basis of this document or—

Mr. Julius Silverman (Birmingham, Erdington)

If we are free to pursue our own policies after the adoption of a directive or regulation, what on earth is the meaning of this piece of paper?

Mr. Rippon

We kept on coming back to this point in the debates that we had on the European Communities Bill. The sovereignty of Parliament is not affected in these matters in the way that the Paymaster-General has explained. We are free, in the last resort, to pursue our own policies as sovereign nations. What we are trying to do as members of the Community is to concert our action wherever we can on policies that are to our mutual advantage. Indeed, our freedom of action in these matters is safeguarded by the treaties themselves, which determine the terms of our membership of the Community.

I make the important point that our position is safeguarded by the terms of the treaties. Article 6(1) of the Treaty of Rome provides that Member States shall, in close co-operation with the institutions of the Community, co-ordinate their respective economic policies to the extent necessary to attain the objectives of this Treaty. but Article 6(2) provides that The institutions of the Community shall take care not to prejudice the internal and external financial stability of the Member States. That provision is further reinforced by Articles 108 and 109. It was under Article 109, in the first instance, and subsequently under Article 108, that the Italian Government quite constitutionally took their unilateral action. What is to be hoped as a result of these discussions taking place in the Community is that there will be consultation about the effects of one Government's actions upon the economies and the lives of the other member States. That is further reinforced by the exchange of letters which took place between myself and the then Chairman of the Council of Ministers on 22nd January 1972, which is part of the body of the treaties, protocols and ancillary documents.

Mr. Marten

My right hon. and learned Friend did not answer the question put by the hon. Member for Birmingham, Erdington (Mr. Silverman). I put the matter in this way. My right hon. and learned Friend will see that Article I of the memorandum says: … the Member States are to pursue their economic policies in 1974 in conformity with the general guidelines … We have already broken the guidelines on interest rates, as the Paymaster-General said, which we are supposed to keep at a level appreciably higher than international rates. What is this piece of paper all about if we are free to break the conditions of Article 1, while that article says that we must not break it?

Mr. Rippon

My hon. Friend once again has shown that he does not fully comprehend either the principles of the treaties or the procedures of this House. He has said that we are in breach of a decision. Of course we are not. This is a draft, and this is what we are discussing. Let us look at the guidelines. Provided that the House is satisfied on political grounds that what the Government are proposing is in accordance with their own policy, which is obviously a matter of controversy, all well and good. If it is felt by this House at any time that the Government are pursuing a policy either contrary to the declared view of the House or contrary to the wishes of the House, objection can be taken. I would have thought that there could be no complaint about an impingement on that procedure or on the sovereignty of Parliament, as we are given an opportunity to discuss these matters in advance.

We are safeguarded by the treaties. Surely the House should be agreed about the overall priority for all member States to try to concert their action to avoid inflation. I would not have thought that there would have been any disagreement about that.

Mr. Dennis Skinner (Bolsover)

By what means?

Mr. Rippon

By such means as is now proposed by the Commission, which puts forward proposals to the Council of Ministers as to how we should concert our action on an international scale. The Chancellor of the Exchequer's general economic and fiscal policies may be the subject of great dispute, but I would have thought that no one would dissent from his recent declaration of the need for international co-operation in the world inflationary situation. It is equally clear that a world crisis of cataclysmic proportions could result if individual countries sought to solve their balance of payments and other economic problems by narrow nationalistic measures. It must be right that there should be a degree of consultation between members of the Community.

Mr. Skinner

Does the right hon. and learned Gentleman really understand what he is saying?

Mr. Marten

No—most unlikely.

Mr. Skinner

The right hon. and learned Gentleman is trying to tell the House that as a result of these guidelines, and by adopting them or taking note of them, we shall be in the position of having to adopt in a general sort of way guidelines as to our general economic policy. Is not that more or less what we are being told when we hear all the talk about the national interest, fighting inflation, and adopting policies that must be in accord with the present talk about coalitions? The extension of what the right hon. and learned Gentle man is now saying is that not only must we abide by coalition views as to the fighting of inflation in the national interest, but that the coalition extends even further, and must be in accord with the Nine-nation views as set out in the guidelines.

Mr. Rippon

The hon. Gentleman intervened to speak about a coalition. I have been trying to explain that these procedures do not impinge on parliamentary sovereignty, and that they give us an opportunity to question Government policy at an early stage. If Governments agree between each other on action which they can take together, I would have thought that it would be completely commendable, if the House disagreed with the action that its own Government decided to take, that it should be able to say so in advance.

There is a third general proposition to which the House and even the Paymaster-General has not given sufficient attention. The entire guideline operation is a joint Community effort. It is designed to ensure that the economic policies of all member States are coherent and not contradictory. At the same time, it gives us the opportunity to express our views about the effect both on us and upon the Community, on Europe generally, and on the international scene of actions which other Governments of the Community may be taking.

Obviously we were affected to some extent by the action which the Italian Government took, just as were our partners. It must therefore be to our advantage to have the sort of discussions which can eliminate the kind of threats which forced the Italian Government to take action and to ensure that if a Community Government act, they will act in concert with other Community Governments after such consultations as may be appropriate in all the circumstances.

I think that we should, in looking at these guidelines, pay some attention not merely to those parts which impinge on our own policy but at what the Commission and, in due course, the Council of Ministers, may have to say about the way in which other members of the Community ought to behave.

Mr. Bruce-Gardyne

Is not a good deal of the argument about potential conflict between guidelines such as these and the sovereignty of the House remarkably short-sighted, in historical terms? Is it not the case that in the time of the last Labour Government we were not members of the EEC but were receiving three-monthly visits from Mr. Richard Goode, of the International Monetary Fund? It is true that the Government then could propose what policy they chose to this House, but it had to be approved by Mr. Goode. There is nothing new about this procedure.

Mr. Rippon

My hon. Friend is right. A lot of the discussion about sovereignty is unreal. We are stronger, and our sovereignty may well be stronger as my hon. Friend implies, if we are working together with other people, and to the extent that we pool our sovereignty for the common good.

There is another aspect which is novel and which we should welcome. We are debating a number of matters before the Government have come to a final decision. We are debating them in the course of international negotiation. That is, to some extent, a reinforcement of parliamentary interest and influence over policy-making in areas, particularly as they affect exchange control, which have normally been the preserve of the executive. Normally, Parliament is informed about these international agreements after they have been entered into. This sort of discussion has not taken place in the past. Thus, as the Leader of the House has said, we are to some extent feeling our way in dealing with issues which arise in relation to these documents.

I accept that the Government are willing to consider how these procedures can be adapted. Normally, decisions of this kind, taken internationally, are debated ex post facto. This is one of the problems which arose out of the negotiations and the presentation of the treaty to Parliament. It was a prerogative act to sign the treaty. Then we had the processes of ratification and the changes in domestic law required in order to give effect to the obligations under the treaty. But we had a good deal of trouble at the time, explaining what has been our historical constitutional practice.

Therefore, this sort of debate is an innovation which surely, in the long run, will tend to strengthen parliamentary control. To some extent, when dealing with such things as exchange rate changes a degree of secrecy is inevitable. But it is a step forward, as the right hon. Gentleman said, that the procedures for consultation should not be in themselves secret, and that it should be made clear and generally understood between us, as members of the Community, that we will, within the practical and sensible concepts of the guidelines, consult each other as to the effect of what we are proposing to do.

I turn now to the question of monetary matters generally. It is helpful to have heard, in the context of these guidelines, what the Government think about monetary policy generally, and in particular about the snake in the tunnel. The right hon. Gentleman may regard it as satisfactory that the proposals now appear in a more flexible guise, but I can well understand the reservations he has expressed on this occasion about the Government's policy. Matters such as this, raised in documents of this kind, impinge upon high-level monetary policies which can be settled only by Governments, and at this stage we are not prejudiced by what is in the documents. It was Confucius who said that the snake in the bamboo is still a wriggling animal. I can well understand the Government's reservations on these issues.

I would like to revert now to what is the major point—that, in future, there will be much more flexibility in parliamentary discussion, not just of the guidelines of economic policy for 1974 but for all the years hereafter. Here it seems to me that we have an opportunity not only of influencing Government policy before decisions are made but of doing so—and this is most important—in a European context. Thereby, we can and should look at the exercise of United Kingdom policies in conjunction with the policies of the other member States in general, and we can and should also discuss the guidelines of economic policy for the Community as a whole against the background of world economic circumstances, because clearly—and this is brought out in the documents—whatever we may agree between ourselves within the Community cannot be considered in isolation but must bear on all views going from Community members to such bodies as the OECD and the IMF.

The guidelines themselves are brought forward in accordance within the provisions of Article 103 of the Treaty of Rome. Again, it is worth looking specifically at the treaty. Article 103(1) says that Member States shall regard their conjunctured policies as a matter of common concern. They shall consult each other and the Commission on the measures to be taken in the light of the prevailing circumstances. Paragraph 2 of the article states that Without prejudice to any other procedures provided for in this Treaty, the Council may, acting unanimously on a proposal from the Commission, decide upon the measures appropriate to the situation". So it is clear that it is the Council of Ministers, acting unanimously, which must eventually decide upon any measures which may be appropriate to the situation.

The final drafts of the documents—and there have been a number of drafts—illustrate the way in which policies of this kind are built up by consultation not only between the Governments themselves but with the national parliaments and with the European Parliament, in which I hope all parties in this House will eventually be represented.

Mr. Ted Leadbitter (Hartlepool)

I know that the right hon. and learned Gentleman is trying to persuade the House in a conciliatory way, but will not he recognise that the Common Market is in an unholy mess at the moment, and might do itself a good turn by suggesting to the member nations that willingness to consult, to reduce the number of regulations and to have a period of pause might make some sense? The right hon. and learned Gentleman should not try to persuade us that we have a discretion when it is clear that a decision has been made and it is in the form of a directive to this House. The right hon. and learned Gentleman is talking nonsense, and he knows it.

Mr. Rippon

What the hon. Gentleman is saying is nonsense. A decision has not been made. A decision can only be made by the Council of Ministers. What the hon. Gentleman is looking at is a draft. Of course, the draft, if approved by the Council of Ministers, will use those words and will bind the member Governments—

Mr. Leadbitter

Parliament has no say.

Mr. Rippon

—to the extent that they have all agreed. This procedure enables us to say to the Government, "We do not wish you to agree to this policy."

Mr. Leadbitter

Why does not the right hon. and learned Gentleman stop being a hypocrite?

Mr. Rippon

Why does not the hon. Gentleman stop being abusive and try to discuss this matter on its merits? He should not try to twist the facts of the constitutional and legal position. We are not, in this country, in such good shape that we can talk about other people being in a mess. We in the Western world, including the United Kingdom, are facing grave economic and monetary crises. Surely all hon. Members accept the necessity for concerting, wherever we can, the measures we take to try to deal with the problems which affect us all so deeply.

Of course, hon. Members on both sides of the House may query how far Government policies are in line with the Directive. They may query, too, how far they support the policies which the Directive appears to advocate. Certainly there would be general concern about the extent to which full employment might be endangered, and such matters. There are lots of matters—this may not be the most appropriate moment to discuss them in detail—set out in the draft, dealing with the United Kingdom, about which hon. Members are entitled to be concerned.

On page 20 it is said that: From now on, economic policy should have the objective of ensuring that the total current account deficit, in 1975, will be less than £2,000 million. That may seem a reasonable objective but I would like to know how it is to be attained. On page 21 there is a new paragraph, to which the Paymaster-General referred, which has been added, and in which it is said: An essential condition for avoiding an abrupt halt in the expansion of internal demand in the short term, is to lay the foundations of an agreeemnt on a concerted prices and incomes policy; such an agreement would be all the more desirable in that it would promote sufficient development of industrial investment to stimulate a strong flow of exports and so to maintain a high level of employment in the longer term. As the Paymaster-General said, that is an important statement of policy but it does not prejudice the Government as to the ways in which they get that concerted agreement.

It is important to recognise that there is need for such an agreement, whether on a voluntary or other basis. On page 22 it is said: within the overall framework of such action, there are grounds for applying any restriction on bank lending selectively, especially in relation to those small and medium-sized businesses which have been most affected by events at the beginning of the year, and also where exports are concerned. This is in relation to monetary action. I, for one, am grateful that the Government's general policy is to be in line with those proposals.

Hon. Members may also be concerned about the declaration that: the balance of payments situation calls for short-term interest rates to be maintained at a level appreciably higher than those prevailing on international monetary markets. Here we may raise the question whether our policy within the Community can be concerted so that we avoid competition in interest rates, so that we ensure that the French Government consult widely before raising their rates in a way which might force us to follow suit. Clearly, there are major matters of political concern, as the Scrutiny Committee has said, which it is right this House should debate before decisions are taken by the Government in the Council of Ministers.

We ought to concentrate on that and not let the issue be clouded, as I know some hon. Members wished it to be clouded for a long time, by quite fallacious arguments about the effects of the treaty, its effects on Parliament, and the Government's ability to decide the policy of the country and put it before Parliament. Generally, we ought as a House to accept that the consideration of policy by all the members of the Community, acting together in a European context, must be not only in their interests but in ours as well.

Mr. Raphael Tuck

The right hon. and learned Gentleman has twice spoken about pooling sovereignty. Does he not admit that if we have to accept these conditions sovereignty goes, because sovereignty has been described by political scientists throughout the ages as the power to give orders to all and receive them from none? Once we abrogate that power we abrogate sovereignty. There cannot be a pooling of sovereignty, any more than there can be a God-fearing atheist.

Mr. Rippon

I do not know if it is helpful to pursue the argument. Clearly, there is a difference of view about the definition of parliamentary sovereignty. All I have ever asserted is that the ultimate sovereignty of Parliament is protected. This is true. Between sovereign States we are only affected to the degree to which we, through our Government and Parliament, agree to be bound. This is no different from the position under the North Atlantic Treaty, the Brussels Treaty or other treaties into which we have entered. [Interruption.] If hon. Gentlemen will not accept that from me, I can only refer them to the splendid passages in which this is made clear in the Prime Minister's speech in May 1967, when, with the whole-hearted support of the House, he made our application to join the Community.

8.15 p.m.

Mr. Douglas Jay (Battersea, North)

I am sure that my right hon. Friend the Paymaster-General will welcome this debate because, as he said, he proposed a procedure not so different from this during the debates on the European Communities Bill. What puzzled me a little about his speech today was that he first of all appeared to accept these guidelines. He said that he broadly accepted them, and then he told us in detail why he did not accept quite a number of them.

The House should understand, and I do not think that the two speeches we have so far heard have done so, the nature of these guidelines or instructions—or should I call them decrees?—which we are receiving from Brussels. They are not just pious sermons addressed to us, such as we have had, from, for instance, OECD. Whether or not they were of any value, they certainly did no harm because we did not have to heed them if we did not wish to. These are draft instruments which seek to become EEC Council decisions which are then legally binding in the courts of the EEC and in British courts and enforceable like any legislation enacted in this House. I must remind the House that a decision, according to Article 189 of the Treaty of Rome, shall be binding in every respect for the addresses named therein. My right hon. Friend quoted these words, but he said that he was not really in any danger of being hauled before the courts. He gave us absolutely no reason why that was so. It is not good enough, constitutionally, simply to say that the Treaty of Rome says that these decisions are binding but then to add blithely that we do not propose to take any notice of them. Either they are binding, in which case our sovereignty is clearly infringed, or, if they are not binding, this is a great mass of paper and an extraordinary waste of time. It is clear from the Treaty of Rome that, in that sense, they are binding.

We should therefore consider what all this means as a basic constitutional issue. The 1971 White Paper published by the present Leader of the Opposition told the House and the public that if we joined the EEC, there would be no question of any erosion of essential national sovereignty. The Labour Party election manifesto of February this year, to which the Government are pledged so faithfully in every way, pledged the Labour Party to The retention by Parliament of those powers over the British economy needed to pursue effective, regional, industrial and fiscal policies. Yet here we are being asked to accept a whole series of legal decisions which, claiming the force of law, lay down the main lines, in considerable detail, of economic, monetary and budgetary policy in Britain for 1974.

Let me quote from one or two passages from these remarkable documents. The first, on general economic guidelines, starts by laying down—and the right hon. and learned Member for Hexham (Mr. Rippon) ignored this: The Member States shall pursue their economic policies in conformity with the guidelines which are specified". Amid a number of pious platitudes about avoiding inflation and so forth, to which no objection can be taken, the document slips in the following instruction to British Ministers: The fulfilment of these requirements may in certain cases endanger full employment. It goes on—and this is a legal instruction: The number of workers in danger of having to change their jobs will be noticeably higher than in the past". Then again: The restrictive line of monetary policy must therefore be maintained or even tightened … Interest rates should be maintained at high levels. Then again: This expected deterioration in the budgetary position will have to be curbed either by cutting back the growth of expenditure or by increasing taxes. Is that broadly in line with the Government's policy, as my right hon. Friend told us tonight? We should be told before we finally part with these decisions.

Mr. Bruce-Gardyne

It certainly should be.

Mr. Jay

That is another matter. I want to know whether it is.

We then have the following instructions addressed specifically to the United Kingdom: As for budgetary policy, measures to moderate domestic demand should be introduced following a return to normal economic activity. Then again: the balance of payments situation calls for short-term interest rates to be maintained at a level appreciably higher than those prevailing on international monetary markets. My right hon. Friend appeared to say that he hoped that those words would be revised, but those are the words in the document which is before the House.

Then we have the Consultative Document R1474/74 which, contrary to the implication we had from the Front Benches, is designed to lead up to another Council decision. This document, dated 5th June, is intended for a Council decision to take place in ultra-restricted session. That is remarkable in itself. It purports to be legislation, but it is to be kept absolutely secret, at any rate till the very last moment. It is interesting to see how legislation is conducted in Brussels. The document says this: The Commission will be submitting a draft decision … without delay. The Commission proposes that the Council declare in favour of the principle of a system of concerted floating of the Community currencies floating freely and those inside the European 'snake', the main feature of which would be concertation"— a remarkable word— on a corpus of measures (monetary policy, interest rates, capital movements) without which such a move would be meaningless. It is then proposed that the Council should adopt these policies as a Council decision.

Do the Government accept all that? Is it all in line with their present thinking? We should be told that tonight.

Closely allied to that instrument is the even more remarkable draft instrument which is described as COM(74)696, which the Scrutiny Committee has also recommended should be examined by the House. That draft decision would bind any member country to consult the Commission and other EEC members before altering the exchange rate of its currency. The Commission in its explanation of the draft says that given the necessity for this procedure to remain secret, the Commission believes that the decision should not be published. In this case there is to be a legislative act, and the Commission's view was at one time that it should not even be published after it had been adopted by the Council.

I find that even more extraordinary. This is not just confidential consultation between Governments, as the right hon. and learned Member for Hexham implied. It purports to be legislation binding on member countries. It is characteristic of the authoritarian attitude of the Commission that it should wish to keep such legislation entirely secret. I can see no practical point in secrecy in this case. Of course, consultations on a particular change in exchange rates would have to remain secret, but there is no reason why a general commitment to consult should be kept secret.

Opinions may differ whether any or all of these policies are desirable or undesirable at a particular moment, but what is surely beyond dispute is that they involve major issues of basic economic policy. To accept the EEC Council's power to dictate these would, first, be a clear breach of the undertaking in the 1971 White Paper that there would be no question of the erosion of essential national sovereignty. Secondly, if the Government were to accept them—and I gather they partly do and partly do not—it would be an equally clear breach of the Labour Party's 1974 election manifesto which pledged the Government to The retention by Parliament of those powers over the British economy needed to pursue effective, regional, industrial and fiscal policies. To accept these instructions or decrees would be a flagrant breach of that election pledge, and there is, therefore, a clear duty on Parliament to make that clear and to reject them.

As I see it, the whole claim of the EEC Council and Commission to legislate on these matters is so open a breach of those pledges that the claim must be equally rejected by the British Parliament. If the right hon. and learned Member for Hex-ham says that the British Parliament's sovereignty has been in no way infringed, we clearly have the right to reject that claim.

Further, in view of these breaches of faith, and the explicit declaration by Labour Party spokesmen during the debates on the European Communities Bill that the Labour Party did not accept the Treaty of Accession as binding, and in view of the irregularities committed by the previous Government in forcing that Bill through the House, I for one do not accept the Treaty of Accession or the Treaty of Rome as having any constitutional validity in this country till a referendum has settled the issue.

I therefore hope that hon. Members of this House tonight will assert on behalf of the British people this Parliament's democratic right by making clear to the Government that it really has no authority to accept all these decrees and instruction or the implied claim of the whole Brussels' machine to do what it is really doing—dictating the internal economic policies of this country.

8.28 p.m.

Mr. John Davies (Knutsford)

I greatly welcome the opportunity provided by this debate because, as I believe the House knows, I have always, whilst I have been here, been a great believer in the need for the House to debate the matters which were handled through the institutions of the Communities, much as I am myself in favour of those institutions and their objectives. Tonight I should like to say some words, first, regarding the central points which the committee on these subjects dwelt on. I have no possible remit, as I recognise, to speak for the Committee and I do not intend to do so, though there are many members of the Committee present tonight who will speak for themselves.

It is perhaps worth drawing the attention of the House to the central point which the Committee felt about the documents that we are now debating. It was felt that they were, beyond all question, important and I feel that beyond all question they are. They deal with matters of absolutely essential moment to the conduct of the economic affairs of this country, and even if they raised little or no questions in dispute between the two sides of the House, or between individual Members, they would still be of prime importance to us all—so the Committee thought they were very important.

The Committee also felt that they raised major political issues. The right hon. Member for Battersea, North (Mr. Jay) raised a number of points which concern him. Perhaps I may refer to one or two others. The explanatory memorandum which accompanied the first document that we are considering says: This draft decision provides that the member States are to pursue their economic policies in 1974 in conformity with the general guidelines set out in the Annex to the Draft Decision". I point out to the right hon. Member for Birkenhead (Mr. Dell) that his explanatory memorandum is not a Community document, so he is saying that the draft Decision, if adopted, would provide those directive guidelines. It is important to make that point, on which the Committee dwelt. Later in the same paper we read that: The recommendations for the United Kingdom are broadly in line with the policies already being pursued by the Government. No changes in the United Kingdom's current economic policies will be called for as a result of the draft Decision. That raised some serious problems for the Committee, because there are in the guidelines one or two points which seem hard to reconcile with the current economic policies of the Government. I refer to Article 513, on page 6, which says that In the second group of countries the constraints imposed by the balance of payments situation and by the vigorous upsurge in costs and prices call for policies to restructure demand aimed at improving the external balance. To stimulate exports the economic policy of these countries will have to aim at reducing the growth of domestic demand to a rate considerably below the expansion of productive capacity by the end of 1974. Going on to refer to a still later document, dated 31st May 1974—R/1253/1/74 and Addendum, page 2—the House can read: The essential problem in the next few years is to maintain a substantially slower growth rate in private expenditure than in gross national product. Is it possible, compatible with the policies of the Government in economic terms, that we should be seeking at the moment to bring private expenditure lower than the growth in the gross national product? If so, I would draw the attention of the right hon. Gentleman to the fact that he is making a positive effort, within his economic policy, to reduce private expenditure and private consumption. I do not think that this is compatible with the economic policies he is pursuing. The Committee felt bound to say that the matters raised were of considerable political importance.

I refer now to the second document—COM (74) 696—which creates some dilemma, since it is marked "Secret" but has already been dealt with by others. The consequences of the document may well be secret, but the document itself crosses no particular borderline of confidentiality, and in any case has been available from the Vote Office.

The third document—R/1474/74—is a a very wide-ranging one. The right hon. Member for Birkenhead has told the House that this gives rise to a further proposal, which will now be before the Council of Finance Ministers on 15th July. It is difficult for the right hon. Gentleman to reconcile what he said on this point with undertakings given by his right hon. and hon. Friends that no matter would be cleared through the Council of Ministers which had not been subject to debate in the House, if debate was called for. Perhaps the content of today's debate will adequately deal with the problem. Again, some fairly trenchant statements are made in Document R/1474/74. It says that The Commission proposes that the Council declare in favour of the principle of a system of concerted floating of the Community currencies floating freely with consequences in relation to monetary policy, interest rates, and the like. In all three documents the Committee found issues of considerable political importance and obviously of general importance, though not raising matters of legal concern.

Mr. Marten

I am interested in what the right hon. Gentleman is saying. He was an enthusiastic Chairman of the Scrutiny Committee. The whole object of referring reports by that Committee to the House surely is that the House should decide something specifically and express a view. But the motion before us is a "take note" motion, and we have no power to decide anything tonight. It is in that respect that this debate is likely to fall down, and that was not the real intention of the Committee.

Mr. Davies

I am sure my hon. Friend will raise that matter in the appropriate quarter, but certainly not with me.

I should like to turn away from the matters of specific concern expressed by the Committee to some personal views which I hold on this subject. I believe that there is a basic flaw in much of the reasoning which takes place. It seems to be ignored that the whole purpose of the Community is to work for the benefit of its members. It does not wish to indulge in bureaucratic or autocratic control of activities. That is not its purpose. Its purpose is to try to assist in the affairs of its members to meet their difficulties.

When we see what is happening in Italy we surely must appreciate to what degree the Commission and the Council of Ministers are seeking to work to its aid. It would be wrong to base the argument on an incorrect presumption. The correct presumption is that the Community as a whole, within the framework of the guidelines and the series of directives and decisions, seeks ardently to help members towards a more successful future. Everything should be seen in that context. It is wrong to see it in any other way.

Mr. Raphael Tuck

Surely the right hon. Gentleman agrees that every Government try to assist the people in their country, but the directives are issued in the form of binding laws.

Mr. Davies

The whole purpose of these measures is to ensure that there is a means of effective discussion with a view to ensuring that individual member countries shall not by their actions undermine the livelihood and expectations of others. That is an exceedingly valuable activity. If the hon. Gentleman doubts it, let me assure him that the possibility of any member country on its own and without damaging its neighbours finding its way through the present economic difficulties is so remote as to be unworthy of discussion. We are, whether we like it or not, closely involved and intertwined with our neighbouring countries. We must find our way together through the minefield of difficulties that confronts us.

The second aspect of the problem to which I wish to draw attention is that the Community is by no means an organisation which can only listen to problems of its members and try to recon- cile them, but it seeks to be creative. Reference has been made to the fact that the change of resource allocation worldwide faces us as a tremendous future problem. Various figures have been put showing the extent to which there has been a transfer out of Western industrialised countries into the Middle East. The most recent estimates I have seen show that this year a figure of about one hundred billion dollars will move into the hands of the Middle Eastern oil-producing countries.

Mr. Skinner

Will the right hon. Gentleman give way?

Mr. Davies

Let me finish this passage. I want to be brief. These are moneys which are being withdrawn from our economies. If they are to be drawn out of the area of investment, there is a paramount need to find some means of pulling back some of these resources into investment, both social and industrial. That aim surely must be something to support rather than to reject. I do not understand the purpose of seeking to withdraw from arrangements which are part of the salvation we need for our future as a country.

Mr. Skinner

Will the right hon. Gentleman now give way. He said he would give way when he finished the sentence.

Mr. Davies

I did not. I said that I wished to be brief, and I do. The hon. Member for Bolsover (Mr. Skinner) is always given to ribaldry about the most serious subjects. I have noticed it for many months.

We are faced with a subject of the utmost importance and difficulty.

I have no comment to make on the speech of my hon. Friend the Member for Banbury (Mr. Marten) and his views on the form of the debate. I think the occasion of the debate should be taken advantage of to press on the Government the importance of these matters and the varying views of the House about them. I consider that the measures proposed are salutary and advantageous and should be actively pursued.

8.44 p.m.

Mr. Roy Hughes (Newport)

I have listened to the right hon. Member for Knutsford (Mr. Davies) with very great interest. He occupied important ministerial positions in the last Government. He will be remembered above all for his "lame duck" statement. But I thought that by now even he would be able to agree that the biggest lame duck of all is the Common Market. Our entry to the EEC has had a disastrous effect on the British economy. As an important member of the last Government, he bears a fair measure of responsibility for our present position.

I have a document issued in Brussels on 31st May reference R/1253/1/74, the annexe of which lays down general guidelines to member States on their economic policies. First, it makes the point that in restructuring their economies they should adapt them to the changes in the external situation"; secondly, to preserve purchasing power"; thirdly, achieving a reduction in the balance of payments deficit; in the case of those countries whose external situation had deteriorated appreciably even before the crisis, this reduction must be substantial. I have quoted those points as I am concerned about the effect those measures will have, because the document goes on to say: The fulfilment of these requirements may in certain cases endanger full employment. That is something I cannot accept. I represent a part of the United Kingdom which has had a considerable experience of unemployment. One of the principal reasons for the growth of the Labour Party was the combating of unemployment and the ravages of unbridled capitalism.

Speaking of full employment the document goes on to say: in the current situation it cannot be achieved by a general stimulation of nominal internal demand". We need to ask ourselves what is meant by that statement. So far as my elementary knowledge of economics goes, it means that there should be no pump priming to keep the wheels of industry turning and our people in useful employment, because unemployment in economic terms is waste, like leaving a tap running.

On the front page of the Financial Times of 2nd July 1974 one reads the following headline to an article by Michael Blanden: Further sharp drop in the volume of retail sales. The article goes on to point out the effects of this sales resistance. The answer must obviously eventually lie in short-time working and redundancies in our factories and workshops. If that is the best advice that the bureaucrats from Brussels can give us at the present time I can say that the people I represent want no part of it.

Mr. Nigel Spearing (Newham, South)

Has my hon. Friend noticed that what he supposes is confirmed on page 3, which says: The number of workers likely to be forced to change their jobs will be noticeably higher than in the past. I am afraid that his fears are confirmed by this document.

Mr. Hughes

My hon. Friend is right, and of, course, the policy being advocated is no more than outmoded economic dogma. It was blown to smithereens by Keynes way back in the 1930s. Even before Keynes, it was proved that policies of this kind solved nothing. Nevertheless, I do not wish to underestimate the second point made in the document about the evils of inflation.

The advocates of British entry into the Common Market again must bear some responsibility for this. There is, for instance, the cost of food. Before coming to this House, I spent a little time in the trade union movement, where I got some idea of the way that wage claims came about. The housewife goes home moaning to her husband. He in turn goes to his fellows in the factory and to his trade union branch meeting. Eventually, a wage claim materialises as a result.

In this country we have always enjoyed the benefits of cheap food. Today we find that lamb is coming here from New Zealand bearing a tax because it has been exported to Britain, whereas it has the benefit of a subsidy when it is exported to other countries. A similar pattern can be observed in this ridiculous policy of denaturing food, turning it blue, green and so on at a cost of millions of pounds. We also remember the famous incident of the thousands of pounds of butter sold to Russia for 7p a lb. Now we have the latest scandal associated with the stocks of beef.

I should have thought that the time of the bureaucrats in Brussels would be better spent formulating some means of getting rid of the common agricultural policy. For our country and for our Labour Government, this should be one of the principal aims of the renegotiations rather than toying with the edges of the policy. Certainly it has resulted in a lower standard of living for the British people.

Then we have the vexed question of the balance of payments and the balance of trade. We have a huge balance of trade deficit with the Common Market countries. For the last financial year, it was £1,600 million. The right hon. and learned Member for Hexham (Mr. Rippon) needs reminding that before we went into the Common Market, when the Labour Government left office in June 1970, there was a fabulous balance of payments surplus. This again is an indication of the effects on the British economy of entry into the Common Market.

We know that the Conservative Party wishes to have regard to the views of the British people in these matters. The Leader of the Opposition used to speak of the "full-hearted consent" of Parliament and the people. That went by the board.

Looking to the future, presumably there will be a General Election before the negotiations are concluded and that the referendum will be held after the election. The only way for the people of Britain to ensure that they are consulted on this vital issue is to vote Labour at the forthcoming General Election.

My right hon. Friends on the Front Bench must not fudge the issue. The renegotiations must be fundamental. The common agricultural policy has been nothing short of a disaster, and we are faced with the vital question of sovereignty. I do not believe that the British people are prepared to surrender their sovereignty to the Brussels bureaucrats. Frankly, one cannot help but get a bit concerned about the honeyed terms occasionally used by the Foreign Secretary in his dealings with Europe. I read extracts of his speech at the Herbert Morrison Memorial lecture last night in London. That was typical of what seems to be going on now.

The renegotiations must not be allowed to drag on. The referendum should be held between six and 12 months from now. The issue could then finally be decided by the democratic will of the British people. I certainly hope that tonight the House will refuse to take note of these documents.

Mr. Deputy Speaker (Mr. Oscar Murton)

Before I call the next hon. Member to speak, I remind the House of the importance of the debate and the fact that time is running out. It would be helpful if speeches could be restricted to 10 minutes.

8.52 p.m.

Mr. Ian Stewart (Hitchin)

After the broad sweep of some of the speeches so far I find it a little difficult to move from the general to the particular. Many hon. Members have so far been concerned with the way in which Parliament should react to this type of document, but I want to deal with a specific point. It is timely that the House should consider carefully, in the context of the guidelines and the communication before us, recent events in the currency markets and the foreign exchange markets of Europe.

I do not need to make a special plea that this is relevant to the subject we are discussing because the question of the cohesion of financial markets in the countries of Europe, which are mostly members of the Community, is central to the whole concept of concertation of economic and monetary policy which we are discussing.

Recent events have so far destabilised the existing system as we know it that we may have to rethink, nationally, internationally and within the Community, the way in which we regard exchange rate policy from hereon in order to achieve the original objectives of the Community. There is no doubt that with the change from a fixed exchange rate to a floating rate system the whole of the ground rules for the operation of international financial transactions have changed, and it is only now, at an interval of about two years or so, that in the backwash of this change some of the results are coming to be seen.

Everyone will have read of the way in which a number of banking houses in Europe and the United States have been caught for large sums of money on exchange losses. It might be profitable briefly to consider the ways in which this arose, because it is imperative for the stability of the international monetary system that ways be found to prevent this type of occurrence in the future.

During the middle months of 1973, under the system of floating exchange rates the relative value of a dollar in terms of the deutschemark changed from DM3.15 to DM2.25—a change of about 30 per cent. in a matter of a few months. That sort of change was quite outside the experience of operators functioning in those markets. A very large amount of speculation took place, and a large amount of that speculation was proved to be wildly wrong in its conception and expectation of the way in which exchange rates would subsequently settle down.

The difficulty has arisen here because the controls and the systems of information, even within well-organised financial communities such as the City of London, were never designed to cope with a system in which exchange rates could move so rapidly and so violently. What has happened is that the old system is still applying, but it no longer provides the right information or controls. I shall not bore the House with the details of the sort of forms and information which have to be supplied to the Bank of England, but, broadly, the effect of them is that information which is provided relates to commitments between sterling and the totality, in a net form, of all other commitments in other currencies. It does not provide any direct information of positions of individual banks or the banking community as a whole between one third-party currency and another.

As a result of this, there have been very large speculative positions built up in all countries—and we are not immune from this—which have had such serious repercussions on banking houses within the Community that some, such as Herstatt in Germany, have collapsed because of the extent of the losses they have made through unwise speculation. This would not matter if it were only imprudent banking houses which were to suffer, but there will undoubtedly be a chain reaction.

One may take a certain view. As a banker, I must declare an interest in this matter. [HON. MEMBERS: "Oh!"] It is very proper to declare an interest, but I declare it more in a professional sense, to put my remarks in context, than in any obvious personal connection with this situation. I hope, after all, that it is one of the values of the House that hon. Members should not feel inhibited in talking about subjects about which they actually know.

The situation which has developed is that all small banks, more or less, within the European countries could be at risk. The situation which occurred with Herstatt could be repeated. I apologise for the technicalities of this matter, but one cannot understand the position unless one understands the technicalities. With a transaction between two countries in Europe, one settles on the same day at broadly the same time, and there is no exposure between a purchase and a sale; but if one deals between dollars and a European currency, one cannot deliver the dollars in New York till after the transaction in Europe has been completed, because of the time lag. This is of importance to bankers, not only in Europe but also in the United States. Looking farther afield, the Japanese markets are closed before European markets are open.

If this situation of exposure is not controlled there will be failures on a scale which is unprecedented in post-war experience and which will completely frustrate attempts at the concertation of economic, monetary or any other sort of policy between member States.

Therefore, the point that I particularly ask the House to take into account when considering these documents is that there needs to be concerted action between each country of the Community—led, I hope, by the British Government and the Governor of our central bank—to ensure that rigid standards are imposed which not only deal, as they have historically, with its own domestic currency in relation to the totality of all others, but which enable monetary authorities to keep some sort of control of the open speculative positions between others' currencies. Heaven knows, we ought to be interested. If third-party countries speculate in sterling against another currency it is important that our monetary system should not be thrown into chaos by a serious deterioration of the position.

Mr. Silverman

Is the hon. Gentleman saying that this document before us now, or the draft document 1355, achieves these objectives in any way?

Mr. Stewart

I am not saying that the document as such achieves any of these objectives. The documents are concerned with subjects such as co-operation on exchange rates and monetary policy.

Recently a fundamental change has taken place in international markets which will need to be taken into account not only by the Community as a whole but by all countries within it, including ourselves. This poses a dilemma for the Community regarding its policy. In the guidelines document it has divided the countries of the Community into one group with a strong balance of payments situation and another group with a weak balance of payments situation. These more or less coincide with the stronger countries having their currencies within the snake and the weaker countries, of which we are one, being the floaters.

If the Community is to be constructive in future in its relations with member States regarding monetary policy as it affects exchange rates, it will have to take account of a completely new dimension. Probably it is to some extent still affected by past experience in the objective of economic and monetary union, but there may come a point—I suggest that that point has now been reached—when what we are working for is the greatest possible degree of co-operation in whatever way it may be achieved.

In the monetary sphere—this is a technical and narrow area, but it is of fundamental importance to us—I believe that that co-operation will best be achieved if we try to attain a monetary stability most suited to each country at a particular time. It will mean that, for the time being, we shall have to abandon the stronger views or objectives of concertation in the sense that it may mean linking currencies together in the snake.

As a relative newcomer to the House perhaps I should declare another interest. I do not have any philosophical commitment either to fixed rates or to floating rates, for gold or against gold. It is essential in these days, particularly as the economic balance of power in the world has shifted largely outside Europe, that we take account of the realities of the situation. Therefore, at any one time the policies formulated for this country and for other members of the Community should take into account what is happening today and what is likely to happen in the near future.

I suggest that in any future draft directive on the harmonisation of banking law one critical point, to be made at an earlier stage, should be that each country has a proper means of controlling speculation in currency that could lead to bank failures and, frankly, to a fragmentation of the monetary system which would prevent countries like Britain from raising money on the Eurodollar market for their companies and prevent them from raising standby credits which are so important when trying to finance current balance of trade deficits. If we are to look at it from this point of view, we shall need to take account on a changing basis of changed circumstances.

I am grateful to the House for having listened to a technical and, in some parts, abstruse speech, but when a watershed is reached—I believe that that is what it is—it is right that, in the context of documents which discuss the way that we control our economic and monetary affairs, we should bring these points forcibly to the notice of the House. I am not ashamed of having done that tonight.

9.4 p.m.

Mr. John Roper (Farnworth)

I welcome the opportunity provided by this debate. I shall not attempt to follow the argument of the hon. Member for Hitchin (Mr. Stewart), because I could not hope to deal with the technicalities to which he referred in the time available to me.

The debate has been a clear demonstration of the opportunity for the House of Commons to interpose itself in the decision-making process of the European Community.

It is particularly appropriate, as my right hon. Friend the Paymaster-General said, that, in view of his long interest in the need for a greater degree of parliamentary control over the executive in its activities in the Council of Ministers, he should open the debate today. I hope that he will therefore be sympathetic in future to the activities of our Scrutiny Committee.

My right hon. Friend referred to page 21 of Document R/1253/74, which I understand was a version published on 29th May, but I have just been to the Vote Office and the only document it would provide me with was a version published on 15th May, which unfortunately ceases at page 17. I point this out to give one example of the enormous difficulties that there are in considering these matters. A particular difficulty is in trying to keep up with these rapidly moving documents—

Mr. Charles Loughlin (Gloucestershire. West)

Am I to understand that my hon. Friend has not been able to acquire the documents relevant to the debate from the Vote Office?

Mr. Roper

I am grateful to my hon. Friend for that intervention, but, fortunately, my right hon. Friend the Member for Battersea, North (Mr. Jay) has let me have his copy of the document and, therefore, I am sufficiently well-informed on this occasion—

Mr. Loughlin

I believe that there is a point of order involved here, Mr. Deputy Speaker. As you will be aware, Mr. Speaker Hylton-Foster did in practice rule that if documents were not available within two years of publication to hon. Members of the House the debate to which they related could not proceed. If my hon. Friend is saying that he has been to the Vote Office and that the document concerned was not available, I submit that we should invoke the ruling of Mr. Speaker Hylton-Foster in this connection.

Mr. Deputy Speaker

I am not aware of the ruling given by Mr. Speaker Hylton-Foster, but, in fact, the documents are available in this case.

Mr. Loughlin

Further to my point of order, Mr. Deputy Speaker. I am sorry to pursue this matter, but it is of prime importance to the House. It may be that on this occasion some hon. Members do not look at it in that way, but they may well do so on a future occasion. On the occasion that Mr. Speaker Hylton-Foster made the ruling to which I referred these was a fairly good discussion about it. The ruling arose in connection with the terms of an agreement regarding broadcasting, and after considerable discussion it was ruled by the Chair that it was improper for the House to proceed without the necessary documents before it. My hon. Friend the Member for Farnworth (Mr. Roper) has admitted that he went to the Vote Office and asked for a document that was relevant to the debate but was not able to secure it. I submit that this is equivalent to the situation upon which there was the ruling that I have mentioned.

Mr. Deputy Speaker

I understood the hon. Member for Farnworth (Mr. Roper) to say that he now has a copy of the document—

Mr. Loughlin

He got it from somebody else—

Mr. Deputy Speaker

That is immaterial. It will be found that the documents involved are available.

Mr. Roper

I was trying to make the point that I hope that my right hon. Friend the Paymaster-General will in his capacity as a Treasury Minister ensure that the House is provided with sufficient staff in the Vote Office, and elsewhere, so that we get all the proper up-to-date documents on this subject. The trouble is that, while documents are available, they are frequently changed, and one is never sure whether one has the correct and most up-to-date documents.

However, in considering the proposals from the Commission to the Council of Ministers, we come to the central question of the nature of the Community—how far it is, in aspiration or reality, anything more than a customs union, and how far it is even now beginning to be a Community rather than a Common Market?

Some of my hon. Friends have criticised the Community for wanting to do too much. My criticism of the member States is that they have failed up to now to make use of the Community mechanism to tackle together their individual economic problems. The lessons of the 1930s and the Second World War were that collective security is essential as a method of defence, individual defence being impractical for countries of our size. I hope that we shall not have economic disasters in the 1970s to teach us that collective economic policy-making is essential today.

There is probably a need, therefore, not only for consultation and co-ordination but for accepting together some common discipline if we are not all to suffer the disastrous effects of a series of beggar-my-neighbour competitive policies. It is, therefore, disturbing that in document R/1474/74 the Commission says: … the Community consultation and concertation procedures adopted on 18 February have been throttled back. It is also interesting to read the Opinion on Document R1253/74 of the European Parliament—

Mr. Skinner

Assembly.

Mr. Roper

In paragraph 1 the Parliament Expresses its disappointment at the fact that the Commission, after making a shrewd analysis in its communication of the economic situation, goes on to formulate recommendations that are not primarily geared to the real situation and needs of the Community but which reproduce more or less unchanged the policy measures and intentions of the Governments of the Member States; whereas the whole Community finds itself confronted by a drastic restructuring of production, unemployment problems, the danger of disruptive capital movements and disquieting price increases". The Parliament goes on to say that it Holds the view that the Communication from the Commission contains, in addition to worthwhile recommendations, many statements that are over-cautious and even obscure or contradictory, which are not in keeping with the gravity of the present situation". It then lists a number of items of which that is true. On employment, it says that … the situation is presented in excessively optimistic terms". On restructuring of production, it says: … the Commission wishes to support this but does not indicate how this should be done It lists other points as well in which it finds the document totally unsatisfactory.

I wonder what notice the Council of Ministers has taken of the European Parliament in this matter. This document, far from being radical, reads, so far as this country is concerned, as if it were drafted by Treasury officials.

The problem arises, however, that we are operating our economies now in a situation in which we are outside the range of experience incorporated into our macro-economic forecasting models. One wonders, therefore, whether guidelines drafted in March and eventually adopted in July will be of any value in a rapidly-changing economic situation. The situations in Denmark and Italy have already proved that the document is out of date for those countries because of the policy changes which have been made.

In the two main recommendations for the United Kingdom, we are told: To stimulate exports, economic policy … will have to aim at reducing by the end of 1974 the growth of domestic demand to a rate distinctly below the expansion of productive capacity. On page 2 we read: The essential problem posed for the coming year is the maintenance of a susbtantially lower rhythm of growth of private expenditure than that of G.N.P. What happens if the other sectors of GNP do not grow? Does this imply a fall in the level of our economic activity?

The guidelines as they stand are worthy and platitudinous but are inevitably out of date and were probably out of date before they were written. The task which was laid down in the Council decision of 18th February is important, but I am not sure whether this is the correct mechanism to achieve those ends. I should be glad of my right hon. Friend's views on that matter.

The second major document we are considering, R/147/4/74, is much more radical and interesting, but, as I expected, my right hon. Friend the Paymaster-General let us know that quite a number of the more radical proposals were being opposed in the Council of Ministers, particularly those in paragraphs (7) and (8). It would be interesting to know how the Commission would make decisions on the allocation of the large credits announced in paragraph (7). Similarly, I think that the House as a whole, and not only the hon. Member for Hitchin, was glad to hear from my right hon. Friend, with regard to paragraph (8), that the suggestion that the adder should be inserted within the python had been rejected by the Council of Ministers, and that our currency would be able to continue floating unrestrained.

This has been an important debate, the first of its kind. I am grateful for the explanations my right hon. Friend gave at the beginning of the debate. I hope that this will be the first of a very long series of such debates.

9.16 p.m.

Mr. John Biffen (Oswestry)

I should like to join those who have congratulated my right hon. Friend the Member for Knutsford (Mr. Davies) and the Scrutiny Committee on providing the House with the opportunity for the debate. As my right hon. and learned Friend the Member for Hexham (Mr. Rippon) said, it is a matter of feeling our way as the House comes to terms with the current state of British membership of the Community.

There is no doubt that others are making competitive claims for the political evolution of Western Europe. I have no doubt that Dr. Cornelius Berkhouwer has his views of the legislative competence of the Strasbourg Assembly. Certainly, if Commissioner Spinelli is to be judged on the speech he made while receiving the Robert Schuman Prize, the House should look zealously to its traditional law-making and law-influencing character.

Although my hon. Friend the Member for Banbury (Mr. Marten) has once or twice, from a sedentary position, cast some doubts on the efficacy with which the debate is being conducted, I conclude that it is just a beginning. It is the first of these debates, and I have some faith that zealots above and below the Gangway will make sure that they become fairly embarrassing circumstances for the Treasury Bench, even if the debate is conducted more by the voice than the vote.

Mr. Skinner

We shall have both.

Mr. Biffen

We shall all study the Division lists tomorrow and realise that those Wednesday morning debates inside the Labour Party have been brought momentarily into the open for general discussion tonight. One could read the speech of the hon. Member for Newport (Mr. Hughes) very much in that light.

Because many others wish to take part in the debate, which unhappily must conclude at 10 o'clock, I want to confine myself to two major factors. First, one of the issues we are debating is the whole question of consultation and the linking of exchange rates. I wonder how practical it is to carry out particularly the policy indicated in the Paper COM(74)696, where there is a fairly heroic ambit of prior consultation procedure for the currencies of member States. It says that consultation must be "urgent, multilateral and"—then comes that great word—"secret".

I am sure that my hon. Friend the Member for Hitchin (Mr. Stewart) is very anxious that these aspirations should be fulfilled. There is no doubt that the great change that has taken place in the whole balance in international monetary arrangements over the past few months, not least on account of the rise of sheikh oil money, will put a great test on the somewhat rigid arrangements contained in the document. As my right hon. Friend the Member for Yeovil (Mr. Peyton) reminded the House on Monday, to consult means to listen to the opinions of others as well as to voice one's own opinions. My right hon. Friend was then referring to the Secretary of State for Industry. Of course, it is improbable that there can be that degree of consultation preceeding a change in a fixed parity. It seems—without casting any aspersions upon the customs and the culture of the governmental institutions of Brussels—that there has been if not a higher rate of leakage at least more open discussion of a great many things by those institutions than we experience in our own governmental institutions.

I wonder how seriously we can expect these proposals to be implemented in respect of currency changes? Our experience in the Community to date has been that most countries have felt obliged to change their national parities with the minimum of prior consultation. That is an acknowledgment of the realities. I wonder what good purpose we serve by creating circumstances and situations in which guidelines are more likely to be observed in breach than in practice? I believe that that has certain consequences for the law itself.

Those matters take me to the generalised aspirations that are contained in Document 1253/74. The document has been referred to a great deal. It sets out a line of Government policy that I have not completely identified with the Treasury Bench hitherto. My hon. Friend the Member for South Angus (Mr. Bruce-Gardyne) is not here, but I understood the burden of his intervention to be that Selsdon Man is alive and well, and living in Brussels. That may be true; I do not know. All I can say is that as I read Document 1253/74, to which I understand the Government are giving their assent, I cannot relate it to the advice that has been proffered by the National Institute. I shall not enter into the controversial question whether they should accept the advice that is proferred. Indeed, more than advice is proffered—namely, guidelines.

The House deserves to be told the meaning of the guidelines in explicit and categoric terms. That is one of the purposes of a debate of this character. There cannot conceivably be a parallel at the Strasbourg Assembly, however distinguished a delegation we may send. I hope that the Minister will deal with that point. I will not make the arguments because they have already been made—not least by the right hon. Member for Battersea, North (Mr. Jay).

I do not think that it is by accident that the House is being invited, as a first stage of economic and monetary union, to consider the linking together of exchange rates. There is an attraction for the architects of monetary and economic union to go for the linking of exchange rates as it is relatively simple. The alternatives would be to try to harmonise fiscal and other economic practices, and we would then run immediately into the legislative powers of the national Parliaments.

I have no doubt that an organic and evolving economic union within Europe would not have selected the linking of exchange rates or the linking of parities. It would much more have favoured a moving together of the exchange rates as a result of the approximation of the economies of the member States themselves. Therefore, I have considerable reserve and sceptiscism for the whole approach now being adopted by the Community, and to which the House is expected to give its consent.

9.25 p.m.

Mr. Raphael Tuck (Watford)

We played "general post" on 28th February and changed sides in this House but apparently, as far as the EEC is concerned, each Government wear the same hat. It is a case of Tweedledum and Tweedledee. I am very bewildered by this, and consider it to be arrant casuistry to do what we are told to do—accept that this Directive does not fetter our freedom.

We were formerly told that we would still have complete power to pursue effective regional, industrial, economic, fiscal, monetary, and full employment policies. Now we are told: The Member States shall"— I repeat "shall"— pursue their economic policies in conformity with the guidelines which are specified in the Annex. One cannot have it both ways. My right hon. Friend the Paymaster-General is saying, to paraphrase Shakespeare, "To be and not to be". He is rather like the mayor who, on being inducted into office, said that he would be neither partial nor impartial.

The right hon. and learned Member for Hexham (Mr. Rippon) spoke about pooling sovereignty. As I pointed out to him, one cannot pool sovereignty, because once one does pool it it ceases to be sovereignty. That is what is happening here. We are being told what to do. We are being directed to pursue economic policies within a framework of economic and financial guidelines. These policies have to be pursued. It is not a question of the discretionary "may". They must be pursued. The document goes on to talk about arrangements whereby member States implement the economic policy directives—and I stress the word "directives". In fact, we now see the whole thing in its naked horror.

We are told in a cavalier fashion: The fulfilment of these requirements may in certain cases endanger full employment … The number of workers in danger of having to change their jobs will be noticeably higher than in the past". But this is brushed aside. We are also told: an important part will have to be played by monetary policy in order to help make the necessary adjustments. We were told previously that we would be able to continue to formulate our own monetary policy. Now we are backtracking. We are further told: Interest rates should be maintained at high levels, as much to ensure an adequate level of real rates as to maintain a sufficient margin over the rates obtaining in the main foreign markets. We are being directed what we must do. We are given directives. The directives say blandly that there may be a deterioration in the employment situation, and they talk about budgetary policy and measures. I ask my right hon. Friend to reconsider the matter. I hope that we will not take note of these documents, but if we do I sincerely hope that we do not implement them.

9.29 p.m.

Mr. Neil Marten (Banbury)

I think that a "take note" debate is the wrong procedure to deal with these documents, and I think that the time allocated to the debate is derisory. I know that it is not the Paymaster-General's fault. It is the fault of the Leader of the House. We should make representations to him to the effect that important documents of this nature should be given much more time than this.

Mr. Skinner

Some of us would not get in the debate no matter how long it lasted.

Mr. Marten

I am grateful for that intervention.

I turn to Document 1253 and say that I object on principle to the fact that we, as a Conservative Party, should tie the management of the British economy to operating within the guidelines set out in that document. It is absolute folly.

In interventions I asked the Paymaster-General and my right hon. and learned Friend the Member for Hexham (Mr. Rippon) how they interpreted Article 1 of this draft. This is a draft, but I understand it is to be agreed at the Council of Ministers. Article 1 says: The Member States shall pursue their economic policies in conformity". We are instructed to do it and to conform. Yet the right hon. Gentleman said, even before we have put the dhobi mark on it, that we have broken one of the main principles, which is to get our interest rates well above, or appreciably above, the ruling international rates. He said that we have brought them down now to what are the international rates. Already we have created that situation.

I speak for others who may not catch your eye, Mr. Speaker, when I say that I wonder what on earth all this paper is about. We are told to sign this and to obey the guidelines, and yet we have the undertaking from the Paymaster-General that if we want to break them we may do so. Why on earth are we sitting here wasting our time debating them? I hope that when the Paymaster-General replies, if he gets time, and he may not—it depends on what happens with the other speeches—he will come clean with the House why we have this document.

It is obvious, as my right hon. and learned Friend said, that we want co-operation. There is no reason why we should not discuss these things in the Nine. I would like to see us discussing them with many more countries in Europe than just this little clique. This is an important matter.

Sir Anthony Meyer (Flint, West)

Even Turkey?

Mr. Marten

I would even include Turkey. It is a splendid country.

Sir A. Meyer

And Spain?

Mr. Marten

Yes. And Spain.

The point I am making is: why should we have these discussions? Why should they be reduced to paper in a draft like this, which instructs us to conform? That is my first criticism. It is because of this that I will oppose the directive, if I get the chance.

There is clearly a page missing from the document of 29th May. That is a detail to which we have got used. It would have been thought that with all the experience of churning out paper from Brussels those responsible for it would have got this right, but they have failed to do so. When this document refers to the United Kingdom it says: In the United Kingdom, economic trends will be strongly affected throughout the rest of the year by the repercussions of the temporary limitations of the working week to three days and of the miners' strike. I am interested to note that the Conservative Opposition are not opposing that remark. I thought we were saying that the three-day working week had not had much of an effect, that we had done rather well out of it, that we had an 85 per cent. production figure during that time.

On page 20 there are these sterling, deep-thinking words, clearly from the best brains in the Common Market: The trend of rising prices could increase sharply during the coming months. Is it not a glimpse of the obvious? Why do we need to have these debates to consider that sort of trite statement?

It goes on: Prospects for the balance of payments on current account already in very large deficit in 1973, continue to give cause for concern. This is just like—

Mr. Silverman

Old Moore's Almanac.

Mr. Marten

—a sixth form or upper fifth form essay on economics.

It goes on to refer to the beneficial effects of the depreciation of the effective exchange rate of sterling. In other words, it is congratulating us on having decided to float the pound. I thought that the object of the exercise was to get everyone inside that poisonous, snaky tunnel.

By agreeing not to oppose these guide-lines the Conservative Opposition have agreed to this statement which appears on page 21: An essential condition for avoiding an abrupt halt in the expansion of internal demand in the short term is to lay the foundations of an agreement on a concerted prices and incomes policy". If we win the next election we shall need to know from my right hon. Friend what will be our concerted prices and incomes policy. That is a relevant matter for the whole country.

On page 22 this upper fifth form document refers to slowing down the expansion of the money supply in 1974. Could not the document have referred to M1 or M3, which is relevant in speaking about the money supply?

The document goes on to say: Moreover, the balance of payments situation calls for short-term interest rates to be maintained at a level appreciably higher than those prevailing on international monetary markets. Already we have breached that guideline by which we are supposed to be bound.

The opening sentence of document R/1474 is fascinating. In the last four of five months we have passed through the most terrific financial and economic turmoil, yet the opening sentence of the document reads: The Council of Finance Ministers is meeting on 6th June for the first time for nearly four months. What sort of board of directors runs the Common Market when, through all the turbulent financial months we have just been through it does not even meet? That is where the Common Market condemns itself by the failure of its member States to get together. We all know that it does not work; but why?

In January we were running up to an election, in February we had an election; in March the Belgians had an election; in April, President Pompidou died; and in May, Herr Brandt found a spy in his private office. During those four mid a half months the Common Market was, if I may use the word used by one of the English delegates to the European Assembly, "sterilised". Nothing happened because no one could speak with any responsibility.

Now we look ahead to the great new dynamism which is about to be set alight by President Giscard d'Estaing, and what happens? Buckets and spades during the whole of August for all the Common Market countries, a General Election in September, probably, in this country, and it will be October before we collect together a Government of whatever sort. It will be mid-October before the Common Market can begin to operate, and by then the Italian Government will have collapsed again and the Italians will be out of it. We can look forward to a magnificent stretch of sterility.

To be serious, that is why it is wrong for this country to put itself inside any guidelines. Whichever Government get back after an election they must have absolute freedom and flexibility to do what is best for the country. By all means let us co-operate with the others, but let us not be put inside these guidelines.

9.40 p.m.

Mr. Hugh Dykes (Harrow, East)

It falls to me to reiterate what was said at the beginning of the debate, and that is to add my voice to the congratulations which have been extended to my right hon. Friend the Member for Knutsford (Mr. Davies) and his colleagues on the Scrutiny Committee on their work—work which has provided the basis for this debate.

I feel that I carry many hon. Members with me, though not perhaps all, in suggesting that this has been a most valuable debate. It may be true, as my hon. Friend the Member for Banbury (Mr. Marten) implied, that time has not been sufficient to go into all the details and ramifications of these important issues. I think we would agree with that sentiment, but we would also agree that there would never be sufficient time to examine all the serious problems which confront the European Economic Community. This relates to the attitudes of the Parliaments of all the Member countries of the Community and the seriousness with which they indulge in co-operative efforts to achieve solutions to some of those problems.

While I admire the technique of my hon. Friend the Member for Banbury in his, as usual, witty and amusing speech, I am a little perplexed, and I ask myself why my lion. Friend on these occasions wants to have it both ways. The tenor of his admittedly brief remarks was that the documents before us were menacing in the extreme and that much in them was trite, but he then appeared to be worried that we did not have the time to debate them in detail. That is the kind of contradiction which disturbs other member countries and their parliamentarians. I shall not over-develop that point because I do not wish to annoy the House unnecessarily, nut this aspect of the matter casts doubt on the procedure and willingness of this House to get to grips with the essential problems facing the Community. This relates particularly to Parliament's necessary scrutiny of all the suggestions and proposals that emanate from the Community.

One appreciates the problems which faced the Scrutiny Committee in its late start in getting to grips with the situation. I am sure I echo the views of many hon. Members in admiring the way in which the Committee dealt with all the weight of material that came before it.

There are some hon. Members whose attitude is bound to undermine the strength and cohesion of the Scrutiny Committee's work in future. This is only a beginning. Inevitably, there has been a catching-up process in the work of the Scrutiny Committee. The Committee has done very well, but because these matters are only at a beginning there obviously is room for improvement in the future. This applies to the amount of time which the Government will grant in response to the Scrutiny Committee's request for consideration of important topics. This also relates to the procedures and the way in which the methods of dealing with these important issues are honed up in future. Nobody could expect too much at the start.

The debate has been useful for a number of reasons. It has clarified some of the Government's responses to suggestions made by the Commission in advance of what the Government will be doing as a member of the Council of Ministers and other councils. Above all, it has established the primacy of Parliament as a whole in vetting, surveying, examining and debating these matters. That is the central purpose of the debate.

I should like to ask the Paymaster-General whether he could give a little more detail on some of the things he enunciated in his opening remarks. Many hon. Members, irrespective of their views on the wider issues of the Community, would like to know more details of the Government's balance of payments objectives in relation to what these documents have proposed. On interest rate policy also, clearly what is suggested in the document at a specific date six weeks or two months ago can rapidly become out of date. It is an exaggeration to say that interest rates have now moved totally out of line with what is referred to in the documents but it would help the House to know a little more about the Government's attitude to interest rate policy and the movement of interest rates in our economy in the near term.

Exchange rate consultation is going to be such a complicated, complex matter in the future that once again there is insufficient time to do justice to it tonight but perhaps I am echoing the views of other hon. Members in all parts of the House if I say I would appreciate it if the right hon. Gentleman the Paymaster-General would try to say a little more about this area as well. The concept that eventually the Community will be able to return to a collective float against other external currencies is attractive to many hon. Members, I believe, for the relative stability that it brought, albeit for a very temporary period, because of international currency and exchange upsets that drenched and swamped the Community's effort at establishing a rational system. None the less, in the minds of many hon. Members, and hon. Members on this side of the House, the objective would be to aim in due course to return to that general policy framework.

On prices and incomes policy there are bound to be question marks of a significant kind. The Government, I feel, are obliged to answer the queries of hon. Members on this side of the House when they ask: can Parliament as a whole, and can the Government, be more precise on prices and incomes policy? It is not really the task of the Opposition at this stage to respond to that direct question put to the Government by a number of hon. Members earlier in this debate. As I have tried to suggest, the Opposition welcome this debate and welcome this first opportunity for the suggestions of the Scrutiny Committee to be taken up in earnest by us all—and that, I hope, would include some hon. Members on the other side of the House who do not appear to have wished to treat this whole subject with some of the earnestness that the crisis facing Europe and the wider world now demands.

Whilst we welcome the debate, whatever the Government may say, both in this part and in the later debate tonight, a number of very brief final conclusions are called for on behalf of the Opposition. A number of hon. Members and my right hon. Friend the Member for Knutsford highlighted this in their remarks. My right hon. Friend, I felt quite rightly, emphasised that the EEC is not anxious to be a bureaucratic autocracy. Again and again, what is depressing to hon. Members in all parts of the House is the impression given by those many hon. Members with well-known views that instructions, directives and even regulations emanating from Brussels and the Commission are to ourselves as a nation alone and not to any other members of the European Economic Community.

Plenty is said in these documents about, for example, the proposed obliga- tions on Germany as one of what one might call "Group A", those members of the Community who are in relatively better economic circumstances than countries like ourselves and to a lesser extent France, and Italy as an extreme example of short-term crisis conditions, and so on. Germany and the Netherlands are asked to accept fairly onerous obligations of their own in the overall cooperative effort. I would repeat what has been said by other hon. Members in this debate, that in all these documents the word "draft" is written clearly at the top for all members who wish to do so to acknowledge, and to read, and to recognise that these are suggestions to the effect that there is a lot of consultative work emanating from the Community as part of the complex process of co-operation and consultation. It behoves not only the Government and the Opposition but the whole House to indulge in, co-operate with and accept this collective effort for the future of this country in a thriving Economic Community.

9.52 p.m.

Mr. Dell

By leave of the House, I shall reply to the debate.

If that was the first speech of the hon. Member for Harrow, East (Mr. Dykes) from the Front Bench, I congratulate him. He asked many questions which would be more easily dealt with in the course of the general economic debate which I believe we may hold. I shall try to deal with his points, or with as many of them as I can, during the course of my reply.

This has been an important debate. I note the feeling of the hon. Member for Banbury (Mr. Marten)—with other hon. Members, I believe—that perhaps it would have been better if this debate had not been held on a motion to take note. I am sure my right hon. Friend the Lord President will take note of that point. It will be for consideration whether this is the appropriate procedure for future debates of this kind.

Many points were raised. The first—and one which has played a very large part in this debate—is the impact of the guidelines on United Kingdom sovereignty, on the United Kingdom Parliament, on the power of the United Kingdom Government to decide its own economic policies.

I shall not here enter into the general question of how far membership of the European Economic Community may be considered as impinging on United Kingdom sovereignty. I have no doubt I would have disagreements with some of my hon. Friends and other Members of the House on that point.

I am concerned with how far the acceptance of these guidelines, in the terms which I have described in my opening speech, impinge on United Kingdom sovereignty. My right hon. Friend the Member for Battersea, North (Mr. Jay) put a very simple question on that point. He asked whether the House of Commons could reject this motion and reject these guidelines. This, apparently, was a test of the maintenance of United Kingdom sovereignty. Obviously the House of Commons can reject these guidelines; that is clear. There has never been the least doubt about it. But the House of Commons does not have to reject the guidelines in order to prove its sovereignty. The question should be debated on merits. This is a draft Decision, entered into as a result of the process of consultation, which does convey benefit to this country in that it enables us in a co-ordinated way to influence the development of policies in other parts of Europe which have their impact on us.

I shall come further to the point made by the hon. Member for Banbury.

A question that has become obvious in the course of this debate—a debate welcome to me, from many points of view—is that it does give the House of Commons an opportunity through this system, through the Scrutiny Committee, of controlling the executive.

During the course of the debates on the European Communities Bill in 1972 I emphasised that my concern was not the impact of entry on United Kingdom sovereignty; it was the impact of entry on parliamentary control of the executive. That is why I wanted a procedure like this to enforce parliamentary control over the executive. We have that. We have the opportunities which are provided by this debate.

No decision can be adopted without the agreement of the United Kingdom Government. This decision has been held up awaiting the decision, the agreement, of the United Kingdom Government. The policy is not decided from Brussels. The United Kingdom Government will decide its own economic policy, though I must emphasise, as the right hon. Member for Battersea, North realises, that this is subject to the constraints to which all national economic decision-making is subject these days.

Mr. Jay

Does my right hon. Friend regard a decision of the Council of Ministers, when adopted, as binding on this country?

Mr. Dell

This decision is binding as guidelines. [Interruption.] I have explained to the House that they are guidelines conveying general policies which emphasise the importance of rectifying the balance of payments problems of this and other European countries. In that sense, yes. But I have indicated the reservations which we shall enter. The United Kingdom Government will decide what is best for this country, and we shall take account of the guidelines in so doing. They will not become a Council decision without the agreement of the United Kingdom Government.

In their amendment, my right hon. and hon. Friends have also raised the question of full employment, and how far accepting these guidelines endangers full employment in this country. Again, I have emphasised that we accept these guidelines as representing no derogation from the full employment objective announced by my right hon. Friend the Chancellor of the Exchequer in his Budget Statement. He emphasised the importance, given our balance of payments deficit, of moving resources into the balance of payments and correcting our balance of payments deficit. Obviously, that has implications not only for the level of employment but for the movement of people into forms of employment which will help us to rectify our balance of payments situation—hut gradually.

This, again, was emphasised as being the policy of the Government. We said that we intended to do this gradually, so as not to impair full employment and, to enable us to do it gradually, to borrow. This is the policy of the Government, and it is in no way impaired by the acceptance of these guidelines.

My hon. Friend the Member for Newport (Mr. Hughes) was afraid that because of the guidelines we should not be able to undertake pump priming, if that was an appropriate policy for the Government. There is no question of the Government's not being able to undertake pump priming if we regard that as appropriate policy at any time.

There has been some discussion about the communication. My right hon. Friend the Member for Battersea, North referred specifically to the communication. I must emphasise that it is not secondary legislation. though, as I said in my opening remarks, it can lead to secondary legislation.

When I made the point about Italy, to which the right hon. Member for Knutsford (Mr. Davies) referred, I was explaining, in view of the statements made by my right hon. and hon. Friends, that here was a case in which the Government might think it right to give their agreement to a decision in a particular situation without the normal process of scrutiny being conducted, but taking account of the views expressed in the debate. I accept from the right hon. Gentleman what I think was his point—

Mr. Spearing

On a point of order, Mr. Speaker. May I move, That the Question be now put?

Mr. Speaker

The hon. Gentleman must wait at least another minute.

Mr. Dell

I assure my right hon. and hon. Friends that I do not intend to talk out the debate. I shall sit down just before 10 o'clock, so that the House may come to a decision. It would be grossly improper to deny the House that opportunity.

I was telling the right hon. Member for Knutsford that we take account of the views expressed in the debate. I think that he regarded the debate as an opportunity to discharge the Government's responsibility in this matter.

I hope that I have dealt with the two matters referred to in the amendment which especially concern my right hon. and hon. Friends. They refer to interest rates and to full employment. I have emphasised the commitment of the Government to full employment policies. This commitment is not impaired by the acceptance of these guidelines. With that assurance, I hope that the House will take note of these documents.

Question put:—

The House divided: Ayes 107, Noes 70.

Division No. 65.]	AYES	[10.0 p.m.
Adley, Robert	Dykes, Hugh	MacArthur, Ian
Alison, Michael (Barkston Ash)	Eadie, Alex	McGuire, Michael
Armstrong, Ernest	Edwards, Nicholas (Pembroke)	Marshall, Michael (Arundel)
Atkins, Rt. Hn. Humphrey (Spelthorne)	Ellis, Tom (Wrexham)	Mayhew, Christopher (G'wh,W'wch,E.)
Bagier, Gordon A. T.	Eyre, Reginald	Mellish, Rt. Hn. Robert
Banks, Robert	Faulds, Andrew	Meyer, Sir Anthony
Barnett, Joel (Heywood & Royton)	Fenner, Mrs. Peggy	Millan, Bruce
Beith, A. J.	Fletcher-Ccoke, Charles	Money, Ernie
Benyon, W.	Golding, John	Morris, Charles R. (Openshaw)
Bishop, E. S.	Goodhart, Philip	Murray, Ronald King
Blenkinsop, Arthur	Gourlay, Harry	Owen, Dr. David
Brittan, Leon	Graham, Ted	Page, Rt. Hn. Graham (Crosby)
Brown, Hugh D. (Glasgow, Provan)	Gray, Hamish	Pattle, Geoffrey
Bruce-Gardyne, J.	Griffiths, Eddie (Sheffield, Brightside)	Redmond, Robert
Buchanan-Smith, Alick	Grimond, Rt. Hn. J.	Rhys Williams, Sir Brandon
Budgen, Nick	Hamilton, William (Fife, C.)	Rifkind, Malcolm
Butler, Adam (Bosworth)	Hampson, Dr. Keith	Rippon, Rt. Hn. Geoffrey
Campbell, Ian	Harper, Joseph	Rodgers, William (Teesside, St'ckton)
Clarke, Kenneth (Rushcliffe)	Harrison, Walter (Wakefield)	Roper, John
Cocks, Michael	Hawkins, Paul	Ross, Stephen (Isle of Wight)
Coleman, Donald	Hill, James A.	Scott-Hopkins, James
Costain, A. P.	Howell, Denis (B'ham, Small Heath)	Shaw, Giles (Pudsey)
Cox, Thomas	Howell, Ralph (Norfolk, North)	Shaw, Michael (Scarborough)
Dalyell, Tam	Hughes, Rt. Hn. Cledwyn (Anglesey)	Shersby, Michael
Davies, Ifor (Gower)	Hunter, Adam	Sims, Roger
Davies, Rt. Hn. John (Knutsford)	John, Brynmor	Skeet, T. H. H.
Dell, Rt. Hn. Edmund	Johnston, Russell (Inverness)	Spicer, Jim (Dorset, W.)
Dodsworth, Geoffrey	Jones, Barry (Flint, E.)	Stanbrook, Ivor
Doig, Peter	King, Tom (Bridgwater)	Stewart, Ian (Hitchin)
Dormand, J. D.	Knox, David	Tinn James
Duffy, A. E. P.	Lawson, George (Motherwell&Wishaw)
Dunn, James A.	Lomas, Kenneth	Vaughan, Dr. Gerard
Dunnett, Jack	Lyons, Edward (Bradford, W.)	Wainwright, Richard (Colne Valley)
Durant, Tony	Mabon, Dr. J. Dickson	Walder, David (Clitheroe)
Walker, Harold (Doncaster)	Whitehead, Phillip	TELLERS FOR THE AYES
Watkins, David	Winterton, Nicholas	Mr. Laurie Pavitt and
White, James	Woodall, Alec	Mr. Ernest G. Perry.
NOES
Allaun, Frank	Jay, Rt. Hn. Douglas	Rodgers, George (Chorley)
Atkins, Ronald	Lambie, David	Rooker, J. W.
Atkinson, Norman	Lamond, James	Ross, Wm. (Londonderry)
Barnett, Guy (Greenwich)	Latham, Arthur(City of W'minsterP'ton)	Sedgemore, Bryan
Bell, Ronald	Leadbitter, Ted	Sillars, James
Body, Richard	Lee, John	Silverman, Julius
Butler, Mrs. [...]oyce(H' gey,WoodGreen)	Loughlin, Charles	Skinner, Dennis
Carson, John	Loyden, Eddie	Spearing, Nigel
Cook, Robert F. (Edinburgh, C.)	MacCormack, Iain	Spriggs, Leslie
Craig, Rt. Hn. William (Belfast, W.)	McCusker, H.	Stewart, Donald (Western Isles)
Cryer, G. R.	McElhone, Frank	Thomas, D. E. (Merioneth)
Davies, Bryan (Enfield, N.)	McNamara, Kevin	Thorne, Stan (Preston, S.)
Davies, Denzil (Llanelli)	Marten, Nell	Tierney, Sydney
Dunlop, John	Mikardo, Ian	Tuck, Raphael
Dunwoody, Mrs. Gwyneth	Milne, Edward	Watt, Hamish
Evans, John (Newton)	Moate, Roger	West, Rt. Hn. Harry
Ewing, Harry (St'ling,F'kirk&G'm'th)	Molyneaux, James	Wigley, Dafydd (Caernarvon)
Ewing, Mrs. Winifred(Moray&Nairn)	Mudd, David	Wilson, Gordon (Dundee, E.)
Flannery, Martin	Newens, Stanley (Harlow)	Wise, Mrs. Audrey
Fletcher, led (Darlington)	Orr, Capt. L. P. S.	Woof, Robert
George, Bruce	Ovenden, John
Henderson, Douglas (Ab'rd'nsh re,E)	Reid, George	TELLERS FOR THE NOES:
Hooley, Frank	Richardson, Miss Jo	Mrs. Maureen Colquboun and
Hughes, Mark (Durham)	Roberts, Gwilym (Cannock)	Mr. Max Madden.
Hughes, Roy (Newport)	Roderick, Caerwyn E.

Question accordingly agreed to.

Resolved, That this House takes note of Commission Documents Nos. R/1253/74, R/1474/74 and COM(74)696.

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1. BUSINESS OF THE HOUSE 23 words