EUROPEAN COMMUNITY (BUDGET)

HC Deb 06 November 1975 vol 899 cc704-63

7.40 p.m.

The Chief Secretary to the Treasury (Mr. Joel Barnett)

I beg to move, That this House takes note of the draft Community Budget for 1976 and Commission Documents Nos. R/2145/75, R/2158/75 and R/2228/75. Four months ago almost to the day, the House had a belated discussion of the 1975 Community budget. We are today at a rather more appropriate moment discussing the draft 1976 budget. This has been the subject of no fewer than three useful reports from the Scrutiny Committee. Perhaps I can take the opportunity at this early stage in the debate to thank its members for the hard work which they have put into scrutinising these voluminous documents in a very limited period of time.

In my opening remarks today I should like to concentrate on three major areas: the nature of the Community budget, the developments at the two Budget Councils in September leading up to the establishment of the draft budget—the document on which we shall be concentrating today—and, finally, the points made by the Scrutiny Committee.

Before moving to the detail of the 1976 budget, I think it is worth restating the nature of the Community budget and its place in the policy-formulating processes of the Community. Despite its name the Community budget, unlike the United Kingdom Budget, is essentially concerned with expenditure rather than revenue. The main function of the Community budget, like United Kingdom annual Estimates, is to agree on the cost of carrying out existing Community policies. When adopted, the budget constitutes authority for expenditure. Revenue enters into the process only in so far as it is necessary to forecast the yield of the Community's own resources from predetermined sources needed to match the expenditure proposed.

The nature of the budget is reflected in the procedures for its discussion and adoption. The Commission compiles the preliminary draft budget on its own responsibilty, taking account of the estimates submitted by the other institutions for their expenditure needs in the forthcoming year. In it the Commission includes all foreseeable expenditure, even on projects which have not yet been discussed by the Council. It does not feel able to put forward a preliminary draft budget which in any sense represents an allocation of priorities.

In the last two years the Council has taken the view when examining the preliminary draft that all items on which there is no Council agreement should be deleted or, if agreement is very close, that provision should be made in Chapter 98. The provision in this chapter is held in reserve and cannot be spent until the Council agrees, after the policy decision has been taken, to its transfer to the relevant operational chapter.

Inevitably, therefore, between the preliminary draft and the draft budget there will be cuts to exclude those items on which there have not been firm Council decisions. In this way, decisions to be taken by other Ministers are not prejudiced by the Budget Council and the provision for new policies can be properly examined in the context of a supplementary budget. It also improves the use of the budget as instrument of financial control.

The preliminary draft budget presented by the Commission, together with the agriculture estimates included in the amending letter—R/2228/75—amounted to 8,058 million units of accounts, or £3,358 million. The Budget Council made cuts in this of 601 mua, or £ 250 million, establishing a draft budget totalling 7,457 mura, or £3,107 million.

These cuts reflect not only the exclusion of these non-agreed items but also the need to exercise financial stringency in the current economic situation. In examining the preliminary draft budget, the Council adopted a declaration to the effect that the economic and financial situation of the member States led it to try to make all possible cuts in the light of the information to hand in September and in the next part of the budgetary procedure to take account of any additional economies, as well as changes in the world economic situation and improvements in policies approved by the Council before the second reading. We shared this general approach because of the overriding need to contain the growth in public expenditure.

The position reached on the major areas for Community expenditure is as follows. The Regional Fund is an area of the budget to which we attach great importance. For the Regional Fund, the budget contains both commitment appropriations, which limit the extent to which the Commission can undertake to provide assistance from the fund, and payment appropriations, which set a limit to actual expenditure in the course of the year. These two limits reflect the inevitable lag between agreement to assist a project and payments being made. The Council accepted the Commission's proposal that the level of commitment appropriations should be fixed at the maximum available under the RDF decision—500 mua. This will enable the fund to operate at full stretch. Fixing the level of payment appropriations involves estimating the amount of money required to meet the fund's commitments.

Because of the time lag between agreement to a commitment and payment being made, approximately 100 mua of the 1975 provision will have to be carried forward to 1976. In view of this, the Council felt that a further 300 mua would be sufficient to meet the payments likely to be made in 1976.

Mr. J. Enoch Powell (Down, South)

The right hon. Gentleman has just referred to 100 million units of account being carried forward. Will he explain whether the system of accounting and control is the same as ours in that sums not expended in one year lapse, or is there a genuine carry-forward under Community arrangements?

Mr. Barnett

There will be a genuine carry-forward. That is why we feel that, with the 300 mua, that will be sufficient. That will enable 400 mua to be available for 1976. In view of this situation, the Council felt that this further 300 mua would be sufficient to meet payments likely to be made in 1976. It accepted that, if payments turned out to be higher than this, a supplementary budget might be required. I want to emphasise that the Council's decisions will in no way hinder implementation of the fund or slow down expenditure.

The Council reduced the Commission's estimated provision for the Social Fund in 1976 by 100 mua. Of this cut 60 mua was in respect of anti-crisis measures intended to assist sectors particularly affected by current economic difficulties. There has been no Council decision in favour of these measures, so, in accordance with the general policy I have explained, this provision was deleted. The Council also decided that a further cut of 40 mua should be made for reasons of general financial stringency.

I need hardly tell the House that we regret this cut in the only area of Community expenditure which is directly concerned with assistance to the unemployed. However, the 400 mua agreed provides a significant increase—24 per cent.—over provision made in the 1975 Budget. The House will also note that the Social Fund falls into the so-called non-obligatory category. This means that the Assembly has the last word on the amount of provision in the budget, and I hope that it will feel able to use its budgetary powers to increase this provision, as it has done in the past.

The United Kingdom is strongly committed to Community aid being granted to non-associated developing countries. The Council agreed to the principle of granting such aid in July 1974, but at the time of the Budget Council meetings decisions had not been made on the methods to put this principle into practice. Again, in accordance with normal policy, this item was deleted at the Council. However, I made it clear that this deletion was without prejudice to subsequent policy decisions of the Council. A statement recording the Council's agreement on this point is in the Council's explanatory memorandum to the draft budget as established. Unfortunately, a subsequent meeting of Development Ministers achieved very little, despite the considerable efforts of my right hon. Friend the Chancellor of the Exchequer.

I come to the subject of agriculture on which there is an amendment on the Order Paper. Finally, on 29th September, the Council discussed the provision for agricultural expenditure. It accepted the figure put forward by the Commission as an estimate of continuing the Common agricultural policy in its present form and with support prices at their current levels. As the House will be aware, we are very concerned with the increase in the cost of the CAP. However, as I have explained, the provision in the draft Budget is essentially the result of a forecasting and accounting exercise. Its purpose is to provide the money to carry out agreed Community agricultural policies.

I would have supported any proposal which would have set a target for a real cut in agricultural expenditure coupled with a request to the Agriculture Ministers to make the policy changes necessary to achieve it, but to cut the provision in the budget without changing the policies would achieve nothing. It would merely necessitate a supplementary budget later in the year to restore the cut. For this reason I joined the other member States in accepting the proposed provision, but I did so only after making clear to the Council that the United Kingdom strongly supported the German desire to make cuts. As I have indicated, making cuts in estimates would achieve nothing. It is the actual policy that needs to be changed. This is being pursued vigorously in the stocktaking of the CAP. I am, therefore, happy to say to my hon. Friends that I am prepared to recommend to the House the acceptance of the amendment, which is worded as follows: in line 2, at end add 'further notes that the proportion of the Community Budget allocated to the agricultural sector has increased to 73.6 per cent. of the estimated expenditure; and calls on Her Majesty's Government to continue its efforts to obtain radical changes to the Common Agricultural Policy'. The Budget Council is not, of course, the forum for dealing with policy.

The FEOGA report for 1974 is another matter on which I should like to say a few words. Before turning to the Scrutiny Committee's reports, I shall deal briefly with the report of the European Agricultural Guidance and Guarantee Fund for 1974—that is, Document R/2158/75, which is included among the documents to be considered in the debate. As well as setting out the main financial facts, the report deals with what the Commission describes as "irregularities". They include mistakes as well as frauds, and, given the complexity of the CAP rules, mistakes are inevitable.

The total number of irregularities which have been discovered is small in relation to total expenditure by the CAP. Nevertheless the Government's view, which I know is shared by the House, is that the subject is an important one. This view is shared by the Commission. During the past two years, with strong support from the United Kingdom, it has intensified its efforts to improve control over CAP expenditure. In October 1973 it set up a special committee of inquiry to examine the possibility of fraud and irregularity in the management of Community funds. Improvements are now in train as a result of the Committee's examination of the milk products sector and the oil seed and olive oil sectors, and the beef sector will next be examined.

On the general question of financial control, the United Kingdom has taken a new initiative. The Prime Minister has asked for financial control to be discussed at the European Council meeting on 1st and 2nd December, when we expect a sympathetic response from member States which are concerned about this.

I turn now to deal with the main points which have been made in the valuable reports by the Scrutiny Committee.

Mr. John Mendelson (Penistone)

Are we to understand that my right hon. Friend's dictum, from which not many will dissent, is that effective cuts in the agricultural policy budget can be made only if a change of policy is agreed, and that the Government are committed to making serious efforts to change that policy? During the next 12 months, where will those efforts be made?

Mr. Barnett

My hon. Friend is absolutely right. There is little point in changing the amount reserved in the budget—which is an estimating procedure—if the agricultural policy remains the same and all the commitments are there. If they are not included in the budget they will have to be provided later. My hon. Friend goes on to ask where we shall pursue changes of policy. That is for the Council of Agricultural Ministers and my right hon. Friend the Minister of Agriculture, Fisheries and Food. The stocktaking procedure is new going on.

Mr. John Biffen (Oswestry)

Is the right hon. Gentleman seized of the point that the elimination of the monetary compensatory payment will significantly reduce the cost of the CAP and also bring greater equity into the position of British agriculture? Would he care to comment on that issue?

Mr. Barnett

It would be better for detailed points to be put to my right hon. Friend the Minister of Agriculture. I am dealing with the budget, and we are discussing the budget estimates. I must leave to my right hon. Friend the Minister of Agriculture the details of how best to cut agricultural expenditure. My right hon. Friend will be concerned with the detail in the Council of Agricultural Ministers. It is perfectly reasonable to leave agricultural matters to the Minister of Agriculture, especially when I trust him to deal with them.

Mr. Biffen

Surely the Chief Secretary has a view on these matters. Are we to understand that the Treasury just sits around waiting to know what will be brought back by the Minister of Agriculture? Every time he returns from Brussels waving a piece of paper and claiming another victory, I put my hands in my pockets.

Mr. Barnett

This is the expenditure budget, and if I were to discuss every item in it I should be usurping the position of every Minister in the Government. I do that from time to time in my position as Chief Secretary, and I am expected to be an expert not only on every subject which involves expenditure but on the detail of every subject. I should be happy to discuss the details at another time, but as we wish to deal with the budget documents which are before us it might be more beneficial to the House if we discussed those documents rather than the details of how we hope to achieve expenditure cuts in FEOGA.

Mr. David Howell (Guildford)

I know that the Chief Secretary is anxious to display before us all the details of the budget. I see his difficulty in not wanting to go into detail on agricultural matters, but it would be of assistance to the House if he could give us the figures of the monetary compensation that is attracted as a result of the increasing disparity in trade rates between the United Kingdom and other members of the Common Market. This is a monetary and agricultural matter and it is important that we should have all the facts.

Mr. Barnett

I shall be happy to give the hon. Gentleman the facts available when I wind up the debate. The monetary compensation adjustments are one reason why in 1975 we shall have net receipts rather than net expenditure, but that is not the only reason. We have done well out of beef this year on the actual figures I quoted, in addition to the monetary compensation adjustments. I shall, with permission, deal with the questions which the hon. Gentleman raised when I say a few words at the end of the debate.

I come to the Scrutiny Committee's report. First, there is the question of the budget timetable. During August I had to tell the Committee that, in spite of pressure from member States, the Commission intended to present the preliminary draft budget in a form which included only dummy figures for agricultural expenditure and to follow this by an amending letter shortly before the Budget Council. This allowed very little time for scrutiny of these documents by member States and the Scrutiny Committee. The Scrutiny Committee in its Third Special Report noted this, and I was able to draw it to the Commission's attention and to have some discussion of the timetable at the first Budget Council. The unsatisfactory nature of the arrangements in 1975 was by then water under the bridge.

As the House knows from our debate in July, however, the question of a revised budget timetable is currently under discussion. I hope that the disquiet expressed by member States this year will have given this some impetus, but the Council is at present awaiting the views of the Assembly.

The Scrutiny Committee also suggested that consideration should be given to the possibility of a new Supply document being provided in the early part of the financial year giving the most up-to-date figures for past and future expenditure. Its purpose would be to enable the House, as well as the Council and the Assembly, to scrutinise more effectively the financial implications of Community policy. We shall, of course, be considering carefully this suggestion of a new document, in the light of the existing information provided by the Community.

The preliminary draft budget documents contain the relatively new development of budget expenditure over the succeeding three years—that is the period 1976 to 1978. This document is also considered by the Assembly and Council, although on a rather different timetable to that for the budget itself. The document provides an indication of expected Community expenditure both from policies already agreed and from those currently under discussion.

Looking to the past, the Commission's annual report on the revenue and expenditure account provides the sort of detail available in the United Kingdom Appropriation Accounts. This document is normally published only when the report of the Audit Board on the accounts and the Commission's comments on them are sent to the Assembly and Council. This can be up to 18 months after the end of the year to which the accounts relate, although both the Commission and the Audit Board are endeavouring to speed this up. However the report on the accounts is made available to member States on an informal basis before then. It is at that stage still subject to amendment but I would propose, if the House would find this useful, to arrange for the document to be deposited without waiting for the Audit Board's report.

Perhaps I may conclude with a final word on the budget. The draft budget incorporating the changes has now been sent to the Assembly, where it is under discussion. The Assembly can suggest modifications to so-called obligatory expenditure and may make amendments to the non-obligatory items within a limit set by the maximum rate. Other hon. Members might be able to give the House an idea of the likely view that fellow Assembly delegates are taking on the draft budget. Their proposed modifications and amendments will in any event be deposited in the House when they are received towards the end of this month. At that stage the Council will meet again to consider the Assembly's proposals before the budget is finally established on or before 5th December. At that meeting I shall take account both of the views of the Scrutiny Committee and of what is said in this debate.

Mr. Deputy Speaker (Mr. Oscar Murton)

I have to remind the House that Mr. Speaker has informed the House that he has not selected the amendment in the names of the hon. Member for Hemel Hempstead (Mr. Corbett) and his hon. Friends. However, I have no doubt that the House will have taken note of the observations of the Chief Secretary about its substance.

Mr. David Steel (Roxburgh, Selkirk and Peebles)

On a point of order, Mr. Deputy Speaker. I distinctly heard the Chief Secretary say that he proposed to accept the amendment that you now say has not been selected. Could you clarify the position?

Mr. Deputy Speaker

The position is quite clear. I said that no doubt the House will have taken note of the Chief Secretary's observations about the substance of that amendment.

8.4 p.m.

Mr. Michael Shaw (Scarborough)

We are grateful to the Chief Secretary for the way in which he has explained fully the broad outline of the budget and the procedure. In the main—and it is right that it should be so—he spoke for the Council, but three institutions are involved in the budget, namely, the Commission, the Council and the European Parliament.

I, too, want to congratulate the Scrutiny Committee for the work that it has done in and out of season, and sometimes when the House was not sitting. I have regarded with amazement the way in which it has got through the backlog of work which it originally had and I am pleased that it is now sufficiently up to date that we can consider two budgets in one year, the last one well after time and this one in time. That is a great tribute to its work.

If we look at the budgets of any institution we can usually tell a great deal about it, in particular its stage of evolution and its objectives. The Community is a young organisation. Its structure and in particular its budget are very much in the development stage. In the main, the European budget is not a policy or decision-making document. Its shape stems largely from decisions already taken, or is a consequence of decisions not having been taken. That may seem obvious, but I hope that the point will become clearer later. At present, it is very much out of balance, as is indicated by the amendment, partly because the agricultural sector takes too large a proportion of the resources and partly because there has been a substantial cutback on other appropriations that were originally included in the preliminary draft budget prepared and submitted by the Commission.

In 1974–75 the agricultural sector took 72.92 per cent. of the total budget. In the preliminary draft budget drawn up this year by the Commission it took 68.16 per cent., which is a drop. We thought that this might be a sign that matters were going in the right direction. However, when the draft was finally approved by the Council, it had gone up to 73.63 per cent., which is higher than last year's figure. I appreciate that these figures are based entirely on round figures and that the Council did not seek in any way to alter the figures originally put in by the Commission, for the reasons stated by it on page 8 of Volume 7 of the documents listed in the explanatory memorandum.

The truth is that this year the Council was determined to cut back on expenditure wherever possible. We understand the reasons for that. In the main, we sympathise with that course. However, I am bound to say that in certain cases it was more a case of the Council making it appear that it was doing so rather than actually doing so. Yet at the same time it recognised that the major item of expenditure in the agricultural sector for 1976 was not capable of being assessed accurately at that time. Therefore, the Council has made no attempt to adjust the Commission's preliminary figures.

The Council has had to look to the other sectors for reductions. There is no doubt that adjustment in the agricultural sector will inevitably be necessary by way of supplementary budgets during the coming year. Even if we accept the general logic of this argument—namely, that it believes the figures put in by the Commission alone because it cannot accurately assess what the changes will be—none the less the European Parliament, of which I have the honour to be a member, confirms that the draft budget gives no indication whatever that the Council is prepared to apply to the agricultural sector the disciplines it applies to the other sectors of the budget.

Mr. Joel Barnett indicated dissent.

Mr. Shaw

From an examination of those other sectors of the budget, two main reasons stand out for the Council's reduction of the Commission's original figures. Perhaps I may quickly run through the summary on page 17 of Volume 7 and pick out the figures more or less as the right hon. Gentleman did. The Council has taken 100 million units of account away from the social sector, as the Chief Secretary so rightly remarked. The reason given for that is that there has been a lack of anti-crisis measures. That is what he said. But what he has not said is whether he thinks that there ought to be anti-crisis measures and, indeed, whether he thinks that there will be anti-crisis measures.

As far as I know, the Commission makes its judgments carefully. The Commission has decided that in the social sector there will be these expenses in the next year. We have not heard one word from the right hon. Gentleman as to why he and the Council feel that the Commission was wrong to think that this money would be required in the next year.

Mr. Joel Barnett

Perhaps the hon. Gentleman did not hear me when I was dealing with this matter. I pointed out that the reason why it was agreed that it should be removed was that there had been no policy decision on the matter. That was the reason. It was not because I was against it, but simply because the Council had not taken a decision.

Mr. Shaw

I was about to say that, and I am pointing to the difference. The Commission has made that decision that this money will be necessary in the coming year. The Council has given no reason why it will not be needed. All it has said is that the decision has not yet been made. I do not think I misquote the right hon. Gentleman when I say that.

The only other point I wish to make is that I believe it right that we should question closely any reductions sought, for whatever reason, in this field at present. I should have thought that expenditure in relation to the Social Fund naturally became more important as the difficulties of unemployment grew. Therefore, we shall watch this matter with care. I know the reason that the right hon. Gentleman puts forward, but I want to bring in that argument later.

Mr. Joel Barnett

It would be interesting for the House to know, and it would help me when I go to the next Budget Council meeting, whether it is the Opposition's view that we should increase this sort of expenditure to help with unemployment.

Mr. Shaw

I think that when the amendments come out next week the right hon. Gentleman will find that they will be dealt with in very great detail in the European Parliament. However, what I am trying to say is simply this. The Commission has said that in its view this expenditure is necessary. I should like to know at what stage the Council will say that the Commission was wrong in coming to that conclusion, for whatever reasons, and I should like to have the reasons spelled out. However, for the moment the Council has delayed its decision, and I shall discuss that later.

Again, the Regional Fund has been cut. It has been cut back in payment appropriations by £150 million on the ground that this sum is not likely to be paid in 1976. Here again, this is something that in the European Parliament next week we must probe very closely. In the Budget Committee I have probed the Commission as far as I have been able.

I am bound to say that I am far from satisfied that the Commission genuinely believes that its original estimate of requirement for 1976 is wrong. It may well be that the Council genuinely believes that that is the case, but in looking through these cuts I have been led to feel at times, knowing the general desire for cutting, that it would be convenient if the actual payment appropriations were at this stage to be at the lowest possible figure, and got through with a measure of agreement, and then the supplementary budgets were allowed to look after themselves at a later date.

Again, we have the cuts in the research, technology, industrial and energy sectors. I am no expert on these matters. Hon. Members here and elsewhere will doubtless have much to say about these cuts. But it is a fact, as I have been told, that the cuts envisaged endanger projects that ought to be treated on a multi-annual basis rather than on a stop-go basis Indeed, in certain sectors it appears that very skilled staff will be paid and budgeted for this year, but that no budgeting has been made to pay for any work for them to do. Therefore, here again, I suspect, we may well see some form of supplementary budget coming into operation.

Again, applying the Committee's rule, the aid given for the development and co-operation sector, the aid to the Maghreb countries, Malta and the like, has been cut out for the time being because negotiations have either been halted or are still proceeding. It is worth noting that already finality is being reached in certain areas, even as recently as after the draft budget, with the result that we are already up to date. If that is so, it means that it must have been known fairly accurately that this money would be spent in 1976.

I have spent some time on this matter because I believe that out of an examination of these figures, however briefly one looks at them, come two main reasons for the cuts. The first is that no final decision has yet been taken by the Council. If one is to accept that method of working, one ought to be told whether the Council feels that the appropriation is almost certain to be required. The other reason is that the sums provisionally appropriated are unlikely to be spent in 1976, and yet we are given the assurance, certainly on the Regional Fund, that a supplementary budget will be introduced if that proves to be necessary.

It is clear that there will be several substantial supplementary budgets in 1976. It is the view of the Parliament, expressed in the general debate on the budget last month, that the rôle of Parliament is being turned into that of an accountant rather than that of a politician. I agree with that view, although I took exception to it. Speaking quite impartially, and treating the right hon. Gentleman entirely as, as I am myself, a member of that worthwhile profession, I protested about the misuse of the term "accountant", because, as I explained, an accountant must give a true and fair view when he presents his accounts. Sadly, I was bound to say that my experience of Budgets, which goes back for a number of years, is that if accountants presented their accounts in the same way as politicians so often present their Budgets, accountants would spend much of their working life in gaol.

I am glad to see that that had some reflection yesterday, because I note from a Press release from the European Parliament that the reference now is to a budget for cashiers, not to a budget for accountants. I think that our comments have been met. This leads me to say a few words, as the right hon. Gentleman did, about the procedure and the whole system of budget making.

Mr. Ken Weetch (Ipswich)

Before the hon. Gentleman starts to give an analysis of procedures, may I direct his mind to a simple point? During our lengthy arguments in the House, first on entry and then on remaining in the Community, we were promised that we should make some progress on reducing the proportion of the budget spent on agriculture and that we should make progress towards securing an increased proportion of the budget being spent on regional expenditure. In this set of figures that has not been achieved. Nor does it appear to be the trend that we shall achieve it in the near future. Therefore, does not the hon. Gentleman look at these accounts with complete dismay?

Mr. Shaw

The Chief Secretary pops up in considerable dismay on frequent occasions. I can only say that I regard these accounts with complete dismay, but I am not a member of the Council. In the European Parliament we shall be raising criticisms of the accounts. One of our criticisms will be on the agricultural sector, because we believe that it takes up too much money.

I have also been questioning the amounts of cash needed next year for the Regional Fund. I do not believe that the amount that the Council has put into the draft budget is enough and next year there will have to be supplementary budgets for this sector. Progress is slow. We could be making progress in these directions, but at present we are not making the progress we should be making. There will be great criticism of the failure to touch the agriculture sector when we meet next week. I promise the hon. Gentleman that, because I have seen a number of amendments and there have been lengthy discussions in the Budget Committee and I have seen what has come through from the other committees.

I agree entirely with the Chief Secretary that supplementary budgets are necessary at times. The question is when they are necessary. I believe that they are necessary only for the unforeseeable and the unavoidable. In many cases the Council may argue, as it has argued, that it must not be inhibited from making a final decision because something has already gone through the budget. As the right hon. Gentleman has admitted, there are ways round this—by means of putting funds into the reserve sector, namely, Chapter 98, or even by putting them in and then blocking them, which seems to be a new procedure being adopted. Therefore, the Council's right to withhold its final decision can remain intact, but still the full sums which are foreseen as being spent in the coming year can be put in.

What is more, this is in accord with the Treaty itself and also with the Financial Regulation. Article 199 of the Treaty states: All items of revenue and expenditure shall be included…in the Budget. Article 1(1) of the Financial Regulation states: The Budget of the European Communities is the act which makes provision for and authorises the expected revenue and expenditure of the Communities. In other words, it is envisaged that we should estimate as closely as we can the expenditure in the coming year and set against that the revenue and the resources to pay for that expenditure.

I believe that is the right approach. I know that the Council does not agree with that. The Commission disagrees with the Council. The Treaty disagrees with it. The Financial Regulation disagrees with it. The European Parliament disagrees with it. Indeed, on occasion in the past even the Council itself has disagreed with it.

We believe that the budget should consist of as accurate an assessment of the year's expenditure as possible, and that should be set against a statement of how the funds to meet that expenditure are to be provided. Such a statement in no way inhibits the Council's final decision making. If it has not given formal approval to a project at the time of the budget, it can make temporary provision either into Chapter 98 or the line can be blocked. Then, if approval is given finally, the Council can make a transfer to the appropriate chapter.

The fact is that as we move towards "own-resources" financing and particularly to the final system through the use of VAT, the system of having several supplementary budgets during the year will become intolerable, for clearly no one will want to initiate frequent changes within the VAT rate. That is too big a subject for this debate. I merely want to state that the basis of budgeting I am putting forward is made extremely difficult by the fact that the largest entry, namely, the agricultural entry, will always be incapable of exact estimation so far ahead of the year itself. That makes the whole forecasting business a bit of a farce.

I believe that we shall move into the "own-resources" system, perhaps later than sooner, but eventually it will come to pass; and so we must try to budget accurately at the beginning of the year for the expenditure and then subsequently for the revenue. If we are to do that, not only have we to reduce the amount of the agricultural demand on the budget, but we must consider moving the EEC financial year to a date beginning after the agricultural review in the spring. I shall not go beyond stating that as a matter for thought.

I want finally to say a few words about the financing control of the EEC expenditure. The Budget Committee is consulting the Commission closely with a view to changing the Financial Regulation—first with regard to the budget, for example in distinguishing between commitment and payment of appropriations. In some parts of the budget there is that distinction. In others it is still to be made. We are agreed that such changes will be made in time for next year's budget.

Secondly, consultation is taking place with regard to increased parliamentary authority over such things as the carry-forward of appropriations from one year to the next and also the transfering of sums from one sector of the budget to another. At the moment, we have little or no power in these matters. It is a farce, bearing in mind the increasing authority we are acquiring in other sectors.

We are now to have a much-needed audit court by a change in the treaties. When does the right hon. Gentleman think that it will be set up? When does he think the changes will be ratified by this country? I believe that the court is the single most necessary new arm of enforcement that needs to be set up. We in the European Parliament must, in addition, continue to press for some form of public accounts committee, as the European Conservative Group has been doing for several years.

We are working hard in the European Parliament to try to play our proper rôle in the scrutiny and amendment of the budget, but the time factor is probably still the biggest single hurdle we have to overcome. I was glad to hear the right hon. Gentleman indicate that he, too, had a full realisation of that problem. I hope that we shall be able to make changes which will at any rate ease the situation next year. In having this debate today, in time for the final debate in the European Parliament, we have achieved a success which some of us, when we debated last year's budget, doubted was possible. But we have achieved it and the credit goes to the Scrutiny Committee and I again congratulate it.

We welcome the chance of hearing the views of hon. Members. We shall be able to take those views with us next week to Luxembourg, where the detailed debate will be held in the European Parliament and a vote finally taken next Thursday.

8.32 p.m.

Mr. Robin Corbett (Hemel Hempstead)

My right hon. Friend the Chief Secretary to the Treasury, in his usual generous way, said some very kind things about the amendment. He would if he could and would that he could, but he cannot, but he does in principle. I know that in making those observations he was paying lip service not simply to the words of the amendment but to the spirit and content. When the armoured car sets out for Brussels to try to persuade these people of the changes needed in the common agricultural policy, some of the passengers may want to divert via Damascus to put the final seal on their conversion, because they were standing here six months ago saying that by and large everything in the garden of the CAP was lovely and that the effort had to be made on a continuing basis.

I regret that Mr. Speaker did not feel able to call the amendment, which would have added these words to the motion: 'further notes that the proportion of the Community Budget allocated to the agricultural sector has increased to 73.6 per cent. of the estimated expenditure; and calls on Her Majesty's Government to continue its efforts to obtain radical changes to the Common Agricultural Policy'. Hon. Members have mentioned that 73.63 per cent. of the Community budget goes in this way. My constituents do not shop in percentages. Shopkeepers have an annoying habit of demanding cash. Of each £1, for example, 73.63p goes into this part of the Community activity. Some of it is paid by our taxpayers. It is a lot of money.

I was interested to hear the hon. Member for Scarborough (Mr. Shaw) tell us that this budget provision had started out at 72.92 per cent. and this had then been reduced but that the reduction had turned out to be false and we are therefore back to the figure of 73.63 per cent. We are entitled to ask what we get from the CAP for this massive amount of money. The obvious results are mountains of this and lakes of that resulting from the gross incompetence of large sections of the agriculture industry in the Community which leads to inefficient overproduction.

There are two reasons why radical changes are needed in the CAP. The first reason will probably not please the Opposition, but in the haste of the last Conservative Government to take this country into the Market behind the backs of the British people they not only failed to negotiate proper arrangements for agriculture and for changes in the policy, but did not even try. The principles of the policy were accepted root and branch. The Conservatives did not even make an attempt to negotiate long-term arrangements for our own agriculture industry, let alone negotiate on other matters included in the policy. If an attempt had been made at that time, it would have forced the pace of change in the policy.

The second reason—I think that my right hon. Friend the Minister of Agriculture sometimes does not pay enough attention to this point—is that a policy designed and constructed to fit the needs of six nations is now being pulled and stretched like an out-of-shape cardigan over the heads of nine nations, three of which are among the largest and most efficient food producers in the world. We go on pretending that the basic principles and practices of the policy can be extended to fit round the necks of these nine nations. There are other reasons why changes are needed and not only on grounds of cost, waste and overproduction.

The present policy takes little or no account of our growing need to plan for the world's production of food and to maximise our production so that no one in the world need go hungry. That is hardly taken into account, yet surely the principles of an agricultural policy should include the production and distribution of food.

The policy is wasteful of money and misuses it. It attempts, through the agricultural sector, to deal with deep-seated social problems which are no part of the Community's agricultural sector. For example, the man and wife with half a hectare on the outskirts of Stuttgart where the son works in industry and comes home to help out at the weekend are confused with farmers. Those people are more like allotment holders in this country. There is a vitally important social problem of millions of people in this position, certainly in West Germany and France. Why are these problems being loaded on the back of the agricultural sector?

Mr. James Scott-Hopkins (Derbyshire, West)

The hon. Gentleman has made many inaccurate statements, but he must not be allowed to carry on with the one he is making now. The whole policy and price mechanism is geared to the modern farm. It is laid down quite clearly in the policy that it does not include someone with half a hectare or even two hectares.

Mr. Corbett

The hon. Gentleman must not accuse me of misstatements just because he does not agree with me. I do not accept what he said, and I thought it was generally agreed that we needed to improve the efficiency of the policy.

In its operation the CAP is fundamentally anti-consumer. It positively encourages inefficient overproduction and then forces the consumer to pay, not once but twice. It uses the money of the consumer as a taxpayer to foot the bill for intervention buying to keep prices artificially high. I understand the reasons for that from the producer's point of view, but I am considering the effect on the consumer. The consumer then pays over the counter the second time the prices which are kept artificially high. The policy denies the consumer the benefits of a good harvest or a successful period of production.

If the British people had understood before 5th June what the real cost of this policy was, I doubt whether the outcome of that referendum would have been the same. How many of those millions who were wooed into voting "Yes" knew that they were voting for this massive amount of expenditure on inefficiency and expensive extravagance? However, the votes are cast and that argument is over. Our job now is to encourage the Government to force radical changes in the CAP to make it work for the benefit of efficient producers, consumers and the hungry world.

I am at least glad that the amendment, as well as having the blessing of the Chief Secretary, has the support of my right hon. Friend the Minister of Agriculture. He told the House on 17th October: First, there is the fundamental need to ensure that, while providing efficient producers with a reasonable assurance, the CAP avoids imposing excessive burdens on either consumers or national or Community budgets. He went on to say: I welcome the Commission's recognition that the costly accumulation of wasteful surpluses must be discouraged. He then said accumulating mountains or lakes of unwanted produce is just not sensible".—[Official Report, 17th October 1975; Vol. 897, c. 1721–23.] If our urgent need is, as I believe it to be, to maximise our own food production, we must ensure that radical changes are made in the CAP which allow that to take place. We will neglect the expansion of our home agriculture literally at our peril. I therefore ask my right hon. Friends to accept the intent and purpose of the amendment and try to put real steam behind the efforts needed to make and secure major revisions in that policy.

8.43 p.m.

Mr. Peter Mills (Devon, West)

I welcome the opportunity to speak in the debate because I am a member of the Scrutiny Committee. We reported that this matter raised questions of political importance and that it should be further considered by the House.

There are not many hon. Members present to consider what we call a matter of major importance. The House certainly seems to have tremendous faith in our Committee. It is quite happy to let us get on with the work. Even when we report something as being of political importance, few hon. Members come to put their views to us in debate. It is possible that we are making terrible mistakes and that we are not reporting the matters which are of political importance.

It seems to me that the House of Commons is quite happy to leave the work in our hands. I only hope that when something has been reported and the House has not really taken note of it, we shall not be blamed for not making a little more noise about this important problem.

I may be ruled out of order, Mr. Deputy Speaker, but I should like to take up one point raised by the hon. Member for Hemel Hempstead (Mr. Corbett). His bark really is worse than his bite. He is quite a decent fellow, actually, when one gets to know him. If I may say so, he speaks an awful not of nonsense in the House, but outside he is quite reasonable. He has talked about artificially high prices. It is true that there are one or two commodities in regard to which this is true. All that I ask him and the House to consider is that there has to be a price which will cover the cost of production, otherwise the food will not be produced.

There are instances of this where people are going out of production because the price they are getting does not cover the cost of production. The hon. Member must not exaggerate on this. He talked about milk mountains. It is not milk but skimmed milk powder of which there is a surplus. It is the by-product, the waste product, of butter production.

Mr. Corbett

With great respect, I did not mention a milk mountain.

Mr. Mills

Well, a lake, then.

Mr. Corbett

No.

Mr. Mills

With great respect, the hon. Member did. He ought to get his facts right.

It is easy to criticise the Community budget machinery and the proposals that have been made, but the EEC has very real difficulties. I am not condoning it but am simply emphasising that there are very real difficulties. The whole business is enormously complex. Once a mistake is made it can become a very big one. It can grow and grow. Sudden changes of policy by Ministers involve increases in expenditure. One of the great problems is the sudden change of policy resulting from political pressure. This again means that expenditure is increased very rapidly.

I hope that the House will try to be constructive. There are hon. Members who are still opposed to our being in the EEC. It seems as though the battle is still on in their minds. I hope that hon. Members will at least try to be constructive in their criticisms of these budget proposals. It is very easy to be destructive. I hope hon. Members will be constructive so that we can try to solve this problem.

I now turn to ground on which obviously I am very shaky. I refer to the supplementary budgets. We have had a brief from the Chancellor of the Exchequer. May I say that the briefs we receive are, in my view, improving compared with those that were originally produced. All Ministries are now providing much better briefs than we had in the past. The brief provided by the Chancellor of the Exchequer spoke of token entries. It pointed out that an alternative technique for achieving much the same thing is to introduce a supplementary budget once the policy has been agreed by the Council of Ministers.

I am happier with a supplementary budget than I am with a token entry. I take it that the Chief Secretary to the Treasury agrees with me in this, but I am not too sure. If there is a supplementary budget, once the policy has been agreed with the Council of Ministers, at least this can be looked at, scrutinised and checked. I am in favour of a very tight original budget and then a supplementary one later on.

I turn to the effects of the Council's examination, and I begin with the Regional Development Fund. While I am all for pruning where we can, that is one fund that I believe it is important not to prune, because if we get the regional structure right, which I imagine is what the fund exists to do, we shall no longer have the problems that there are in agriculture in some of the more remote areas. If alternative work is provided, small farmers will not go on producing the floods of milk that have been mentioned, the wine, the olives and so on. I am very much in favour of having the fund working, so that there is alternative work for people in the more remote and difficult areas where they have nothing else to which to turn. I believe that if the regional policy were right the Agricultural Guidance and Guarantee Fund could be reduced. Accordingly, I am a little concerned that the Regional Development Fund has been cut.

Mr. Biffen

I shall be grateful if my hon. Friend can clear one doubt in my mind. In relating the growth of the Regional Fund to a subsequent diminution of the Agricultural Fund, is he assuming that one of the consequences of the growth of the Regional Fund would be that it would be largely spent in those continental European countries whose agricultural structures are giving rise to the surpluses which exercise him?

Mr. Mills

My hon. Friend has more than just one doubt in his mind. But that is just what I am trying to say. That is the very point. I do not want to see the Regional Fund or the Agricultural Fund grow and grow. I believe that if more attention were paid to the Regional Fund, the Agricultural Fund could be reduced.

Mr. Biffen

My hon. Friend makes a very important point, and we should all be grateful to him for his clear elaboration that the growth of the Regional Fund is not to the advantage of the decaying industrial parts of Britain but is to the advantage of reforming continental agriculture.

Mr. Mills

Yes, although I believe that certain parts of this country could benefit very much from the Regional Fund, particularly as regards agriculture.

Mr. Frank Hooley (Sheffield, Heeley)

Will the hon. Gentleman explain how there can be any possible incentive to farmers to leave unsatisfactory agricultural activity under a prices system which guarantees them masses of money, even if they produce food that nobody wants?

Mr. Mills

I do not agree with the hon. Gentleman. It is as simple as that. The point I am putting needs to be considered carefully. Otherwise the Agricultural Guidance and Guarantee Fund will grow and grow, as will prices or the returns to the farmers. Agricultural expenditure must be watched. But the real problem that I see as I look at the CAP is that in many ways not enough discipline is exerted on the farmers. If they had to experience the same discipline as British agriculture experiences through—to give just one example—the Milk Marketing Board, there would not be the floods of milk about which some people are talking. Through the Milk Marketing Board, discipline works back to the farmer because he, too, has to pay for milk promotion and the allocation of milk for particular production—butter, cheese or cream. However, it seems to me that in the Community farmers simply produce milk, and that is the end of it. It is left to the taxpayer to pick up the bill. However, in this country, through the Milk Marketing Board, a real discipline is exerted on the producer. I want the producer to start to pay for the promotion of his product in the CAP.

My hon. Friend the Member for Oswestry (Mr. Biffen) was absolutely right when he referred to monetary compensation amounts. I believe that there would be a real reduction in the total cost if we started to get the monetary problem right.

It is easy to criticise the CAP. Mistakes have been made, and the CAP should be adjusted. I have always thought that it should be flexible and should change to meet the needs of the time. There must be the most direct auditing and accountability throughout the whole system. That is an area in which things have gone wrong. The controls should be strengthened. If those who are so critical of the Community and of the CAP in particular would press for much stricter control—this is why I like the idea of a public accounts type of committee—I believe that we should be on the way forward. In any event, if we have a sort of scrutiny committee at least we shall know that these matters are being carefully examined.

Mr. Bob Cryer (Keighley)

If the hon. Gentleman examines page 7 of the voluminous document which I have before me, he will see that in 1973 a special committee of inquiry was instituted to investigate the private enterprise in which various farmers indulged. He will see that in 1974 they still managed to get away with about £2 million by defrauding the Common Market through the various networks involved in the movement of food. Is the hon. Gentleman suggesting that yet another layer of bureaucratic scrutiny should be added to that which already exists?

Mr. Mills

I believe that strengthening is important. I am not skilled enough to understand how it should be done, but I believe that something on the lines of a public accounts committee would be the right way in which to proceed. At least we would know that someone was examining the matter. Of course, £2 million is not all that large a sum given the size and scope of the CAP. Wherever there are subsidies, there will be people who will get away with something by various means. That does not mean that we should not examine the situation carefully. I hope that those who are still opposed to the Community and the principle of the CAP will start to bring forward more constructive arguments and proposals so that we may try to get this matter right.

8.58 p.m.

Mr. Ken Weetch (Ipswich)

First, I thank the hon. Member for Scarborough (Mr. Shaw) for his courteous answer to my intervention a short time ago. The hon. Gentleman said that, bearing in mind the proportions in the budget, we had not done very well as yet, but that we were hoping to do a little better. I think that that was his reply in a nutshell. I sincerely hope that we all do a little better. The figures may alter, but the proportions will not alter significantly unless the principles change.

We must examine the figures in the budget relating to the CAP and see how they operate. The figures have not been conjured out of the air, although I sometimes think that I may be wrong in that view. The figures arise from the structure of agricultural support.

The hon. Member for Oswestry (Mr. Biffen) said that when a Minister came back to the United Kingdom to announce a victory, we all had to put our hands in our pockets. The hon. Gentleman speaks for many of us in taking that view. I look with dismay at the proportion of the budget spent on agriculture compared with the amount spent on regional development.

I ask whether this budget shows any strong indication of improvement. I have my doubts. I speak as somebody who was a dedicated opponent of our entry into the EEC and indeed of our remaining in it, but I do not regard it as right to fight those battles over and over again.

Mr. Powell

Why not?

Mr. Weetch

Because we went into the EEC by a sizeable majority, I would agree with the hon. Member for Devon, West (Mr. Mills) that as responsible people we should scrutinise these accounts and seek to analyse their consequences.

We were promised progress towards reducing the proportion of the budget spent on agriculture. Perhaps there was an element of wishful thinking on my part, but I regarded that as an encouraging prospect. I now see my hopes dimming, because the reverse is proving to be the case. We have made little progress in this direction and the situation is moving increasingly to our disadvantage.

Roughly 3 per cent. of the working population of Great Britain are engaged in agricultural work compared with a figure of about 10 per cent. of the working population engaged in agriculture on the Continent. How should we seek to reconcile that disproportion within a common structure of accounting? So far we have been out-manoeuvred in the discussions and in diplomatic moves centred on the structure and trend of the accounts.

We can see the political pressures at work. European farmers are encouraged by the present structure to create surpluses. In a system where there is an administrative rather than a market price, sometimes the figures are right and at other times they are wrong. It is true to say that the figures are more often wrong than right. Whatever the disadvantages of the old deficiency payments scheme, there was a market price on which to hang agricultural support. There was at least a market indication but, as the accounts show, that does not happen now.

I turn to page 6 of Volume 7, which is the explanatory memorandum, in respect of administrative and operating expenditure. I wish to refer to that document because one factor related to it fundamentally affects a small firm in my constituency. We see from that document that the administrative expenditure has increased by 21.14 per cent. and that expenditure on intervention will increase by 19.59 per cent. It is evident that the trend is in the wrong direction.

I want to focus my remarks on some of the administrative expenditures arising from the intervention appartus. There should be a cost-benefit analysis of this, although I shudder to think what it would reveal. Part of the costs are never revealed in a budget statement of this sort. Some of those costs accrue to many small firms in this country, at least one of them in my constituency.

I have frequently heard Conservative Members talk about small firms. I am a supporter of the small firm and the enterprise that often arises from it. In my constituency there is a small firm of ships' chandlers. It supplies and purveys food to vessels in Ipswich Dock. It is directly concerned with the Intervention Board and all of its costs. It is a three-man firm, industrious and enterprising. The three directors came to me to complain in some despair about the Intervention Board and all its works. If the firm buys butter at a given price to sell to the ship at a given selling price for stores, it tries to adjust the selling price to the cost price to make a small profit.

Before doing this it has to negotiate a well-laid minefield, brought about by some of the workings of the Intervention Board. There is either the monetary compensating amount or the levy, which can vary from week to week. The levy figures can be obtained by telephoning the Intervention Board at Reading. This firm has to make extensive telephone calls to discover the figures, which sometimes run into four or five decimal points.

The firm must run the whole gauntlet of administrative expense. It is faced by a complex of codes and a mountain of invoices, all in separate envelopes. One great pile of documents, which had been processed by a computer, was opened by a director before me. It was like a great, elongated concertina. I had thought that butter was a simple commodity. I am a consumer who buys butter over the counter. I know now that it is not quite as simple as I thought.

Let us suppose that this firm has a packet of biscuits, which is purveys to the vessel in Ipswich Dock. There is a different levy, or monetary compensating amount, on most of the elements that go into the packet of biscuits—or a tin of soup or packet of this or that. There are separate figures for each. The hilarious climax to this is that once the firm tries to calculate its transactions and estimate the profit it will make, it cannot discover until weeks later what the balance will be between the levies and the monetary compensating amounts. The firm does not know whether it will hand out more money or receive money. It is a nightmare for a small firm. I am told that by comparison VAT is mathematics for Noddy.

I was informed of the difficulties encountered in running a small business and of the need for the Intervention Board to make adjustments. I explored the literature of the Intervention Board in the Library. Some of our researchers in the Library have their work cut out to keep up with it. That being so, how can we expect a small business, which is flexible and operating from day to day, to keep up with it? The answer is that it cannot do so.

I feel strongly about this matter. Before arriving at a significant alteration in the structure of these accounts, we must produce a great deal of determined effort. I hope that we shall fight with the gloves off, as that is what the other Community members do when they use their slide rules to calculate what is to their national advantage. I hope that we shall hold our own.

9.12 p.m.

Mr. J. Enoch Powell (Down, South)

There is an atmosphere of bewilderment in what there is of the House tonight on finding itself confronted by something that is called a budget and that is so unlike all habitual assumptions connected with the word "budget". The Chamber ought to be crowded to suffocation. There ought to be the odd top hat here and there. The Galleries should be full to the roof.

The hon. Member for Devon, West (Mr. Mills), not unnaturally, took it amiss that, after the work done by the Scrutiny Committee, when the budget came before the House in a three-hour debate, there was such flaccid interest in the whole matter. The Chief Secretary, in almost his first words this evening, placed his finger upon the difference between this budget and our Budget, which we would be tempted to call a real Budget, when he said that our Budgets were about taxation, and this budget is about expenditure. There, indeed, lies a much more profound difference than perhaps he was conscious of when he said that.

A Budget for us is the debate upon Ways and Means resolutions. It is a debate upon the granting of taxation and the assent to taxation. Although that may be elementary textbook stuff, Parliament—as we understand Parliament—is still inseparable from the granting of taxation by the representatives of the people.

There are certain references in these documents to revenue and to where the money will come from. But the taxation that underlies it is not to be granted in this House. I think that I am right in saying that it will not enter into any of the Estimates that we shall pass. The doors of the Consolidated Fund are open by statute to whatever wagons may be driven through them by the European Economic Community.

The taxation will not be granted by the Assembly or European Parliament either. The hon. Member for Scarborough (Mr. Shaw) spoke with some exhilaration about taking the views of the House this evening upon the budget and then putting those views forward in that great democratic assembly that from time to time he attends. But that assembly does not grant the taxes. It has nothing to do with the revenue. It has no control of the revenue. So we look elsewhere.

Ex hypothesi, of course, the Commission does not grant the taxes. Who does? Roughly speaking, no one does. If anyone can be said to grant the taxation, I suppose that it is the Ministers collectively assembled in the Council of Ministers who resolve upon the policies that result in the expenditure automatically financed under the treaty structure of the EEC. So the essential basis, the procedure, from which all our liberties in this country and all our powers in this House have grown, is non-existent, by nature and by principle, in the EEC.

For that reason, it is idle to talk of controlling expenditure. In the last resort, the expenditure, whether it be of a king, oligarchy, or whoever it is, is made possible by those who grant or withhold the taxes. That is how our power in this House grew. It is idle to talk about the Government placing their stamp upon the expenditures of the Community, it is idle to express aspirations for altering the percentage of one type of expenditure and another, when the essence of budgetary power is, by definition, lacking. All that it will resolve into is a haggling match in the Council of Ministers. That is not budgetary control. That is not control of expenditure and therefore of policy as this House knows it and understands it.

But perhaps someone will say "You wait until 1978, my boy, or perhaps a year or two later. You wait until there is an elected assembly. You wait until the European Parliament is directly elected. Then all that you aspire to will presently be realised."

This House will do a great deal of introspection about parliaments, elected assemblies and legislatures in the course of the coming months. I shall oppose it, of course; but, for the sake of hypothesis, let the European Assembly or Parliament be directly elected. It will get not a whit more power unless it can subvert the entire constitution of the EEC. It will get not a whit more genuine power or control of expenditure unless the elected European Parliament is to be, as this Parliament was in the thirteenth, fourteenth and fifteenth centuries, an assembly that is summoned, because without it, the Commission cannot get money, because it alone has the power to grant taxes, as this House did in those times at the request of some sovereign.

I do not know whether it is the intention, with an elected Parliament, that it shall grant the taxation. I do not know whether the budget of the Community is to be subject to the grant of taxation on an annual basis by that elected Parliament. I suspect it will not be.

As for expenditure, we read that the Assembly may make modifications to proposals. I do not know whether those modifications include proposed increases in expenditure—

Mr. Biffen

Yes.

Mr. Powell

They do? All the better. If those modifications include increases, that is not parliamentary responsibility: that is parliamentary irresponsibility. That is a proposal for expenditure by those who will bear no responsibility for the manner in which that expenditure is financed.

The linguistic charade of equating with the institutions of the Community the institutions we know and talk about in terms of Parliament, Budgets, representation, Supply, and Ways and Means, is mere mystification. There is no reality behind it.

I am disappointed that neither the hon. Member for Hemel Hempstead (Mr. Corbett), to whom we owe the excellent and welcome amendment on the Order Paper, nor the gallant—though not in the parliamentary sense—hon. Member for Ipswich (Mr. Weetch) seems prepared to follow his argument to its consequences. They say that now that the referendum is over, we have to accept that the United Kingdom is a part of the EEC and do our best with it.

But the point about the EEC is that we cannot do our best with it. It is totally incompatible with the fundamental notions of the British people about democracy. It is totally incompatible with anything that is within the comprehension of this House in terms of control over the executive. It is a monstrosity that is autocratic, bureaucratic and undemocratic by its very constitution and nature, and that constitution and nature will not be altered in 1978 or thereabouts by direct elections.

I protest against the idea that seems to be growing up that the electoral mistake we made on 5th June this year is irreparable. We have made electoral mistakes before, but they are all repairable. This one is repairable, too, but, as with other electoral mistakes, a little course of practical education for the electorate is necessary.

I suppose that these dreary proceedings tonight—I mean no disrespect to anyone who has taken part in them, including the present speaker—are a tiny morsel of the remorseless process of education that will result in that electoral disaster, like other electoral disasters that have gone before, being recovered and reversed.

9.23 p.m.

Mr. David Steel (Roxburgh, Selkirk and Peebles)

I hope that the right hon. Member for Down, South (Mr. Powell) will forgive me if I come back a little later to his remarks. I wish to raise only two matters, neither of which was touched on by the Chief Secretary.

The first is the diminution in the draft budget of the amount allocated for disbursement by the Regional Development Fund. It is referred to in the documents. I am concerned that between the provisional draft budget and the draft budget the amount has been changed from 450 million units of account to 300 mua. That is explained in the explanatory memorandum as reflecting the Council's estimate of the rate at which the Commission will be able to disburse the funds at its disposal and the likelihood of substantial funds remaining unspent at the end of 1975.

Representing as I do one of the development areas, I am concerned that the fund should have been extremely slow in getting off the ground and that there should be sums remaining unspent after 1975. I want to explore the Chief Secretary's mind on this question because I hope that it is more a legacy from 1975 than advance thinking that in 1976 the fund will not get going under full steam.

In the development areas, as elsewhere in the country, unemployment is rising, there are great difficulties and the fund should be a source of great assistance to us. I hope that the Chief Secretary will tell us why so much was unspent in the last year and that he will reassure us that the full impetus of the Government in the Council of Ministers will remain behind the purposes of the Regional Development Fund.

Are we satisfied that the applications are coming in fast enough and that they are plentiful enough? When I spoke with members of the Commission in Brussels some months ago, I was left with the impression that they would welcome true administrative devolution to Scotland, in advance of whatever we may decide here, in the sense that applications should go direct via the Scottish Office to the Commission and not through the Department of Industry in London.

Since then some responsibilities have been shifted from the Department of Industry to the Scottish Office. However, I hope that the Scottish Office will play a part in this. I have said before and I say again that, in advance of legislative devolution, there is no reason why the Scottish Office should not have even now the kind of liaison office in Brussels which the German Federal State already has in that city.

Mr. Cryer

The hon. Gentleman, like several other hon. Members, keeps talking about the Regional Development Fund as though it will assist the regions. Is he aware that the criteria for the application of the Regional Development Fund have nothing to do with the criteria that we might apply in this country but are based on those of economic and monetary union? Those criteria, which will be decided in Brussels, may be totally different from the criteria which he and I might well apply to the regions in this country.

Mr. Steel

The hon. Gentleman is right in the sense that the Commission has not drawn the map as we have done and delineated what is and what is not a development area. It does not recognise the democratic policies as we do. I accept that. I am concerned that the Government are interpreting the Regional Development Fund as a source of revenue which will relieve them of some of their responsibilities in the development areas. This is a matter of great concern to those who expected, as the hon. Gentleman did, the Regional Development Fund of the Community to be an extra source of finance, and that, although it would not be administered in quite the same way domestically, it would be of general assistance to industry.

I hope that the Chief Secretary will be a little less ambiguous than other Ministers have been on this issue at Question Time and will tell us how the Government propose to spend the allocation of money from the Regional Fund. In a sense, as a member State we are cheating on the Regional Fund because we are using it not to supplement but to replace the various forms of assistance that would otherwise be available from the United Kingdom Treasury. This is a time of great difficulty, with firms closing down and people being put out of work. The Regional Development Fund should be seen as an extra form of assistance, as its authors originally envisaged.

There was a great deal of logic in the argument that the right hon. Member for Down, South advanced. As always, he tended to take his logic to the point of the absurd. I agree that the control of spending should be at the place where the money is spent. If we had a serious approach to the European budget, today's attendance here to discuss such a matter would be lamentable. The fact is that however many tributes we may pay to the Scrutiny Committee of the House, this can be only a temporary expedient. This is no way in which to control Community expenditure. The European Parliament, with its circumscribed and limited powers to modify this or amend that, does not yet have the full authority that it should have to control the Commission's budget. It will never have that authority until it is a genuine Parliament and not a nominated Assembly.

This brings me right up to date with the question I want to put to the Chief Secretary. I am extremely concerned about the report which was issued yesterday as a result of the meeting of the Council of Ministers. Denmark had some reservations, as we had on the last occasion, about the programme for direct elections, but she has now withdrawn them. We now stand alone in not having committed ourselves as a member country to the principle of direct elections. I am not criticising the lack of commitment to the timetable, which may be too optimistic. We are not even committed to the principle to which the other member States are committed—that is, direct elections to the European Parliament. We shall go on year after year in this muddle unless we give authority to the European Parliament, authority which it cannot have unless it is directly elected by the people.

Mr. Biffen

Authority to tax.

Mr. Steel

Let us take it stage by stage. The first and most important authority it must have is to scrutinise expenditure. All of us who have spoken in this debate have accepted that we are not even doing that. I take the arguments made about the lack of capacity to tax and about the summoning of that Parliament, and so on. But the Community is an evolving institution. We can take only one step at a time.

The next step on the agenda is the question of direct elections. The British Government are out of step with the rest of the member countries and have not declared their hand to this House, let alone to their partners. The attitude taken up yesterday follows on the attitude of the British Government last month on the question of representation at the energy conference. I happened to be in Strasbourg among European politicians at the Council of Europe on the day when that particular decision was taken. I found it extremely embarrassing, as a new and supposedly, post-referendum, wholehearted committed member of the Community, to have to explain away this sudden Gaullist approach to European affairs. I hope that the Chief Secretary will recognise the effect that this sort of approach is having in the Community. I find it deeply disturbing.

When seriously discussing the budget for the Commission in the future, if we are saying after the referendum that we are committed members of the Community, it is no good continuing to be half-hearted and drawing back on certain developments on a European scale.

The next step certainly is the development of the Parliament and the passing of scrutiny from the poor way in which we are able to do it here, because of our domestic preoccupations, to our colleagues who will be elected in future to the Parliament. If the Government cannot bring themselves to see that, they cannot complain that we are not supporting the spirit of the European Community and the Treaty.

9.32 p.m.

Mr. Frank Hooley (Sheffield, Heeley)

I have a good deal of sympathy with the arguments advanced by the right hon. Member for Down, South (Mr. Powell). However, in the context of this evening's debate he reminds me a little of the man who got lost in the Black Country and asked the way to Wolverhampton, when the answer was "Well, if I were going there, I would not start from here." We are starting from "here", in a situation in which we have to discuss these figures.

Although there may be a great deal that we need to do about the future development of the European Communities, and although it may be argued that the whole system will break down on the way to their own illogicality, for the moment we are stuck with this system, which the British people have had dumped on them, although by a free choice, and we must debate in that context.

The right hon. Gentleman is right in saying that this is not a budget. That was a point made by my right hon. Friend the Chief Secretary earlier. It is a set of estimates for spending in 1976. It is not a budget that controls expenditure. It is merely an estimate of what will flow from decisions that may be made by the Council of Ministers. For my part, I hope that those decisions are kept in the hands of the Council and do not go wandering off into a European Assembly.

The hon. Member for Roxburgh, Selkirk and Peebles (Mr. Steel) was lecturing the United Kingdom on the propriety of taking a Community attitude on this, that and the other. He should devote some of his lectures to the French Government. Throughout the history of the European Community, the French Government have always placed French national interests first, second, third, fourth and fifth on any matter that they thought remotely conflicted with what they saw as the absolutely fundamental interests of the French people. The hon. Gentleman lectures my right hon. Friend the Foreign Secretary, but I suggest that it would be much better for him to deliver some of those lectures in Paris to the Quai d'Orsay. However that is a separate matter from our main debate.

I should like to raise several matters. First, there is a curious difference of classification in the expenditure from the Agricultural Fund, which we are told is obligatory, and some of the other funds—the Social Fund, which is non-obligatory, and the Regional Fund, the status of which, according to Document R/2145/75, is uncertain as to whether it is obligatory or non-obligatory. Presumably, this affects the capacity of the Assembly or other bodies to make modifications to it. This needs to be clarified.

Document 2145 is interesting. Although it is not a budget, it sets out the pattern of expenditure that will occur within the Community finances. Hon. Members have called attention to the absurdity of the dominance of agricultural expenditure and of the system that that expenditure is designed to finance. I agree with the right hon. Member for Down, South that we must constantly repeat that we are indulging in a process of education. We must educate the electorate in the fact that they have deliberately voted for a policy of dear food. They have voted for a policy under which the price of food will be forced ever higher over the transitional period—we are only just into the transitional period—and that the public will have to pay very heavily in their shopping bills for the decision they took earlier this year. Unless and until the common agricultural policy is drastically changed, which I believe to be politically almost impossible, this process will continue.

In the course of this year the Community arbitrarily and brutally prohibited imports of beef from countries that had traditionally supplied us and the Continent for many years. I believe that that arbitrary act was contrary to the spirit of agreements on international trading and must have caused great hardship and difficulty to farmers, stockbreeders and ordinary workers in countries, such as the Argentine, that have hitherto supplied us with beef.

Mr. Stephen Ross (Isle of Wight)

Does the hon. Gentleman accept that imports of beef from the Argentine have been dropping drastically over the years and that in fact we have taken little beef from the Argentine this year? Is he aware that I myself am giving up my farming activities on Monday next because I have not had a reasonable return on beef for the past two years?

Mr. Hooley

The prohibition did not affect the Argentine only. If the Community chooses to behave in this manner and ban a certain food commodity because that suits the French farmers or the English farmers, that will attract reprisals in respect of commodities, be it cars or agricultural machinery, that we want to export. If we decide that, because of this weird agricultural system, it is not convenient any more for us to take beef or butter from a country that has been supplying us for decades, it will not be long before other people behave like that towards us.

It will then be no use our complaining that car workers or other workers employed in, say, a town in the Midlands have their jobs placed in jeopardy. If this agricultural policy is to be implemented on such a basis, we must think carefully about what the consequences will be for international trade in future. I shall not go into details about the nonsense of vast surpluses, pricing policies, and so forth.

I understood the Chief Secretary to say that there was no agreement on aid to non-associate countries. I hope that a serious effort will be made to secure a more outgoing and generous attitude on this aspect of expenditure than we have seen hitherto.

I see that there is provision for an increase of 332 persons in the bureaucracy that runs the whole arrangement. I do not know what proportion that is of the existing bureaucracy, but it seems a substantial jump. How far do the Government exercise some effective surveillance over this crowd of people running the complicated bureaucratic system?

Probably the most striking thing in the pattern of expenditure in this so-called budget is that, although four or five of the biggest industrial countries belong to the Community, the sums to be spent on industrial and energy policies and on research and investment are derisory. It may be argued that this sort of thing is better done within the individual countries, but if we are contemplating co-operative efforts, for example, in aircraft manufacturing—of which there were good examples before we became entangled in the Community—a bigger allocation of resources might be put towards things like research and industrial policy. So long as the whole system is dominated by the allocations for the agricultural subsidies, we shall not get any sensible pattern of expenditure for the other sectors. That is really the central issue.

Mr. Douglas Hurd (Mid-Oxon)

The hon. Gentleman has listed a series of ways in which Community expenditure should be changed, and I have sympathy with many of them. But how does he think that, by their present tactics, the British Government will be able to persuade our partners to bring them about? The French, for example, have always identified the things they really wanted, have made a fuss about other things, given way on them and got the things they really wanted. If I felt that the British Government had tactical sense of that kind, I should be more satisfied with their policy. How does the hon. Gentleman think that the long list of changes he wants can be secured by following the present bull-in-the-china-shop tactics of the Government?

Mr. Hooley

The French tactics have been simple. They regard the common agricultural policy as the central pillar of the system, and if that were pulled out, they would walk out of the whole arrangement. It is the fundamental political issue of the whole set-up. The policy was created to maintain a Conservative Government in power on the basis of the agricultural vote, and while that system exists, I doubt whether we shall get any reform of the policy. It may be that on this issue the whole system will eventually founder.

I am sorry if I gave the impression that I thought that there could be a rational discussion of how these things could be better ordered and set out. I was merely suggesting that, if we were lumbered with the system and had to start from where we were, we might be able to make a little sense of it as long as it existed.

9.44 p.m.

Mr. John Biffen (Oswestry)

My hon. Friend the Member for Devon, West (Mr. Mills) bade us all take part in the debate not in the terms of trying to refight the referendum campaign. I am happy to accept that view inasmuch as I think that the relationship between the institutions of Government which we know and experience at a national level will generate, when they have to be inserted into the wider institutions of the Community, a debate the consequence of which will be just as important as the outcome of the referendum. It is strictly in that sense that I want to address myself to the documents before us.

We are indebted to the Scrutiny Committee for ensuring that the debate can take place, because I believe that the most important relationship within the Community is that between the national Parliament of this country—meaning the House of Commons—and the Ministers who will be attending the Council of Ministers.

The Chief Secretary said that he wanted to be able to go to the Council of Ministers with our voices still ringing in his ears. I am happy to concur with that request and I shall tell him how I hope he will be motivated in his tasks concerning the Community budget. I want him to be on the side of those who believe that European co-operation can most helpfully proceed within a philosophy of a Europe of nation States where there is a deliberate attempt to avoid a further tier of Government in the name of harmonisation and uniformity that would have the consequence of souring relations within the Community rather than improving them. As Chief Secretary, he must be well aware of the dangers presented by multi-tier Governments to any prudent control of public finance.

Translated into Eurospeak, I am saying that the right hon. Gentleman should behave, at least on this occasion, like a German Social Democrat. There is an almost Gladstonian streak of financial rectitude among Social Democrats, and in the Community the German Government have shown a robust attitude to levels of public expenditure. There is something slightly bizarre about those who preach the virtues of retrenchment of public expenditure at home but then preach expansion of public expenditure in the Community. For where will the money come from? Is there some imaginary store that will be drawn upon for the further financing of, for example, the Regional Development Fund? Perhaps it is hoped that we shall be able to finance the public expenditure programme by kind permission of the Germans. I do not think that that will come about, because they can figure as well as we can.

Financial controls as exercised within the Community become a haggling exercise in the Council of Ministers. Those who have warned against increasing the size of the Community budget are arguing along lines which, I believe, will be reasonably welcome to the Chief Secretary. I hope that he will defend the rôle of the Council as the largely determining factor in the size and shape of the European budget. All the evidence I have heard is that the European Assembly is in this business not to try to control and limit increases in the expenditure of the Community, but exactly the reverse. The Assembly and the Commission have one common interest—to magnify and extend the size of the Community budget.

That budget will be voted for substantially out of taxes borne by national electorates in the Community countries, and the political consequences of those taxes will be borne by hon. Members. Happy is the Strasbourg politician who can spend without the responsibility of taxation. Fraught will be the political institution which fragments responsibility for expenditure from the responsibility for revenue raising. In that context, I hope that there will be no demands at Council meetings to try to match the expensive nonsenses of the CAP with an expanded Regional Fund or Social Fund.

If one is playing a game of percentages, there is one way of reducing the percentage of the budget accounted for by agriculture. That is rapidly to expand the sums on regional policy and social policy or even to get the Community to finance a stretched version of Concorde. There would then be absolutely no difficulty in having an effective reduction in the percentage accounted for by the CAP. Of course that is by no means a joking comment, because once one allows high technology to secure a stake in European financing it will show how money can be spent.

The realities of this, however, come back to what we in this House believe to be the most effective ways of pursuing the national interest, because that is what it is all about. I do not say that it is not perfectly reasonable and honourable to seek to maximise co-operation with one's neighbours, but maximisation of that co-operation can proceed far more productively within a national institutional framework.

In the circumstances that we have today, the overwhelming concern which has been expressed over the CAP is such as to enshrine in the hearts of many hon. Members on both sides of the House the view that those who are primarily responsible for the creation of the surpluses should undertake financial responsibility for their disposal. That can be construed only in national terms. If the CAP generates substantial expenditures on account of French agriculture, it will have to be substantially the French Exchequer which must bear responsibility for meeting that situation.

I do not mind whether, for the purposes of being communautaire, one resorts to the proposition that those who create the surpluses shall have to operate under the dictum of corresponsibility for their disposal, so that instead of it being the French Exchequer maybe it will be the French farmer. It would, however be wholly inequitable for the British farmer, who has taken no part in the creation of dairy product surpluses, to find himself restrained in the current situation. I know that I shall carry with me on this point my hon. Friend the Member for Devon, West. I hope he will not feel that my points are unconstructive, because I do not believe that we should be able to escape from the difficulties of an unacceptable CAP by-creating countervailing further points of Community expenditure. That would result in a new dimension of government which would make all the problems of public financing and inflation that much more difficult to handle.

What the House must address itself to—and it may be a lengthy process involving, as the right hon. Gentleman the Member for Down, South (Mr. Powell) said, a great deal of education—is how to match our national institutions to our new responsibilities. I see no indication of a will to give the European Assembly the right to tax. As the right hon. Gentleman said, that is the key governing factor over public expenditure. If we give the European Assembly the right to spend, it will exercise that right cheerfully until we have to pick up the cheques. There will then be the most bitter conflict between the national Parliaments and the continental Assembly. That, I am certain, whichever way we voted in the referendum, we would wish to avoid by taking account here and now of some of the basic realities of European co-operation.

In that sense, my message to the Chief Secretary is to take with him, when he goes to the Council of Ministers, the spirit of Gladstone, if not his hobnailed boots, and to say to his European partners that he feels that co-operation can best proceed by Ministers meeting together uncluttered with growing European bureaucracies and growing European ambitions of public spending.

9.56 p.m.

Mr. Bob Cryer (Keighley)

I have a comparatively trivial point to make to start off with and only one or two more after that of greater force. First, I notice that there is to be provision for an increase of 332 persons. I wonder whether the Chief Secretary could recommend to the Council of Ministers that some of those 332 persons could be used to translate these units of account into pounds sterling.

He and I, of course, have the conversion at our fingertips, and so has everybody else who has got into the new European newspeak, but there are people outside the House—it is conceivable that there are some inside—who cannot do these rapid conversions with which he and I are so familiar. Some idea of the magnitude of the expenditure would be brought home more immediately if it were in pounds sterling rather than in units of account, which is such a bland way of expressing money. There has been a complaint from the Opposition that increases in personnel are budgeted for, but that no increase in work is budgeted for, and it seems to me that this is a piece of useful informative work on which such people could be employed.

I realise that that is trivial, but I should like to enlarge on a slightly more important point and to say how pleased I am that the hon. Member for Roxburgh, Selkirk and Peebles (Mr. Steel) is embarrassed by the fact that our representatives are insisting on being present individually at talks on energy, and how heartening it is that cracks are beginning to appear in the whole framework of the Community. How heartening it is that our position is in some instances irreconcilable with that of the rest of the Community, because there have been a few comments tonight—particularly from the hon. Member for Devon, West (Mr. Mills)—about the need for constructive criticism, as though the referendum can be thrown out of the window and as though it never happened.

The points we made before the referendum will not disappear, and I imagine, as the right hon. Member for Down, South (Mr. Powell) said, that the Conservative Party, if there is another splendid Labour victory, will not change its philosophy overnight. The criticisms that were made at the referendum continue to be valid, and we have to ensure through these debates that the House does not lose sight of them.

We were told before the referendum—I wish that some of these debates had been held before the referendum—that the common agricultural policy was no longer a problem. Indeed, the Government put out a pamphlet to that effect. But here we are tonight dealing with the fact that a greater percentage of the Community budget than ever before is spent on the CAP. That is not what the Government said in the expensive leaflet pushed through every letter-box in the country. The situation is likely to get worse rather than better, because the policy is such an integral part of the Community structure.

We were told that the Council of Ministers was not really so powerful, and that democratic institutions were on their way, yet we have heard comments tonight on how the budget has been cut, without any reasons being advanced. This is simply because there is very little machinery open to public scrutiny so that people may know why decisions are made. One of the facts of life is that if people are given power, they will not hand it over to a democratically-elected assembly. The fact is that the Assembly in Strasbourg will not receive power. The Council of Ministers will keep it to itself, and will continue to resist any attempt to open its decisions to public scrutiny.

It could be very embarrassing to have public scrutiny. Ministers of our Government can return saying that they have had a triumph in arguing for this and that in the Council. There is no record that can lead to such statements being questioned. Everything is done behind closed doors. I am not suggesting that anybody would do that sort of thing, but it is a possibility. I do not suppose that any Minister would be unaware of the possibility or not see it as a comfort in times of stress.

Before the referendum we complained that the Regional Fund was not adequate and would not apply to this country particularly anyway. Now we are told that it will be cut. Alas, the Labour Party Euro-fanatics are not here tonight. They and Conservative Members have suggested that the Regional Fund is some sort of panacea, something to be doled out on a plate. The only reason why this country will receive money from the fund is to serve the purposes of economic and monetary union. The fund cannot be applied unless those criteria are met, so the notion that it will assist us is illusory.

The fund is convenient for those Conservative Members who are seeking public expenditure cuts. I exclude the hon. Member for Oswestry (Mr. Biffen), who is consistent in all things—he wants to cut pretty well everything. But his hon. Friends can say that although we have to cut expenditure in this country, we should be receiving more from the Community through the Regional Fund. That sort of attitude shields people from the reality that this country can progress only on its own feet, and that it cannot rest on the prop of the European Community.

There is a very interesting section in the thick and, I imagine, largely unread document R/2158/75 concerning the CAP irregularities. The hon. Member for Devon, West suggested that our system of subsidies was open to fraud and abuse, but he did not produce examples. I suggest that we do not have quite the number of abuses listed on page 67, where we read: In 1974, as in past years, the majority of the frauds attempted and put into effect consisted of false accounts or false supporting documents to substantiate accounting entries which at first sight appeared correct. This continuing state of affairs increasingly demonstrates the necessity for arriving at a harmonization of the national measures in the field of these audits". That is another move towards harmonisation, which to the Community is a fetish. We are told that it will be simpler to stop the cheating and fiddling arising from the barmy system of the common agricultural policy. Consignments of food can qualify for intervention buying and then be reloaded, taken elsewhere and qualify again.

I am happy to say that the newspapers are starting to notice fraudulent activities of that sort. It is heartening to those of us who have long maintained that the CAP is open to that sort of fraudulent activity.

I do not consider that £2 million is an insignificant sum. The document refers to the frauds that have been discovered. I do not suppose that the bureaucrats in Brussels are 100 per cent. efficient. I do not suppose that even the most ardent Euro-fanatic would make that claim. It is conceivable that some frauds have escaped their eagle eyes. It may be that the £2 million is only the tip of an iceberg. It may be that something small is floating underneath, but it could be an iceberg. That stems from the notion on which the Community is built.

I hope that my right hon. Friend will take my remarks to heart. So far the Government's attitude has been heartening. Many of use felt that the Government decided that they were in favour of the Common Market because that was electorally the best way out. When we became a member of the Community, I believe that they decided to ensure that British interests were maintained. I believe that they took the view that as time progressed, experience of the Community would convince the British electorate that perhaps their decision was not the best. I believe that as time passes the contradictions, the bureacracy and the impossibility of running these absurd schemes will bring about the decentralisation for which many of us ask.

10.7 p.m.

Mr. David Howell (Guildford)

This has been a curious debate, if only because it is in such contrast with what we would expect from a debate about a budget. We were reminded of that by the eloquent bellow of protest from the right hon. Member for Down, South (Mr. Powell). He spoke of the bewildering unfamiliarity of it all and reminded us how uneasily the concept of the Community lies with our national traditions and customs. I have no dispute with him on that score. However, as I voted "Yes" in the referendum I draw different conclusions from those of the right hon. Gentleman.

It is plain that there is the contrast to which the right hon. Gentleman referred. It has hung brooding over the whole of the debate. I must tell the right hon. Gentleman and others who have pointed to these fundamentals that in the next few minutes I shall be speaking on the assumption that somewhere in all these figures, papers and bumf there is a budget. On that assumption, I believe that something should be said about it. Perhaps we are coming down a level from the high points to which the right hon. Gentleman and others have taken us.

This is a curious debate, not only because we have even less influence on the policy which has shaped this expenditure than in any other debate but because there are no implements available as a means of financing policies which in turn determine the expenditure and which in turn determine what is called the budget. It is because of that situation that policy decisions are in an unusual state before they come before us. They are decided by the Council of Ministers, the Council having determined what it believes to be the right pattern for the future.

In a sense, all these matters present problems, but in a way they are attempts by legislators to control executive decisions on budgets. In this instance the figures are stratospherically vague, and in some cases virtually non-existent. The curious habit has been taken up of using token entries when it is not certain that a policy has been agreed. I understand that, from the point of view of those who are members of the European Parliament, the nicest thing would be for a budget to come forward with certainty. That would be better than having supplementary budgets, and miles better than the meaningless device of token entries. If it is impossible to ascertain what policies have been agreed and what expenditures will arise from them, I would hope that we go for supplementary estimates rather than token entries.

Supplementary estimates properly brought forward to this House are a valuable device, and I look forward to the time next year when public expenditure is accounted for in money terms. Supplementary estimates that come to this House in future may have a new excitement and a new relevance which in past years they have not had. If we have a choice between token entries and supplementary estimates, I would rather have the latter, although the European Assembly would like complete certainty. But certainty is one thing that does not exist.

So obscure are the figures that the amendment, which was not called, and which, therefore, the Chief Secretary found himself ready to accept, is a little misleading, and those who have appended their names to the amendment may have been misled. They talk of the agricultural sector of the Community budget as having increased to 73.6 per cent. At first glance it looks as though that is a higher percentage than the percentage in previous years, but those signatories should look closely at the matter. If they do, they will discover that in the previous year the figure was almost 73 per cent. If we add all the odds and ends in considering supplementary budgets, those figures turn out to be most misleading. It may be that the percentage in the agricultural sector will be higher this year, but the figure last year was higher than the figure in the amendment indicates. We are dealing with gaseous clouds rather than statistics and this makes a sensible and well-focused critique that much more vague.

However, there is something approaching fact in all this information. I am glad to say that one fact is the desire of the Chief Secretary and of the Government to pursue financial stringency at present. The Chief Secretary recently went to the Council of Ministers to make the decision that led to that Council's draft budget, and the Ministers had this matter very much in mind. I notice that at the end of that meeting—I do not know whether it was an all-night session—the right hon. Gentleman was reported in one newspaper as having been ambivalent. I do not know whether he was ambivalent because he had certain matters to proclaim because he had succeeded in securing an arrangement of the figures which would lead Britain not to have to make too substantial a net contribution—indeed, possibly a zero figure—to the rest of the Community. That was something to crow about.

When I read the item in the newspaper a little further, I discovered that what the right hon. Gentleman was ambivalent about was his problem concerning his right hon. Friend the Secretary of State for Prices and Consumer Protection. One of the sources of the enormous agricultural budget is the monetary compensation amounts that are paid to this country, but in the light of our poor exchange rate and our price structure a smaller amount in money terms is paid to us. In other words, less money comes to us from Brussels. There is thus less insulation of the British system from the European realities of our weak currency and our high inflation rate. This certainly applies to the costs of farm production. The one cost is traded off against the other, with less money flowing in. Consequently the realities would be more visible in regard to a more effective source of finance for the agricultural expansion that we in this country so desperately need.

The hon. Member for the Isle of Wight (Mr. Ross) revealed that this had driven him to shut up shop on Monday. This is the dilemma for the Chief Secretary and the Government. Desirable as more finance for agricultural expansion would be, and desirable as it is that the costs of efficient production should be reflected in prices, this is not at all in line with the Government's policy. The Government are seeking yet again—they have been seeking it all along, but there has been a little more effort in the past few days—to suppress increases, which means prolonging price inflation. That is what is preoccupying them at the moment. That is very much the job of the Secretary of State for Prices and Consumer Protection. Therein lies one of the main difficulties and one of the reasons why the Chief Secretary was ambivalent after his session with the Council of Ministers.

The problem remains that unless substantial inroads can be made into the enormous agricultural sector of the budget the Chief Secretary will be forced, in the light of the need for financial stringency, to look for cuts in other areas—cuts which will be doubly vicious. This is precisely what is happening and this is why members of the Assembly, when they saw the budget and what had happened, spoke out in high protest at the way the agricultural sector had been preserved from the chopper which had instead fallen on the regional, social, energy and technology sectors.

The Chief Secretary assures us, in the Treasury's Explanatory Memorandum, that there has been no major reduction in the Regional Development Fund and that the Council's decision to reduce the payment appropriations merely reflects the speed at which payments will be made and does not reflect any change of policy. That is all very well but it does not reassure me very much. It is good news, perhaps, for those who regard the Regional Development Fund as undesirable. In the light of what I said about the failure to cut into the agricultural sector and in the light of the reasons for this, it is a pity that these other sectors have had to be sacrificed. More than that, it is absurd. I understand that in the energy sector the economies involve keeping a lot of men in post but not giving them any money with which to do anything—a Dante-like existence which they must regret and which appears to be the product of this form of budgeting and this approach to the problem.

There is another way we must certainly look at by which the agricultural slice of the budget could be contained and, in a sense, is being and has been contained. That is in seeking all the while to give greater emphasis to the Guidance Section concerned with modernising the structure of European agriculture and giving correspondingly less to the Guarantee Section. Most people would agree that that is a desirable objective. I expect that the Chief Secretary would agree. Those are the general points I make on the so-called budget.

I turn now to the way these funds, whether or not they are cut, are treated by Whitehall and the Government. I know that the Chief Secretary has to worry about public expenditure and that he therefore seizes on any revenues he can get from Brussels or elsewhere to help him contain the apparently uncontainable totals with which he is confronted. We have had debates on this before.

The other day the Prime Minister was questioned on the issue of—I hate to use the revolting word—additionality. This concerns whether the funds from Brussels are to be additional to expenditure that would otherwise take place in the regions or for social purposes or whatever else. The Prime Minister produced a slightly different answer—characteristically ambiguously different—from the straightforward cry of the Chief Secretary that he wanted those funds and that they would replace anything that had been spent.

The Prime Minister said: When European funds are used for projects which would otherwise have been supported by the Exchequer, funds are freed to enable us to support regional development in other ways; for example, through the advance factory programme recently announced by my right hon Friend the Secretary of State. Had it not been for the European contribution it would have been much more difficult for us to devote money to a project such as that."—[Official Report, 28th October 1975; Vol. 898, c. 1291.] Was the Prime Minister in that passage moving away from the stricter, properly puritanical view of the Chief Secretary in saying that these funds will be taken in such a way as to release automatically other funds for other projects which might otherwise not have been embarked upon? What is the policy of interposition by Whitehall in the handling of these funds?

As we continue with these debates on the budget and as the Government, of whichever party, settle into the rôle of being a member Government and handling these problems, we shall encounter more difficulties over the way in which European Community funds should be handled and the way in which Whitehall thinks they should be handled. Before long we shall need to re-examine the whole system, have it out in the open and be clear whether we are using this as a device—as the Chief Secretary understandably would want to do, and so save himself other public expenditure problems —or whether we are concerned to see that these funds are part of the binding and linking process to create a more effective European entity.

Hon. Members have said that the bureaucracy is growing. They were right to point to that fact. I should have been staggered if its numbers had not grown. However, the numbers involved in items such as 32 more interpreters are peanuts compared with the gigantic bureaucracy with which we have landed ourselves in Whitehall partly as a result—other hon. Members would say partly as a result of the failure—of traditional methods of control and restraint which have been practised in this country. To compare the two is to compare like with unlike since we are referring to 1,000 versus 40,000. There is no comparison.

This debate has been surprisingly interesting, in spite of the fact that it was referred to as a charade. For those who accept the rules of the situation, there is much common ground. We agree that the common agricultural policy must be adapted and that there are large areas of inefficient agriculture in the European Economic Community. All who accept the EEC must agree that as there is no longer a cheap world food era or a cheap source of supply, prices must reflect production costs. If they do not, food supplies will be threatened. That is the issue around which the referendum revolved. I agree with the right hon. Member for Down, South that the debate will continue, although it may become more settled. This debate has been a valuable part of that continuing process.

10.25 p.m.

Mr. Joel Barnett

With the leave of the House, in the time available to me I shall try to reply to all that has been said.

This debate has been a curious one. I noted a little ambivalence in the remarks of the Opposition Front Bench spokesmen. At the outset, I wondered about the speech of the hon. Member for Scarborough (Mr. Shaw), who expressed some worry about the cuts which had been made in the budget, and I thought that I saw the hon. Member for Oswestry (Mr. Biffen) positively wince. However, it has been an interesting debate, and we have even had a course of education from the right hon. Member for Down, South (Mr. Powell). It was a fascinating discourse, as his speeches always are. It did not have a great deal to do with this budget. Nevertheless it was a fascinating discussion about the kind of financial system that we might like. But, of course, in the motion we are taking note of a draft European budget, and much as I should like to develop the right hon. Gentleman's theme it has nothing really to do with the matter that we are debating.

The hon. Member for Roxburgh, Selkirk and Peebles (Mr. Steel) asked about the Government's policy on direct elections. I am happy to announce a new Government policy on almost any subject for which I am responsible, which means virtually the lot. But we are debating a motion to take note of the European Community draft budget, and this perhaps is not an altogether appropriate time to make such an announcement.

I have had a great deal of advice in the debate. That is not unusual in my experience, and I grow accustomed to it. But this is the first time that I have been asked, as I was by the hon. Member for Oswestry, to behave like a German Social Democrat and Gladstone. I am always happy to take the hon. Gentleman's advice because I have a great deal of regard for him. But I thought that I had clarified the situation for his benefit. The hon. Gentleman is a very discerning Member. I may tell him that when the Germans acted as they did in the budget debates in the Council of Ministers, I said that simply to cut estimates did nothing about the actual expenditure if the policy was left the same. In that sense, to behave like the German Social Democrats in the Budget Council achieves nothing. I want to achieve something, and I shall say a word or two about the agricultural policy in a moment.

Mr. Hooley

My right hon. Friend is saying, in effect, that the Treasury will have no control over these matters, because all the expenditure will be determined by the Minister of Agriculture and the other Ministers.

Mr. Barnett

I am sorry if I did not elaborate it sufficiently. But I am sure that my hon. Friend is aware that every Minister in this Government, when taking decisions about financial matters, will have the odd word in his ear from the Chief Secretary. When a Minister in another Department discusses policy matters which are to go before the Council of Ministers of Agriculture or before any other Council, the Government and the Chief Secretary are concerned and involved.

Another matter touched on in the debate was the way that national Parliaments and Ministers are involved in these matters. As the system now applies, it is the spending Ministers who are responsible, through the Government, to this House. I think that that is the answer to my hon. Friend the Member for Sheffield, Heeley (Mr. Hooley).

Another matter raised concerned the Social Fund. I could not understand the hon. Member for Scarborough when he asked why we had cut 60 mua off the Social Fund. I pointed out the way that the Council of Ministers works. Although the Commission put in that figure, there was no policy on that issue and, rightly in my view, the Council of Ministers decided to delete it.

My hon. Friend the Member for Heeley asked about the classifications of the Social Fund and the Regional Fund. The Social Fund is classified as non-obligatory, which means that within the maximum rate the Assembly can increase it. The Regional Fund is in a state of limbo. The Council of Ministers says that it should be classified as obligatory, whereas the Assembly is concerned to have it classified as non-obligatory. At the moment it is left in that state.

I turn to the questions raised about the Regional Fund. The political commitment to the size of the fund stands. In the Community budget we are talking about an estimate arising out of that commitment that may or may not be spent.

The hon. Member for Roxburgh, Selkirk and Peebles asked for an assurance that the Government would put the fullest possible impetus behind the Regional Fund. The answer is that they will. We want the maximum number of applications to be made so that we can take the maximum possible advantage of the fund. The hon. Gentleman also managed to raise the matter of devolution. I hope he will forgive me if I do not take up too much time on that question. However, I have noted the point he made that we should examine the possibility of a more speedy use of the Regional Fund by allowing the Scottish Office to become involved. The Scottish Office is involved in the processing of applications, and I shall certainly ensure that this point is brought to its attention.

The hon. Member for Roxburgh, Selkirk and Peebles and the hon. Member for Guildford (Mr. Howell) mentioned the problem of additionality. The hon. Member for Guildford asked whether the Prime Minister's remarks represented Government policy. I am happy to tell him that they did. The hon. Gentleman rightly said that I was concerned that there should be a strict control over public expenditure. He cited the Prime Minister as saying that were it not for the Regional Fund certain other regional expenditures could not be made. That is absolutely correct. Were it not for the Regional Fund there would be other regional expenditure which could not be spent without increasing public expenditure to a degree with which the hon. Member for Guildford and other hon. Members would disagree. I hope that that is reasonably clear. I am sorry if hon. Gentlemen do not like the way the system works and would like to spend more, but that is how it works.

Mr. David Steel

We do not like the Government's pronouncements on this matter because, although phrases are used such as "money that would otherwise not be spent", we are unable to control what otherwise might be spent. We do not know. This is a matter of judgment, for the Government. There is no way in which we can examine the arithmetic.

Mr. Barnett

The hon. Gentleman is perfectly fair. I appreciate the problem. However much we receive from the Regional Fund, to that extent we shall be able to spend more and to that extent it is additional to what we should otherwise have spent on regional expenditure.

A number of points were raised about the supplementary budget. The hon. Member for Scarborough was concerned that the budget for the common agricultural policy was not accurate enough. Given the kind of common agricultural policy that we have, how can we have estimates about the amount of expenditure for next week, let alone 1976, that are accurate? We are dependent upon the weather in every part of the world because it affects harvests all round the world. In this system it is simply not possible to have an accurate assessment of expenditure.

Mr. Michael Shaw

The right hon. Gentleman is merely repeating my words.

Mr. Barnett

In that case, I am glad that the hon. Gentleman agrees with what I am saying. I thought he was complaining about the inaccuracy of the assessment in the budget. I was trying to explain why there are inevitably bound to be inaccuracies, because they are estimates. With the way that the system works, by the nature of things it is impossible for them to be accurate. That is why from time to time there must be supplementary budgets.

I am glad that those who referred to this thought that the supplementary budget system, provided that the supplementary budget relates to this type of system rather than loose control, was a better way to deal with the matter. I know that the hon. Member for Devon, West (Mr. Mills) agreed with that. I am obliged to him for offering me his congratulations on the calibre of the briefs that I have been letting Members of the Assembly have. As he was so kind about it, I shall try to do even better in the future.

The one subject discussed by virtually every hon. Member during the debate was the common agricultural policy. It was discussed particularly by my hon. Friends the Members for Hemel Hempstead (Mr. Corbett), Ipswich (Mr. Weetch) and Heeley. I listened with fascination to the example given to us by my hon. Friend the Member for Ipswich of the ships' chandlers in his constituency. My heart bled for his constituent. It sounded an appalling problem.

However, we must understand the way that the agricultural expenditure works in relation to this budget. It relates to what I have been saying about why it is not possible to have the figures accurate in the budget statement because the budget is an estimate of what might happen in 1976. Many of my hon. Friends made very powerful speeches. I do not necessarily go along with every dot and comma of their broader generalisations, but I go along with the demands that they were seeking to make in their amendment—that the Government should continue their efforts to obtain radical changes in the CAP.

Perhaps I may say to the hon. Member for Guildford that, as my hon. Friends are well aware, when I originally said that I was prepared to recommend to the House that we should accept the amendment I did not know that Mr. Speaker was not prepared to allow it to be accepted. It would not have made the slightest difference to me if it had been selected, because I was prepared to agree that it should be accepted.

The main point I made at the outset and make again now is that the agricultural policy cannot be changed at Budget Council meetings. I am glad to see the hon. Member for Oswestry nodding his head, because that is precisely why I was not able to go along and be a good German Social Democrat in the Budget Council meeting. I thought that it would achieve nothing at all but simply lop off figures that had no particular meaning, because, if nothing else were done in terms of the CAP, all that that would have meant is that next year, with the intervention system working in the way it does, there would need to be supplementary estimates.

It is the policy that needs changing. It is because of that policy and because the Government are in favour of radical changes in the CAP—my right hon. Friend the Minister of Agriculture is trying very hard to see that we get those changes—that I recommended acceptance of the amendment tabled by my hon. Friends. In that sense, all that I ask of the House tonight is a simple task—to take note of the European budget.

Question put and agreed to.

Resolved, That this House takes note of the draft Community Budget for 1976 and Commission Documents Nos. R/2145-75, R/2158/75 and R/2228/75.

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