§ The Prime Minister (Mr. James Callaghan)
With permission, Mr. Speaker, I will make a statement on the meeting of the European Council which I attended in The Hague with my right hon. Friend the Foreign and Commonwealth Secretary on 29th to 30th November.
The meeting reviewed a number of important questions of concern to all the member Governments of the EEC. Some of our conclusions were recorded in agreed texts, copies of which will be placed in the Library of the House.
We had a full discussion on economic and monetary matters, where we looked at the present state and prospects of the Community in relation to the rest of the world. Most of our partners share, in varying degree, our own concern with problems of inflation, employment and balance of payments. There was common interest in trying to ensure that the growth of activity, both in the Community and in the rest of the world, should not slow down and in finding constructive ways of tackling our common problems in a Community framework.
A number of colleagues joined me in stressing that, whilst those countries 919 which, like the United Kingdom, are still faced with problems of inflation, unemployment, balance of payments and inadequate investment in productive industry must take all possible steps to help themselves, there are also helpful steps which others in the Community could take. In particular, as the Commission brings out in its report which the Council approved, the stronger economies have an important part to play. There was some measure of reassurance about the prospects of continuing recovery. But all member States were concerned about the serious potential effects of any further increase in oil prices.
The second major subject of discussion was the North-South dialogue and the range of problems relating to international economic co-operation. The European Council examined the questions which are currently under discussion in various international bodies, and reaffirmed the importance it attaches to making a contribution to the economic development of the developing countries, while keeping in mind the problems posed by difficulties in the Community's own economy.
We were able to complete our work on the Tindemans Report. There was a warm expression of the Council's thanks to the Belgian Prime Minister for undertaking this task. The European Council endorsed the general lines on which Ministers for Foreign Affairs have been working and emphasised the importance to be given in the next phase of the Community's development to combating inflation and unemployment, to drawing up common policies for energy and for research, and to developing a genuine regional and social policy in the Community. The European Council will have a yearly look at the progress achieved in various fields.
We discussed trade relations between the Community and Japan and drew attention to the problem created by the deterioration in the trade situation and the difficulties which have arisen in certain industrial sectors. The Council agree that these relations should be developed to the advantage of both the Community and Japan. Urgent consideration will be given to various trade problems by the Community institutions; and the Council called for substantial progress to be made before its next meeting. We expressed 920 satisfaction at the indications we have had of Japanese willingness to co-operate with the Community.
There was an exchange of views on agricultural problems in the Community including the question of monetary compensatory amounts. While some member Governments sought to focus attention particularly on matters arising from changes in currency relationships, I emphasised that these must be seen as only one part of a wider problem—the need to improve the agricultural policy and particularly to eliminate costly surpluses.
The Council approved the nominations of each of the member Governments to the new Commission, and agreed that my right hon. Friend the Member for Birmingham, Stechford (Mr. Jenkins) should now be formally appointed as President. The appointment of the hon. Member for the City of London and Westminster, South (Mr. Tugendhat) as the Second British Commissioner was also confirmed. The Council noted that the Commission would be reviewing its organisation and procedures and looked forward to hearing in due course an account of the conclusions reached.
This meeting once more made clear that many of the problems which we in this country face are shared by others in the Community. It also showed that the institutions of the Community are not sufficiently developed to provide common solutions to these problems, which are intensified by the growing divergence between the economies of various member States. Nevertheless, the exchange of views which we held during the Council meeting will be helpful in our efforts to resolve them.
§ Mrs. Thatcher
I thank the Prime Minister for making a statement so quickly on his return from The Hague. He certainly was not slow in his delivery.
I should like to put questions to him on three points. The first is agricultural policy. In view of the pressure that he encountered over the green pound, how much longer does he expect to be able to keep it at its present level? Can he give an up-to-date figure for the level of food subsidy which we are now receiving from the Community?
I am aware that he encountered some criticism about the high cost of this subsidy and that he countered that criticism 921 by saying that the cost was no greater than the cost of the agricultural products policy to the Community, but does he not agree that, if we are taking out so much by subsidies through the currency system, that precludes us from criticising and therefore revising the Community policy over dairy products?
Second, the right hon. Gentleman referred to concern at the increase in oil prices and to the North-South dialogue. Is he not aware that the fact that we do not have a common energy policy and have not moved far towards it hinders us in making an effective contribution to the North-South dialogue? Is there any progress towards a common energy policy?
Third, can the right hon. Gentleman help the House about Press reports about further large loans? There have been such reports in today's Press and it would help very much if we could learn the truth from the Prime Minister.
Is the right hon. Gentleman not aware that, if we always go to the Community as a supplicant, either for subsidies or for loans, that prevents us from carrying out the wider creative rôle which was very much expected of us when we joined the Community? Is he not aware that the impression is given that, whereas we used to save ourselves by our exertions, this Government now expect to be saved by the exertions of others?
§ The Prime Minister
On the right hon. Lady's first question, the difference in the various exchange rates means that the present benefit to the British consumer will run at about £500 million. That is, of course, a valuable aid to us in keeping prices below what they would otherwise be. Therefore, we must maintain this consequence of the monetary compensatory arrangements, which we did not seek but which is a natural result of the arrangements which were made.
The, right hon. Lady is wrong to say that we are prevented or in some way inhibited from criticising the common agricultural policy because we benefit by this figure. Quite the reverse: the point that I made was that the benefit which is received, or its cost to the Community, is less than the cost of the surplus of milk products alone. It follows that what is needed is to get rid of this structural surplus in milk products.
922 If the green pound were to be devalued here, we should be adding to the structural surplus, because of the efficiency of the British producer. Therefore, the job is to revise the agricultural policy. Then some of these other matters will fall into place. It is taking a one-eyed view of the matter to consider only the monetary compensatory arrangements.
Second, on the question of energy, there was a proposal that, as there is no complete energy policy now in the complete Community, we should concentrate on a common policy of conservation. I believe that work will be done on that, but we should like to see more progress made on the question of a minimum selling price and other aspects such as access, security of sources and that sort of question. But we have not reached that point yet.
Third, on the question of further large loans from the Community, they were neither asked for nor offered and there is no question—certainly on yesterday's discussions—of the Community being involved in any direct sense. As for the right hon. Lady's rather cheap point about saving ourselves by our exertions—[Interruption.] "Cheap," I said. If we pursue the current industrial policy, the industrial strategy, which involves keeping consumer demand down in a way which the Opposition never had the guts to do when they were in power and which also involves keeping other matters under control, then we shall, as the British people are doing now, save ourselves by our exertions.
Indeed, there is quite a possibility that if we continue with the existing policies we shall have at least a balance in our payments running by the end of next year and that we shall move into surplus in 1978. I hope that the right hon. Lady will not ask us to depart from that policy and to return to her own policies of confrontation in the previous Government, which led us into the position from which this Government are now rescuing the country.
§ Mr. David Steel
May I pursue the first point raised by the Leader of the Opposition? Is the Prime Minister aware that, because he was travelling back yesterday, he had the good fortune to miss my contribution to the economic debate, but that if he had been here he would 923 have heard me argue that he found himself on the wrong side of the argument with the President of France? How does it make sense—not to the Community taxpayers but to this country—at a time when we are trying to get the balance of payments right, to encourage the continued subsidising of food imports, when instead the Government should be placing maximum reliance on encouraging home agriculture?
§ The Prime Minister
I am sorry that I missed the right hon. Gentleman's speech, but the Leader of the House tells me that it was a very good one. If it was half as good as my right hon. Friend's own winding-up speech last night, it must have been excellent.
There is no contradiction in the policy which is being followed. We are encouraging home agriculture, as is well known, and the steps which have been taken have put a firm foundation under our own agricultural policy. But at present what is important is not only agricultural policy—important though that is—but also the position of the consumer. At a time when our counter-inflation policy is suffering considerable buffeting—not as a result of the unions or wage claims but as a result of many other factors—it is important that we should not throw away a valuable reinforcement of that policy.
§ Mrs. Dunwoody
Would my right hon. Friend strongly resist any change in the MCAs, particularly automatic changes brought about by the Commission's policies? Would he try to explain to the right hon. Lady the Leader of the Opposition that her rather tatty talking-down tactics do not benefit either her country or her party, because we are well aware that we shall be a net contributor to the EEC in the coming year? It is time for the Conservative Party. therefore, to stop talking about subsidies.
§ The Prime Minister
I have no particular objection to taking a subsidy out of the Community if, under the rules, we are entitled to it. I have never seen any reason why we should not. We did not devise these arrangements—they were there—and as a result of the development of events, we are now securing a benefit from them. My hon. Friend 924 is right. I have no doubt that the time will come in other years when we may be a net contributor instead of a net receiver; we shall have to take the rough with the smooth in that respect.
§ Mr. Powell
Did the right hon. Gentleman make it clear to his colleagues that, so far from the green pound being a subsidy which keeps our food cheap, it is only a partial offset to what we lose from not being able to buy our food in the world markets?
§ The Prime Minister
I did not make that point because I am not sure that it is altogether true nowadays. There was a time when there was a lot of cheap food in the world, but those days are disappearing. It would be very difficult to take a balance of advantage and disadvantage on this. I am sure that there are commodities—I can think of some—which we would be able to buy more cheaply outside the Community, but there are others on which we would not get the advantage that we now have.
As for MCAs, if that is what they are called, I absolutely agree with the right hon. Gentleman—indeed, I pointed this out—that they are of advantage to the exporters as well as to us. Perhaps such colleagues as the hon. Member for Banbury (Mr. Marten) might approve of the fact that I pointed out to those who are in favour of the CAP that if they got rid of the monetary compensatory amounts, I doubted whether the CAP would survive.
§ Mr. Fernyhough
The Press have reported that while my right hon. Friend was attending this conference, he had a working breakfast with Herr Schmidt, the Federal Chancellor. At that working breakfast, did the Prime Minister discuss offset costs with Herr Schmidt? Is my right hon. Friend aware that since the signing of the Brussels agreement the figure must now be approaching £2,000 million? If the Germans would favourably consider what I think is a moral obligation that they undertook at that time, it would be helpful to this country in its present economic circumstances.
§ The Prime Minister
Talks are going on with regard to offset costs. I did not raise that matter with the Chancellor yesterday morning. I am well aware of the size and nature of those costs. 925 But there are countervailing factors which must also be taken into account, for example the fact that the presence of British troops in central Europe is a reassurance to a great many people in central Europe and, indeed, in Eastern Europe. That factor, too, must be taken into account when we are discussing where the net balance of advantage and disadvantage lies. There is no doubt that this is an important contribution and it is one which should not be overlooked by those who criticise our performance.
§ Mr. Marten
I congratulate the Prime Minister on his quick reading of an empty communiqué. It was brilliant. As I always take an objective view about the Common Market—[HoN. MEMBERS: "Oh."]. I do. May I challenge the Prime Minister on his use of the word "revise" with regard to the CAP? That is a policy which should be scrapped. The sooner we have a national agricultural policy suitable to this country the better.
Is the Prime Minister aware that the Common Market is more responsible than any other factor for putting up the price of food in this country and that by next year the situation will be serious for those on lower incomes?
§ The Prime Minister
We have constantly taken the view that the CAP needs to be substantially changed. We have to convince our other colleagues in the Community about that. There is dissatisfaction about it. As the hon. Gentleman knows, an examination is now going on about whether some aspects of our policy can be grafted on to the CAP itself. I should like to see this done.
At the start, two or three years ago, my own view was that we could make substantial changes pretty quickly. It is quite clear that the vested interests—I do not want to use a derogatory term —of those who benefit from the agricultural policy of the Community are so strong that none of the other governments can act very quickly. It will be a case constantly working at this, but I feel sure that we shall get some results in the end.
§ Mr. Donald Stewart
Is the Prime Minister aware that in view of the wide range of subjects in his statement, and the fact that this was a high level meeting, 926 there will be great disappointment and anger in the fishing communities that the question of fisheries policy has not been mentioned? Is the right hon. Gentleman aware that since certain of the EEC countries, notably the French, have held that they are not obliged to sell out a vital national interest, the attitude of the British Government is inexplicable with regard to the fishing industry?
§ The Prime Minister
I do not accept any of that. I doubt whether the hon. Gentleman means what he said because he is as aware as I am of all the work which is being done on fisheries. The matter was touched on but not gone into in depth because the constitutional channels of the Community are now handling this problem. I hope the hon. Gentleman has seen the statement put out by the Foreign and Commonwealth Secretary as recently as 26th November—Thursday last—which brings the situation right up to date.
§ Mr. Spearing
The Prime Minister made some reference to the Commission. Can he confirm that the Government are making proposals for changes in the structure and functioning of the Commission? If that is so, can my right hon. Friend say to what ends those proposals will be and when we shall know the recommendations which may be made?
§ The Prime Minister
I asked at the last meeting but one of Heads of Government whether the Community might be prepared to consider proper terms of reference on which the Commission itself might act. Objection was taken by the Commission on the ground that one institution ought not make such a formal request to another institution of the Community. Therefore, the compromise, which met everyone's concerns, was that the Commission itself is expected to come forward with its own proposals on how it will handle the revision of procedures. Honour was satisfied all round.
§ Mr. Blaker
Was any consideration given to methods of concerting foreign policy? Would it not be useful if a small central secretariat were set up to deal with this subject? It might then mean some reductions in the staffs of the national Foreign Offices. Did the Prime Minister consider this matter?
§ The Prime Minister
This is an issue on which there is no common view. The hon. Gentleman, and others, will know that I have always taken the position that if there were a field in which it ought to be possible to reach a number of common attitudes, this was it. This view is not universally shared by all the member States. I am quite certain that the proposal to set up a central secretariat—subject to anything that my right hon. Friend has to say—would awaken all the fears which are now reasonably dormant. Like so many matters, we shall have to take this item by item and subject by subject. When they are raised by my right hon. Friend in the political co-operation area it will be seen whether it is possible to get a common view.
I take note of the fact that from 1st January three members of the Security Council are members of the Community —France, the Federal Republic and ourselves. That should at least engender a common approach to some of these problems, although not to the exclusion of the smaller nations.
Mr. R. C. Mitchell
The whole House will be pleased to hear that the Council thanked Mr. Tindemans for his report. Were any decisions made on the matters raised in that report and if not, are any further discussions planned? Secondly, would the Prime Minister agree that the main reason for rising food prices in this country is the fall in the value of the pound and not our membership of the EEC?
§ The Prime Minister
There was a long discussion about the Tindemans Report. It was generally agreed that European union can be built only gradually on the basis of existing treaties and community institutions. That was the first agreement which was reached. Therefore, progress will not be as fast as some would like.
It was also generally agreed that we should try to follow a common policy in certain key areas of foreign policy but there is at least one major State with important reservations. The Snake as the centrepiece of advance towards economic and monetary union was discarded as an idea although Foreign Ministers will continue to work on the basis of the Duisenberg proposals to see whether they offer any prospect.
928 In passing I would say that as long as the divergence between our economies is growing—and they are not converging—this kind of arrangement is unlikely to be successful. Work is going ahead on this, as it is on the whole question of social and regional policies. These are the major proposals, but I know it was agreed that the Foreign Ministers would review the Tindemans Report each year to see what could be taken from it in order to get a greater sense of unity between member States.
§ Sir Brandon Rhys Williams
In view of the right hon. Gentleman's interest in institutional progress, may I ask whether there was any discussion about the future rôle of the European Fund for Monetary Co-operation?
§ Mr. MacFarquhar
In the earlier bilateral talks, was any warning given of the strong attack which has been levelled by the French President on our green pound policy? Does the Prime Minister think that the French President, as distinct from vested French agricultural interests, takes on board the need for a drastic change in the CAP?
§ The Prime Minister
I can understand my hon. Friend's belief that a strong attack was made on the green pound policy when he read our newspapers yesterday. I must say that it does not represent the reality of the situation. It is one of the misfortunes that the Press is not present at these Council meetings and has to rely on the kind of briefing it gets afterwards from those who had particular issues that they wished to raise. As we all know, the Press is not necessarily disinterested on these occasions.
The attack was made not on the British green pound policy but on the system of monetary compensatory arrangements. At the present time, eight out of the Nine are affected by these compensatory payments in one way or another, either as net givers or net receivers. Only one country—Denmark—is not. [Interruption.] It is possible to be neutral. I was about to say that Denmark is the only country which is neutral.
§ Mr. Geoffrey Finsberg
Was there any discussion of direct elections, and was 929 the Prime Minister able to say that legislation would be brought forward in time for the British electorate to return directly-elected Members by the target date?
§ Mrs. Hart
Am I right in reading between the rapid lines of my right hon. Friend's statement that there was not exactly any positive breakthrough on agreements in the EEC about attitudes towards the new international economic order and the North-South dialogue in terms of economic relations with the Third World? In the discussions, did he tend to share the constructive views of such members as the Netherlands and France on these matters, or the views of others?
§ The Prime Minister
I took our own view on this. I hope that this perhaps assures my right hon. Friend. There was a very long discussion on this matter, which is complicated by the fact that there will be a new American Administration coming into office in late January.
We have taken a particularly forward view on debt relief, on the common fund and on the integrated commodities programme. There are different views here. But everyone was agreed that, whatever technical differences might exist, it was important that the CIEC should be made successful, and we all undertook to bend our efforts to do so.
§ Mr. Hal Miller
When discussing EEC-Japan relations with his colleagues, did the Prime Minister tell them of the doubts expressed in this House about transferring control of our trade policy, especially with regard to dumping, to the EEC? In particular, did the right hon. Gentleman make it plain to them that his Government would not be willing to see the Japanese do to our motorcar industry what they did to our motorcycle industry?
§ The Prime Minister
Not precisely in that form. But there is general disquiet about relationships between Japan and the Community because the adverse trade balance between the Community and Japan has risen from about $300 930 million a year some four or five years ago to $3 billion a year now. It is that imbalance which must be put right.
I do not share the hon. Gentleman's fears about the consequences of transferring these negotiations. On the whole, I think this country will be stronger as a result of a central discussion of these matters with Japan than if we pursue them individually. I do not take that view on all matters, but I think that it will be the case with Japan.
As for dumping procedures, a number of complaints have been made. We have already indicated to the Commission, which is not, I think, yet responsible—I think that Britain is still responsible for her own dumping procedures—that, when they are transferred, we hope that the Commission will take up these matters quickly and prevent any delay in a range of complaints.
§ Mr. John Ellis
May I take my right hon. Friend back to one of his earlier replies when he was being pressed about the common agricultural policy and when he, I thought, said realistically that the nations of the European Common Market were conditioned by their own self- interest? This scarcely accords with the idea which was sold to this country when we agreed to go into Europe that we would all be a happy band of brothers helping each other. Is that the sort of attitude which is now causing my right hon. Friend to review his own attitude to the institution?
§ The Prime Minister
I do not remember ever advancing the possibility that we would be a happy band of brothers. I always argued that Britain would be able to serve her own interests inside the Community just as everyone else served theirs. I think that my hon. Friends have heard me make that case time after time. But there are many areas in which joint Community action can be more helpful to the people of Europe than individual action. We have just had an illustration. I take the issue of connections with Japan as being one such case. There are other illustrations in social matters and in terms of the possible convergence not of our economies but of the kind of policies that we are following where I believe that it is of advantage. In other words, I remain as pragmatic about this institution as I always was.
§ Mr. Peter Mills
Does the Prime Minister recognise that his failure to accept even a modest adjustment in the green pound may help the consumer in the short term but that in the long term it will have serious effects on home production? With respect to the right hon. Gentleman, he talks about a lack of guts on the part of the Opposition, but when will he have the guts to do something about the long term, which is so important?
§ The Prime Minister
I always remember the old saying, "In the long run, we are all dead"—myself before the hon. Gentleman, who has the advantage of being much younger than I am. But we have the situation in which our agriculture has the possibilities of expansion, even under the present system, and that the negotiations on prices which take place every February give an opportunity to ensure that our agriculture does not fall behind.
It is a striking illustration of what I am saying if I remind the House that the efficiency of British agriculture is such that our milk producers still produce a very great deal of milk, even though it is costing rather more, but it is still below the continental price, and that if we adjusted in this way we should be producing very much more milk. That is an argument on the side of the farmers. But we have to balance that against the present need of consumers, and our anti-inflation policy must come first at the moment.