EUROPEAN COMMUNITIES (BUDGET)

HC Deb 21 February 1979 vol 963 cc493-549

7.5 p.m.

The Minister of State, Treasury (Mr. Denzil Davies)

I beg to move, That this House takes note of EEC Documents Nos. R/3185/78 R/3089/78, R/3090/78, R/3093/78, R/3146/78, R/3312/78 and 4102/79 on the Communities' Budget.

Mr. Deputy Speaker (Sir Myer Galpern)

I should inform the House that Mr. Speaker has selected the amendment in the name of the hon. Member for Southampton, Test (Mr. Gould).

Mr. Davies

The Government welcome the opportunity to debate the Commission document "Financing the Community Budget—The Way Ahead", R/3185/78, together with four budget transfer documents and two other documents embodying an issue of principle on the operation of the budget.

The present and future arrangements for financing the activities of the Community are matters of growing concern for all member States. They are an issue of immediate importance for the British Government. The Commission paper on financing the budget is a valuable basis for discussion.

In this connection, I should like first to clarify the status of the Commission document. It has been presented by the Commission on its own authority as a discussion document—a Green Paper. Its purpose is to enable Governments to take a first look at the available options should the revenues provided by the existing own resources system prove insufficient in the future to finance the Community's agreed level of expenditure. The document does not present formal proposals and, therefore, Governments are not being asked at this stage to take firm policy decisions.

The paper will first be discussed at ministerial level in the Joint Foreign Affairs and Finance Council in April. We fully expect that, when Governments have had the chance for a thorough exchange of views on the main issues in the paper, the Commission will be asked to put forward a set of firm policy proposals. The proposals will be deposited in the House in the usual way and hon. Members will have an opportunity to debate them. Meanwhile, the Government will obviously pay close attention to the views expressed by hon. Members in this debate.

Hon. Members may find it useful in considering the paper if I briefly outline the way that the existing own resources system operates. The revenue side of the budget is financed from three sources: agricultural levies, Customs duties and a third element comprising the yield from a variable VAT rate of up to 1 per cent. calculated on a harmonised base for all member States.

In the 1978 budget, for example, agricultural levies took up 15.5 per cent., customs duties 45.9 per cent. and the third element, which was related to our GNP share in 1978, took up 38.6 per cent. of the United Kingdom's gross contribution. That gives an indication of the mix of the three ways of raising money within the EEC budget in relation to this country.

For 1979 the third element for three of the member States—Germany, Ireland and Luxembourg—will be related to their shares of Community GNP since those countries have not yet implemented the VAT sixth directive. Naturally the size of the third element, and hence the notional VAT rate, will vary according to the gap between the revenues provided by the agricultural levies and customs duties on the one hand and the level of expenditure agreed in the Community budget on the other hand.

An important feature of the present system is that under the own resources decision of 21 April 1970, a ceiling of 1 per cent. was placed on the VAT rate. The own resources decision cannot be altered except by a unanimous decision of the Council of Ministers and an amendment that must be ratified by the Parliaments of all member States. In other words, should the 1 per cent. ceiling be reached, a new source of revenue cannot be adopted without the agreement of all member Governments and the approval of all member countries' Parliaments.

That brings me to one of the central points in the Commission paper. The Commission would concede that any assessment of the date when the 1 per cent. ceiling will be reached depends upon a number of assumptions. In particular, the assessment depends upon an estimate of the revenues which will continue to be generated by the existing own resources system. Secondly, and more importantly, the assessment hinges upon how the future trend of expenditure develops.

The Commission says in its document that it does not believe in the budget expanding for its own sake. It also says that present and future policies must be judged against the need for restraint in public expenditure. The question, however, needs to be taken much further.

The present arrangements for financing the budget are badly out of kilter. They bear no discernible relation to the ability of countries to pay. On the contrary, their effect is random and, for the United Kingdom, downright perverse. But this is not a problem for one country alone. It is an issue which the Community as a whole must tackle in its own long-term interest. It is essential for the future of the Community that its policies taken as a whole should reflect an overall balance which corresponds to the Community's long-term objectives and which is broadly acceptable to all member States.

This is manifestly not the case for the United Kingdom's budget contribution at present. Our level of net payments is out of all proportion to our relative prosperity. The burden is growing every year. If it continues unabated, it will have an increasingly adverse effect upon our balance of payments despite the corrective supplied by the financial mechanism. It represents a very considerable resource cost to the British Government and people.

Mr. Nigel Lawson (Blaby)

The right hon. Gentleman mentioned the corrective mechanism. As I understand the corrective mechanism, if the total contributions reach 110 per cent. of the proportion of the GDP, an adjustment is made.

I have a written answer from the Chief Secretary to the Treasury saying that in 1979 it was expected that our contributions would reach the 110 per cent. mark. Does the Minister of State expect in 1979 the adjustment mechanism to come into play for the first time?

Mr. Davies

It is slightly more complicated than just 110 per cent. But I accept the hon. Gentleman's point. We expect that in 1979, as a result of the position in 1979, there will be some adjustment and payment to be made. In fact, that payment will be made in 1980. What exactly it will be is not easy to tell at the moment.

Clearly one of the keys to this problem relating to the budget is finding ways of curbing the present excessive level of expenditure on the common agricultural policy. This swallows more than 70 per cent. of the budget and mainly benefits richer member countries. A major objective of this Government is to put an end to the structural surpluses which account for the major share of spending and to bring some rationality into the pricing arrangements which are badly out of line with world markets. We are pursuing, and will continue to pursue, this objective irrespective of progress on any new own resources. But the scale and timing when existing own resources are exhausted will depend to a significant degree on the trend of agricultural expenditure.

Balancing all the revenue and expenditure variables, the Commission estimates in its paper that the ceiling on own resources will be reached by the time of the 1982 budget and that a decision on a new revenue source will be needed this year to allow time for ratification. This estimate allows for the enlargement of the Community. We have not yet been given all the detailed calculations underlying the Commission's estimate. No doubt we shall get a clearer picture in the course of discussion.

Having discussed the need for a new revenue source, the Commission goes on to make a preliminary examination of a number of possible options. With the House's permission I will comment on these briefly. The first solution suggested by the Commission would be to raise the 1 per cent. ceiling on the VAT rate. The Commission says that this would have the virtue of simplicity. VAT is already an accepted own resource, and a harmonised base has been agreed in principle.

The other options examined are taxes on cigarettes, alcohol and energy and additional personal and corporation taxes. All of these would pose practical difficulties, notably the absence in most cases of an agreed harmonised base for them. Furthermore, they would have a regressive effect for some countries, including the United Kingdom. The Commission also considers the option of borrowing to finance a budget deficit only to reject the idea.

We shall be discussing these technical questions in detail with other Governments and with the Commission in the coming months. At this stage, I can say that the Commission's general approach to the various options seems broadly sensible, though there are a number of points of detail which we will need to look at very carefully.

Hon. Members will have noted that the Commission draws attention in its paper to the idea that any new revenue source could be looked at from the standpoint that it should not exacerbate existing economic disparities, known as the principle of non-regressivity, or that it should help to reduce these disparities, known as the principle of progressivity. The principle of progressivity is the familiar one applied to personal taxation. The higher the income bracket, the more sharply the level of taxation rises. There is no reason why this principle should not be applied for calculating contributions to own resources, either new own resources or even existing VAT own resources. For example, if a degree of progressivity of 1.5 were applied, using GNP per head as the criterion of prosperity, a country with a GNP per head of 10 per cent. below the average would on that basis pay 15 per cent. less than the average.

This is clearly an important issue, and the Commission is to be congratulated on placing the idea of introducing progressivity before member Governments. Introduction of the principle of progressivity would be a significant step forward on the road towards bringing the level of contributions to the budget properly into line with the ability of countries to pay. Some of the more prosperous countries may regard the idea of progressivity with less enthusiasm than others.

I turn now to the four budget documents which the Select Committee has recommended for debate R/3089/78, R/3090/78, R/3093/78 and R/3146/78. Each of these documents concerns a proposal by the Commission to transfer appropriations from one section of the 1978 Community budget to another. When the 1978 budget was adopted, there had been no Council policy decision in any of the areas covered by the four documents. The appropriations relating to them were therefore included in the reserve section of the budget, which is chapter 100. Appropriations entered in chapter 100 have a provisional character and cannot be used until they are transferred to the operational part of the budget—that is, the individual chapters, articles or items, as the case may be—where expenditure can be incurred and commitments entered into in pursuance of agreed Community policies. In the absence of Council policy agreement in these areas, the inclusion of provision only in chapter 100 was therefore consistent with the Council's views, which We strongly support, that expenditure should not be incurred without Council approval of the underlying policy.

In these four documents, the Commission proposed that the appropriations originally included in chapter 100 should now be transferred to the relevant operational line in the 1978 budget One of the documents, R/3093/78, relates to budgetary provision for the Joint European Torus, the JET project. In this case, the Council took the necessary policy decision on 30 May last year, so there was no objection to the relevant appropriations being tranferred on to the line. The Council, therefore, unanimously supported the Commission's proposal in R/3093/78. In respect of that document, no point of principle arises.

In the other three cases, as the Select Committee has pointed out, there had not been similar policy decisions. Nevertheless, the Commission wanted to ensure that the appropriations entered in chapter 100 of the 1978 budget for these items would remain available for use in 1979 in the event of a requisite policy decision being taken by the Council. However, since there is some doubt as to whether appropriations entered in chapter 100 could legally be carried forward in this way, the Commission decided that it had no alternative but to seek first a transfer to the operational line, whence a carryforward to the 1979 budget would be possible.

When the Council discussed these transfer proposals it took the view that, since the necessary policy decisions neither existed nor were imminent, there was no need for the transfers. In these cases, however, the Council's opinion is only advisory, since the proposals all relate to non-obligatory expenditure.

The Assembly has the last word, as the House knows, on annual appropriations for non-obligatory expenditure, subject to the overall limitation imposed by the maximum rate. This power extends to transfers relating to non-obligatory expenditure, and, in exercise of this power, the Assembly, noting the Council's opinion on the proposals, announced that all four transfers were authorised in any case.

Mr. John Roper (Farnworth)

When this is done in such a way as to carry forward from one year to the other, does the increase in expenditure count against the maximum increase in expenditure that can take place in the following year?

Mr. Davies

Yes, it does. In fact, the maximum rate applies now both to appropriations and to actual payments. As I understand it, it counts against the maximum rate. Although this means that in three cases appropriations now exist on the line against the Council's wishes, the significance of this should not be overstated. The Commission's intention in making the proposals was not to defy the Council but to ensure that the appropriations would remain available for use in 1979 should the need arise. In fact, in the case of one of these documents, R/3146/78, concerning projects in the field of technology and industry, the Commission has subsequently decided to withdraw its original proposals for a Council decision, so there seems little prospect of any expenditure being incurred against the Council's wishes.

The remaining two documents in this batch of four relating to the carry-forward to the reserve item, R/3089/78 and R/3090/78 concern, respectively, expenditure on helicopter and airframe research programmes and joint projects in prospecting for hydrocarbons. Council policy agreement in these areas still seems unlikely in the near future and my understanding is that, in the absence of such agreement, the Commission has no intention of utilising the appropriations released from chapter 100. Thus, in practice, the Council's view that expenditure in these areas is precluded by the absence of an agreed Council policy should still be respected. As a result, the Council's authority will be maintained and the institutional balance will remain unchanged.

The remaining two documents before the House, R/3312/78 and 4102/79, also raise a point of budgetary principle though this time one in which the Council is in a strong position and need not leave the last word to the Assembly.

Briefly, the background is this. Research related to the development of nuclear energy has always been a significant activity under the Euratom treaty, and since 1974 there has also been a growing amount of activity in other fields carried out in support of the objectives of the Economic Community. Under both treaties it is only possible to undertake research and development programmes when the Council agrees unanimously to do so, and so each programme is the subject of a Council decision in which the Council lays down the scientific and technical content, the duration—usually four or five years—and the way in which the programme is to be carried out. The scientific definition of the programme would be incomplete without a statement of the Community resources to be used. It is these resource provisions in two, as yet, unadopted research proposals that are amended by the documents before the House.

Because Community expenditure on research and development is classified as non-obligatory, the budgetary procedure again gives the Assembly the last word over the annual appropriations entered in the budget. But research and development expenditure is treated specially. In particular, appropriations receive special treatment in the Community's financial regulations.

Article 88 of the financial regulation of 21 December 1977 allows the Council to set an overall ceiling, or tranche, to the total Community funds to be allocated to a multi-annual programme in the course of its lifetime. Although the Assembly can influence the pattern of appropriations year by year, it is not able to override the overall ceiling set by the Council.

The Assembly has tried to circumvent this limitation on its powers by proposing amendments to draft Council decisions, worded so that no firm ceiling would be set. However, even when, as in the present cases, the Commission itself amends its own proposals in line with the Assembly's recommendations, the Council's ultimate control over the adoption of research and development programmes enables it to word its decisions as it wishes and to set firm financial ceilings.

If these amendments were adopted, the Council would in effect have waived its rights under article 88 of the financial regulation and given the Assembly influence over total as well as annual expenditure.

In the past, the Council has invariably rejected such Assembly amendments, and has normally set firm expenditure ceilings in multi-annual research programmes. The United Kingdom has supported such action by the Council and I can assure the House that it will continue to take the same line on these and similar proposals.

I do not know why the hon. Member for Blaby (Mr. Lawson) is laughing. This is an important point—the balance between the powers of the Council and those of Parliament. We believe very strongly that the Council should exercise its right to set financial ceilings and, therefore, intend to ensure that this right is preserved in future Council decisions on research and development matters.

Having dealt with these rather technical but nevertheless important budget points, I should like finally to return briefly to the Commission paper on the provision of new own resources. Perhaps I may also say at this stage, Mr. Deputy Speaker, that the amendment which you have said is selected for debate is one which the Government can accept because it presses for improvements in the operation of the budget to bring net contributions of member States, and particularly of the United Kingdom, into line with their ability to pay. Improvement in the level of net contributions depends on both gross contributions and receipts. We shall therefore maintain our policy of seeking a reduction in the total cost of the CAP and a more rational distribution of resources between agricultural and non-agricultural programmes.

We shall continue to insist upon a real improvement in the way in which the burden for financing the Community budget is shared out among member States. We shall take an active part in the discussions on the Commission paper at the April Joint Foreign Affairs and Finance Council meeting. May I once again assure hon. Members that we shall pay close attention to the views expressed in the debate this evening and that when the Commission comes forward with firm proposals the House will have an opportunity to debate them.

7.28 p.m.

Mr. Nigel Lawson (Blaby)

The Minister of State began with the document "Financing the Community Budget—the Way Ahead", the first of the seven or eight documents we have to debate, and he ended with it. I share his view that this is a document of the first importance, so much so that because this debate is of a strictly limited time I shall not discuss what he called the more technical documents which are also before the House. The Minister rightly said that their significance should not be overstated.

I shall devote myself entirely to the extremely important document "Financing the Community Budget—the Way Ahead". The document raises issues of the first importance even though it is only a consultative document, only a Green Paper. It is right that we should be aware of the great importance of the issues raised in this document which go to the heart of matters traditional to this House of Commons. Here we have the European Community asking the taxpayer for more money.

That is something we should consider very carefully. I thought that in some places the Minister of State was a little flippant in his discussion of this document, but I did not find much with which I dissented in the content of his speech. Whether we are pro-Europeans or anti-Europeans—I unhesitatingly declare myself a pro-European—this is something which, as parliamentarians, we must subject to the most searching scrutiny. As the Minister said, this document is a Green Paper. The Commission is inviting our views, and we should give them.

Before giving the views of Her Majesty's Opposition, I must say that this debate could not have come at a more curiously appropriate time. When discussing the minor documents, the Minister made great play with the Community budget of 1978. I was surprised that he did not refer to the budget of 1979. I was perhaps discourteous enough to laugh when he was talking sententiously about the balance of power between the Council of Ministers and the European Assembly. He asked why I laughed when this was a serious matter. I laughed because the real challenge between these two came in the context of the budget of 1979—which the Minister did not mention at all. That seems very strange.

The Community has for the first time no agreed budget for the coming year—1979—and it is instructive to recall how this came about. The European Assembly added to the budget an extra £325 million of regional expenditure, confident that the Council of Finance Ministers when it met on 20 November last would vote that down, after which there would be the usual horse-trading between the Council and the Assembly, leading to the usual compromise. But, to the general astonishment, on 20 November it was not voted down. By some almightly muddle and incompetence, the representative of Her Majesty's Government at that meeting—the Chief Secretary, no less—cast the decisive vote in favour of the enlarged budget.

It is surprising that the Minister of State made no reference to that important event, particularly since he was discussing the delicate question of the balance of power between the Council of Ministers and the Assembly. I know that he is a junior Minister at the Treasury and that the Chief Secretary is in the Cabinet, but he is not such a weak or timorous soul that he might not have adverted to it, I should have thought. But I was wrong.

Since then the Government have recognised their blunder and have now gone to the opposite extreme of refusing to pay their contribution to the budget, which is almost certainly an illegal act.

Mr. Denzil Davies

The Government are paying their contribution according to the draft budget. They have not refused to pay their contribution.

Mr. Lawson

That is a technicality. They are not paying their contribution according to the budget which the Chief Secretary himself allowed to pass through the Council of Ministers. This is the important point. This is almost certainly illegal. If the Minister of State wishes it to be tested in the courts, it can be so tested. Perhaps it will be, but I hope that a compromise will be reached.

The Minister can decide no more than I where the legality lies, but we can both admit, I am sure, that the balance of legal opinion is that what Her Majesty's Government have done to redress their earlier blunder is illegal. Perhaps the Minister can enlighten the House by explaining what he expects to happen next in this chapter of the unfolding saga of Britain in Europe.

In the meantime, in the last months before the transmogrification of direct elections, the European Assembly might pause to consider what its budgetary function chiefly is. Is it to act as a necessary watchdog against excessive or unwise expenditure, or is it the reverse, to demonstrate its virility by boosting Community public spending?

It is against that background that we should examine this important document. It raises three separate questions. The first is whether the Community needs more money than will automatically come to it from the agricultural levies, the Customs duties and the 1 per cent. VAT, and whether it needs it, as it claims in this document, by 1982.

The second question is, if it does need more money to finance a bigger budget, should the extra spending be in substitution for public spending now conducted at the national level or should it be net additional public spending? The third question, on which the Minister of State rightly touched, is, if more money is needed, for whatever reasons, how should that money be raised?

The amendment is confined to the third consideration, in effect. We have no particular objection to it, even though its wording leaves something to be desired, because the present pattern of Community revenue and expenditure is cockeyed and unsatisfactory to Britain and needs to be changed.

On the expenditure side, the clear need, as is generally agreed, is to reduce expenditure on the common agricultural policy, which at present takes almost three-quarters of the total budget. That must be done. The alternative, the soft option, is to try to swamp the effect of CAP spending by massive spending in other fields in which the United Kingdom might expect to be a net beneficiary. I believe that it was this view which led the Chief Secretary to cast his unwise vote on 20 November. That view is unacceptable to us on public expenditure and taxation grounds alike.

Let us consider, for example, regional fund spending, from which the United Kingdom would indeed be a net beneficiary and which was very much the matter in dispute on 20 November. So far as this is additional spending, the hard-pressed British taxpayer would still have to contribute £75 of extra taxation for every £100 of extra public expenditure received on the basis of the formula at present current in the Community.

Mr. Nick Budgen (Wolverhampton, South-West)

Does my hon. Friend agree that the way in which Community negotiations are conducted means that if, for the sake of argument, a nation State gets a benefit of £25 per head of extra public expenditure, it loses it on some other deal and, for instance, has to consent to the co-responsibility levy on excess production of milk? So there is no way in which one can get a benefit without paying for it.

Mr. Lawson

I think that my hon. Friend is on to a bad point, because some countries get great benefits from the CAP and do not have to pay for those benefits themselves.

I turn now to the revenue side of the equation. Here, the inequity stems not from the CAP but essentially from the fact that, as a large importer of non-agricultural goods from the outside world, we pay far more than our fair share to the Community purse by way of customs duties. To be precise, with 16 per cent. of Community GNP, we contribute 25 per cent.—or, this year, about £800 million—of total EEC revenues from customs duties.

It seems to me that if the Community is to acquire a new source of revenue—say, by an increase in the VAT limit from 1 per cent., which at present applies a limit for the United Kingdom of about £1,000 million, to 2 per cent. or whatever is chosen—a simple mechanism should be devised whereby we are automatically credited with the excess payment of customs duty above the amount which would be strictly proportionate to our share of GNP.

That would be a far better way of achieving equity than the so-called "progressivity" which appeared to commend itself to the Minister and with which the Commission toyed in its document. However, I must say that the Commission's insistence that any new source of revenue should not itself be regressive is at least a welcome advance.

But the key question is whether the Community should be given a new source of money at all. The Commission's Green Paper suggests four reasons why it should. There is the cost of enlargement—the accession of Greece. Portugal and Spain. We on the Conservative Benches welcome the prospective enlargement of the Community. At this stage it is impossible to quantify the cost. There may well be some cost, but a great deal will depend upon the future of the common agricultural policy.

There is also the alleged lack of buoyancy of the existing sources of revenue. The Commission seems here slightly to overstate its case. Between 1975 and 1979, for example, total Community revenues from agricultural levies and customs duties combined rose by 67 per cent., against a rise in total Community GDP of 54 per cent. Whether there is buoyancy depends on a lot of assumptions about the future which may or may not be borne out.

The two main arguments in the document, however, do not rest on the enlargement of the Community or the lack of buoyancy of existing sources of revenue. Instead they are, first, the need, as the Commission sees it, to transfer to the European plane public expenditure at present conducted at a national level and, secondly, the need to increase the totality of public expenditure within the countries of the Community. The document is explicit on this second point. Paragraph 16 of the document says: over the years the development of actions at the Community level should substantially increase the size of the budget. In some critical areas this would necessarily involve an increase in the total of public expenditure, as Community actions would be additional to national actions. As to the first of those proposals by the Commission, the idea of transferring from the national plane to the European plane certain items of public expenditure, this type of switch is something that we would be inclined to respond to by treating each proposal on its merits. It is difficult to see a large number of such areas, although no doubt a case could be made, for example, in the context of regional spending, in so far as there is such spending, to avoid the bidding-up of subsidies, which might occur if things are left to individual member States. However, the Commission at this stage makes no specific proposals as to which items of public expenditure ought to be transferred from the national to the European plane. We shall have to wait and see what eventually is proposed before making a judgment.

Mr. Alan Clark (Plymouth, Sutton)

My hon. Friend is too tactful in concealing his feelings. Is it not the case that these proposals are simply part of a prolonged attempt to aggrandise the powers of the Community so as to bring within its clutches more and more comprehensive powers of a general kind without limit—as it sees it—until it will finally bring within its scope all forms of taxation and distribution of money?

Mr. Lawson

There are many different groups and forces within the European Community which have different motives. There may be some which have that view. It is a little far-fetched to say that that is the view of the Community as a whole. I cannot think offhand of a single member country which would support such a view.

The more important matter, however, relates to the second heading, namely, an increase in the totality of public expenditure and the demand for extra revenue for that purpose—

Mr. R. C. Mitchell (Southampton, Itchen)

Did I understand the hon. Gentleman to say that the increase in the budget proposed by the European Assembly was unacceptable to the Opposition on public expenditure grounds, even though it means a substantial benefit for Britain through the regional fund? If that is so, why was it that the whole of the Conservative delegation in Europe voted in favour of this move, as I did? I am proud to have done so. I believe that the Government are being stupid on the issue. Can the hon. Gentleman explain?

Mr. Lawson

I departed some time ago from the 1979 budget debacle. I had returned to the document. If the hon. Member wishes me to do so, I shall return to his point. The Conservative Members who voted as he did—the Labour Members, as I understand it, were divided on this matter, as they are on most matters—were expecting, as I said, that the Council of Ministers would, as it had always done in the past, vote the budget down—

Mr. R. C. Mitchell

No. After that.

Mr. Lawson

—and then there would be the process of horse trading. Then the Chief Secretary behaved in this curious way on 20 November, which the Government have been regretting ever since.

I return to the more important point, namely, the claim in this important document, a valuable contribution to discussion—I see the Minister of State smirking when I recall his own words—that public expenditure in its totality should be substantially increased and that extra revenue should be raised for this purpose. We clearly cannot either welcome or approve that proposition at a time when the overriding need is to cut taxation and reduce the burden of public expenditure. We cannot accept any suggestion that the European Community, at this time or prospectively, should be voted funds to enable it to add further to the totality of public expenditure.

To fire this gentle warning shot at this stage is in no sense to be anti-European. The progress of the European adventure is not to be measured by the size of the Community budget. There is a great deal to be done, even in the narrow financial area, of a non-budgetary nature. For example, there is the removal of exchange control within the EEC to be dealt with. Nor, incidentally, will it necessarily encourage the essential reining back of CAP spending if we are to make more funds available to the Community with no strings attached.

The heart of the matter is rather that for too long it has been believed—particularly in the Labour Party and its counterparts overseas—that the solution to any problem was to throw public money at it. The result at national level, as is generally recognised, has been little short of disastrous. It will be no less disastrous if it is the EEC which is throwing the money, albeit on a smaller but by no means insignificant scale. Before the Commission makes a formal proposal on this matter—which it will do in due course—having, I hope, listened to what we have said, I trust that the voice of the European taxpayer, who is just as European as anyone else, will be more clearly heard than is evident in the document before the House today.

7.49 p.m.

Mr. Bryan Gould (Southampton, Test)

I beg to move, at the end of the Question, to add: ' but notes the regressive and inequitable operation of the present system of financing the Community Budget and urges Her Majesty's Government, in negotiating on any Commission proposals, to press for a system of financing the Budget which contributes to reducing the present disparities and to bringing the level of net national contributions into line with ability to pay.' I am happy to have the opportunity to move the amendment, which stands in the names of my right hon. and hon. Friends and myself—

Mr. Neil Marten (Banbury)

Hear, hear.

Mr. Gould

—and that of the hon. Member for Banbury (Mr. Marten). Both Front Bench spokesmen have correctly, in my view, identified document No. R/3185 as by far the most important of the documents which we have to consider tonight. As has been said already, this document sets out the problems which the Commission foresees as arising out of the situation when the budget will have outgrown the own resources—the levies, the duties and the yield from up to 1 per cent. VAT—which those resources can match.

It seems to me that there is a preliminary question, however, to which both Front Bench spokesmen have already adverted, namely, that the size of the budget, or, rather, the financing of the budget, is not just a question of finding money to meet whatever obligations are undertaken. The first question is what can be done about limiting the size of the budget—the total outline of expenditure.

The Commission pays lip service to that and makes one or two cursory remarks about it, but it is clear that the Commission has a vested interest. For the sorts of reasons mentioned by the hon. Member for Plymouth, Sutton (Mr. Clark) in an intervention, the Commission has a vested interest in seeing a continuing growth in the size of the EEC budget, because all that that means is that resources are shifted from a national level to a supranational level, and we thereby, bit by bit, find that we are being governed at that supranational level.

There is no solution to the problem of the size of the budget unless we tackle the problem of the common agricultural policy. It has been made clear already today, as on so many previous occasions, that the CAP accounts for over 70 per cent. of the total expenditure. This entails that an enormous burden in the budgetary context actually rests on the shoulders of my right hon. Friend the Minister of Agriculture, Fisheries and Food. It is he who is tackling the problem, it is he who is trying to hold down prices, and when we hear the encouraging words from the Opposition Front Bench and we know that my right hon. Friend will need every ounce of support which he can garner both in the House and in the country, we shall wish to examine and test the genuineness of what has been said tonight to see whether the Opposition will support him in the struggle which he is undertaking.

But it is more than just a question of holding down prices, since even if we were to hold down prices that would simply leave the budget intact and growing with inflation. What we need to tackle is the whole principle of intervention, and that has to be done before enlargement, because once the Commun is enlarged, with the same principles applied to Mediterranean produce as are applied currently to temperate produce, the game is lost. There is then no limit to the budget. It will grow to the extent that it will bankrupt us all. So my right hon. Friend needs support, and he needs support from the Conservative Opposition as well as from the people of this country. Fortunately, he is far more guaranteed of support from the people than from the Conservative Opposition.

Mr. Douglas Hurd (Mid-Oxon)

I am trying to follow the hon. Gentleman's argument. He is saying that it is the Commission which is always pushing for more spending and his right hon. Friend is now pushing for less. How does he explain that it is in fact the Commission which this year, as last, has taken the initiative in the agricultural price review? It is the Commission, not the Minister of Agriculture, which is taking the initiative in trying to freeze prices.

Mr. Gould

I had laboured under the illusion that the argument which I was developing was quite straightforward, so I cannot really imagine that it taxed the hon. Gentleman as much as he suggests. Of course, the Commission is as susceptible to the growing political pressure and growing dissatisfaction with the current shape of the budget as is anybody else. If the hon. Gentleman will be patient for a moment, we shall shortly see that there are other possibilities in the budget which the Commission may be more inclined to wish to pursue and to expand at the, perhaps, small price of basing it on reining back somewhat on agricultural expenditure.

In other words, it is not enough simply to move resources from one part of the budget to another—although that would be a minor and welcome reform—but it would not be enough, for example, to move agricultural expenditure from the guarantee sector to the guidance sector, since the fact is that, whether it is spent in the one or the other, it is of very little use to this country. We are again paying for something which is to our disadvantage.

Nor would it be an advantage to move expenditure from agriculture to an enlarged and swollen regional or social fund. Unless one happens to be, as I gather the hon. Member for Mid-Oxon (Mr. Hurd) is, a fervent proponent of a federal Europe, of a supranational tier of government, and unless a case can be made—I should find great difficulty in seeing how it could be made—that expenditure of a regional or social nature ought to be undertaken at a European level rather than at a national level, the only point of switching expenditure in that way is political, with the political objective in mind of bringing about perhaps not even a European federation but a fully fledged European union.

In other words, the first set of problems raised by this major document comes down simply to the question of controlling the budget—something which the Council of Ministers and the Commission have been notably unsuccessful in doing so far. But, as my right hon. Friend said in his opening speech, other documents which we have to consider tonight throw up rather more technical and specific illustrations of exactly the same difficulty, that of controlling the budget. As my right hon. Friend said, three of the four documents recommended for debate by the Scrutiny Committee involve an attempt to escape from the Council's control over expenditure. I was interested to hear his comments on that and to accept that he understands precisely what the European Assembly is trying to achieve here.

But it is also the case, as again my right hon. Friend made clear, that a further document, No. R/3312, tries a different method of escaping from Council control. It attempts to convert a figure which the Council specified as a ceiling into a guideline, and I am very glad that my right hon. Friend has taken that point and has pledged the Government to preventing the European Assembly from succeeding in that ploy.

I think it worth drawing the attention of the House to what the Scrutiny Committee said in a notably restrained but, I think, pointed way in referring to these documents in the following terms: While there is, apparently, nothing illegal in this procedure as it affects the first three cases, the Committee entertain grave reservations as to its propriety. I think that the House ought to endorse that comment.

As the hon. Member for Blaby (Mr. Lawson) rightly pointed out, we are not solely concerned—indeed, hardly concerned at all—with what happened in 1978. We are concerned with the future of the budget and with the current situation as regards the budget, and here the major development is, of course, the constitutional crisis which has arisen between the competing claims of the European Assembly and those of the Council of Ministers.

At this point I wish simply to say that I hope that in winding up the debate the Minister will reaffirm the Government's determination to prevent the European Assembly from escaping from the limitations on its competence which it has tried to avoid by the attempt to increase the regional fund.

As I suggested a moment ago, we are concerned partly with the nature and size of the budget, but we are concerned also with a further—

Mr. Kenneth Clarke (Rushcliffe)

I was interested in what I thought was a remark from a sedentary position by the hon. Member for Southampton, Itchen (Mr. Mitchell) because it seemed to me to raise a relevant point. Is it really the position that the hon. Gentleman is adopting a Gaullist attitude, that it is more important to try to cut the European Assembly down to size than to look at any possible advantage to this country from being in the EEC at all?

Mr. Gould

I am rather surprised that the hon. Gentleman should reveal the sort of mentality which thinks that for a mess of pottage it is worth selling one's birthright. In fact, what we are offered by the proposal endorsed by the European Assembly is, I gather, £25 million. That would build what? A little less than one mile of urban motorway. Is that worth selling the principle of continuing control by this House and this Government, through the Council of Ministers, over the growing EEC budget? I hardly think it worth posing the question since the answer seems so obvious.

I was about to move away from the question of the size of the budget to another preliminary question which also is not raised in the Commission document but which is implicit in the whole question of the future financing of the Community's activities—who pays for this budget? This question was brought into the open by my right hon. Friend the Prime Minister in his now famous speech at Guildhall some months ago. What he then said was extraordinary enough. It revealed the amazing state of affairs that this country, one of the poorest in Europe, is required to pay the largest, or perhaps the second largest, contribution to the budget.

I am delighted to see my right hon. Friend actually recognising that development, making a speech about it, drawing attention to it and calling for action. It seems to me to be a most helpful development in the sense that at last we are seeing the facts of the situation breaking through. Despite all the efforts of establishment opinion, of the media, of the conspiracies between Front Benches and the rest, at last the basic facts of the cost of our membership are coming through. On that ground alone I welcome it.

Even then my right hon. Friend slightly understated the damage that is being done to us on that ground. Since my right hon. Friend last spoke on these matters, we have had the benefit of an analysis that was published in one of our leading newspapers of our next contribution to the budget. The publication of that analysis did us a great service. The analysis calculated the cost in direct cash payment terms of our trade in food. I believe that in trying to estimate the size of our net contribution to the budget the economists from the Cambridge Economic Policy Group understated the true position. They were concerned with the budget as it had applied one year or two years ago. I prefer to consider the position that seems likely to develop this year.

In so doing I am in a fortunate position. As the House will recall, on 10 July last we had a debate on the draft EEC budget for 1979. My right hon. Friend spoke from the Dispatch Box and made some forecasts. He agreed that they might be too high or too low. Nevertheless, he gave the best available forecasts as long ago as 10 July. He said that the 1979 draft budget would lead to a gross direct cash contribution from the United Kingdom of £1,760 million. He told us that from that contribution should be deducted £260 million which would be due to us under the transitional arrangement which expires this year. He was rightly prepared to deduct about £500 million in various receipts from the regional and social funds and from other sources. He made it clear that, on his calculation, our net direct cash contribution for this year would be £1,000 million. That was based on a relatively generous assessment of our possible receipts.

If we add to the £1,000 million net contribution the £370 million that the Cambridge Economic Policy Group estimates as the cost of trade in food, we are talking about a lump sum of more than £100 a year handed by each family in the United Kingdom direct to some of the richest countries in the world. That is the true estimate of the cost in direct cash terms. That is made even more ironic by the fact that, when we ask why we are paying that, the answer is that it is overwhelmingly for the common agricultural policy, which is doing us as consumers and traders an immense amount of damage.

Mr. Marten

The Chancellor of the Exchequer described our position simply in a speech made at Brussels which was reported yesterday in The Daily Telegraph. He said that Britain would face a net bill of £1,000 million for its Common Market membership next year. He added that that would almost wipe out the United Kingdom's balance of payments gain from North Sea oil. That is another way of regarding our contribution to the budget.

Mr. Gould

I am glad to hear, as one would expect, that the Treasury has a united voice on this matter.

I deal with one element that sometimes others attempt to introduce into the calculation. It is suggested that from the £1,000 million net contribution we should deduct the gross sum of monetary compensatory amounts, as if these amounts were in some sense a subsidy that should be regarded as receipts. I deal with that argument briefly in general terms. Monetary compensatory amounts are in the nature of Green Shield stamps, but at a price that is twice as high as we need to pay. In practical terms, MCAs are sums paid from Commission funds into the pockets of exporters to the United Kingdom from Germany, France, Holland and elsewhere. In that sense they cannot be regarded as subsidies.

If we were to express common agricultural prices as they should be expressed, in a truly representative unit of account, it would be clear that, with the exception of the United Kingdom and Italy, monetary compensatory amounts and the whole structure of green rates are a means of pushing up common prices to prices regarded as acceptable in national terms. If the hon. Member for Blaby cares to read the report in Hansard of 13 December, he will find the facts set out in great detail. I do not have time to develop the argument in full this evening.

Mr. Lawson

The House should be clear where the hon. Gentleman stands. If the arrangements were changed so that we had what is known as a juste retour, would he be happy with our membership of the Community, or is his objection of a totally different sort?

Mr. Gould

It may surprise the hon. Gentleman to know that I have a certain degree of luxury. There are perhaps half a dozen major issues on which I regard our membership as unsatisfactory. The mere fact that there are a further five powerful points that reinforce my opposition hardly seems a reason for regarding my objection as any the weaker.

Before leaving our unfair contribution to the EEC budget, which is a haemorrhage of resources which must be staunched, it should be said that no Government could allow a sum so large to be taken away from us for no purpose other than one that is damaging. If the hon. Member for Blaby and his colleagues should ever find themselves on the Government Benches, I am sure that they will take exactly the same view. It is a view to which my right hon. and hon. Friends have been forced by the facts. We cannot allow the present position to continue. The louder and the stronger the House says that, the quicker it will be understood in Europe and the quicker we shall achieve some badly needed change.

Against that background, and in that context, it is now proposed by the Commission in the document that we are considering that nothing should be changed and that we should look forward to an expansion of the budget and to finding new resources. That is a completely unacceptable order of priorities. Resources at present comprise customs duties and agricultural levies. I pause only to remark with a certain irony that the reason why agricultural levies are said to be appropriate as own resources is that, as the Commission document blandly states, they are the product of Community policies. Surely there is no other reasons for having such levies. In addition to the duties and levies, there is the yield from up to a 1 per cent. levy on VAT.

It is proposed by the Commission for the purposes of discussion that the limit should be increased on VAT and that new sources of revenue—for example, alcohol taxes, petrol taxes and tobacco taxes—should be fed into the growing and voracious maw of the EEC. A number of arguments could be advanced on the precise proposals. I advance only one on VAT. As the Commission states, VAT for the United Kingdom is a highly regressive tax. It penalises the United Kingdom. It is regressive because it imposes a greater burden on us than is warranted by our share of the Community's total wealth.

It is ironic that, despite all the charges about the British being bad Europeans and un-communautaire, we happen to be one of the two countries that met their obligation of introducing legislation to enable us to be ready to make our VAT contribution. As my right hon. Friend made clear, some of the leading members of the Community are still not in a position to meet that obligation.

The Commission concedes in its document that there is a close bond between the concept of own resources and the growing power of the European Assembly. It observes that as the method of financing is increasingly coming to depend on own resources, national Governments are being bypassed and that that has been accompanied by an increase in the powers of the European Assembly. There is another cautionary reason for considering carefully any proposal that would increase the own resources basis of financing the EEC budget.

We cannot be expected further to contribute to a budget the purposes of which we profoundly disapprove and which do us enormous damage and whose present funding is quite unfair and totally unacceptable, and when the whole concept of extending that budget can be seen only as a step towards a European federation to which we are diametrically opposed. Our priorities should be different. They should be to reduce the size of the budget, to change the objects for which the expenditure is made and to eliminate the grossly unfair situation in which we are making a contribution far in excess of our ability to pay.

8.11 p.m.

Mr. Neil Marten (Banbury)

I am glad that we are debating document No. R/3185. That allows the debate to run far wider than if we were just debating the other limited documents. Therefore, I wish only to speak to that document.

The hon. Member for Blaby (Mr. Lawson) said twice that he was a European. I do not deny that. Presumably, he was born in this country, which is in Europe. However, he must not confuse being a European with the status of people like myself who are just as European, if not more so, as he is. I have a slight French connection, through my mother. However, I am anti-Treaty of Rome. That document is like a schoolboy ode. It should have been scrapped and another start made.

Mr. J. Enoch Powell (Down, South)

Why start again?

Mr. Marten

That is a good point. We could have started to obtain co-operation in Europe based first on a free trade area, taking the process much slower than was the way with the Common Market—which tries to impose co-operation in too short a time by means of the ridiculous document the Treaty of Rome.

The document with which we are concerned is about one main matter—the budgetary powers of the Assembly. So far there has been a general consensus that no more power should be given to the Assembly in budgetary matters and that power should remain with the Council of Ministers as long as the Council of Ministers exists. I go one stage further. Why give any power to the Assembly, even when it is directly elected? Why not remove the power from that body? In that case the Chief Secretary need not make such nonsense of matters as he did at the Council of Ministers. Control must remain with the Council of Ministers. That must be stated time and again. Otherwise, the Assembly will go on and on seeking more power irrespective of its political complexion.

I draw the attention of the House to the tenth report of the 1978–79 Session of the Select Committee, which makes this point. It draws to the attention of the House the documents by Euratom on safety in thermal water reactors and materials and methods in applied metrology, documents Nos. 3312 and 4102. At the bottom of the page it says: The amendments would appear to be part of the Assembly's continuing campaign to secure for itself a greater degree of freedom of authority in budgetary matters. That is another example.

I now refer to the Scrutiny Committee, of which my right hon. Friend the Member for Bournemouth, West (Sir J. Eden) is Chairman. I shall not pay him the usual compliments as he has heard them so often.

I see, in so many of the piles of documents that come through the hands of our Committee, small attempts by the Assembly to obtain more power. It is disturbing. I should like to see this Parliament make it clear that no extra power will be given to that Assembly.

Mr. Kenneth Clarke

Does my hon. Friend agree that it was before the Parliament had any budgetary powers that the present budgetary imbalance developed and that agriculture achieved a disproportionate amount of the total budget? If the whole matter is left to the Council of Ministers, it is left in practice to an annual discussion between the Ministers of Agriculture of each of the member States. Far too many decisions about the CAP have been left to Ministers of Agriculture who are almost entirely answerable to farming lobbies in their own countries. That is why there are the present appalling problems.

Mr. Marten

In answer to the first part of the question, the situation got out of hand when the Conservative Government were in power. The Labour Government have since taken a slightly tougher line. The debate illustrates the constant struggle between the Assembly and the Council of Ministers. I dread to think what will happen when Ministers decide on their own expenses after they have been directly elected. That will be a decision of the Assembly. It will not go to the Council of Ministers. In the Council's present frame of mind of wanting to increase its expenditure, I dread to think what expenses it will vote for itself.

My hon. Friend the Member for Blaby made an important speech. He set out from the Front Bench the attitude of the Conservative Party towards increased expenditure. Therefore, as a result of his speech we are beginning to be more consistent. I do not like to say this, but I have noticed that sometimes we have said one thing in the Community and another in our domestic policy. As we come up to the European elections, there will be a great number of people watching our actions on that point, especially if both the general election and the European elections take place on the same day. Unless our parties are absolutely consistent, they will look slightly odd if they say one thing in the Euro-elections and another in the domestic elections.

From now on, let us be, as a party, consistent. If we say that we shall cut Government expenditure in this country, let us do the same in Europe and veto any increase in expenditure when we participate in the Council of Mtinisters. That may be bad luck on the other members of the Community, who want to increase expenditure. However, we joined the Common Market. It asked us to join. We applied. The Common Market accepted us. It must accept the fact of life that one country can veto a proposal. I hope that we shall do so. It is in our national interest not to increase public expenditure. I hope that we shall have one standard of policy both in the Community and at home and that this matter will be carefully watched in this year of the Euro-elections.

The hon. Member for Southampton, Test (Mr. Gould) referred to the question of voting. He entered into a slight discussion with my hon. Friends. I wish that we could achieve more recorded votes in that Assembly. People go there and say "This is what was said and this is what was done ". However, there is no record of the voting. Votes are recorded only on special occasions when over 100 Members are present, and so on. I should like to be able to see how the Members vote on every occasion.

Document No. R/3185 deals with the increased expenditure that is to be incurred by the EEC in due course. I do not suppose that the Commission has consulted people before making its suggestions. I suppose that some bureaucrat in an office may have suggested taxing, for example, cigarettes, alcohol and petrol. If the Common Market were to seek to raise additional taxes by taxing cigarettes, alcohol and petrol, it would cause great anger in this country. There is enough anger as it is in this country about the Common Market, but that sort of proposal would make people much angrier than they need be. If the EEC wants more money, there is plenty of money available under the CAP. Three-quarters of the entire budget is related to the CAP. The cost of buying up surpluses, of storing those surpluses and of subsidising exports amounts to £6,500 million a year. If the Community wants more money, it can get it by cutting down on that CAP expenditure.

I do not believe that the absurdity of the Common Market as we know it today can go on. I believe that if this proposition about more funds comes to the crunch, it will be at that moment that we can force the issue and get the common agricultural policy right. Some of us have said so for several years. We were not always popular with some people when we said two or three years ago that the CAP ought to be reorganised and is nonsense. Opinion is now beginning to move, and people are beginning to accept that the CAP is nonsensical.

Mr. Kenneth Clarke

Everyone has always said that.

Mr. Marten

My hon. Friend mutters that we have always said that, but we have never produced any policy on how to reorganise the CAP. If anyone had suggested two or three years ago at meetings of the agricultural committees that the CAP should be reorganised, hands would have been thrown up in horror. It is only recently that people have started to write pamphlets on how the CAP should be reformed.

I believe, therefore, that we must concentrate all the power in the Council of Ministers, and not transfer it to the Assembly, because in the Council this House has a little measure of control, and the Ministers can certainly veto any further madcap ideas or proposals for increases in expenditure. But if the Assembly gets more power, the proposals cannot be vetoed there.

We agreed to the holding of direct elections because we were told that we must have them in order to make the Community more democratic. If that is the reason, surely we must accept the democratic decisions of the Assembly. If the Assembly is given more power, it will vote for more expenditure. If that is supposed to be democratic, we shall have to go along with that. If there were to be a motion before the Assembly—I have used this example before—to the effect that the Assembly believes that North Sea oil should become the property of the Community, every member State except the United Kingdom would vote for that, and it would be carried. If we believe in democracy, of course, we must follow the wish of the democratically elected Assembly.

While I am on the subject of money, Mr. Deputy Speaker, I should like to mention the information budget for the direct elections that we are about to have. I understand that the Community is to spend £7.5 million on information. I do not know how many hon. Members have been to see the display of information. I went to the opening session of it at the Festival Hall the other day. People may imagine that it is fair and neutral. I ask hon. Members to go and look at it and to decide for themselves whether it is neutral. In my opinion, it is not at all neutral, particularly on the question of the CAP. It is very biased. As the hon. Member for Birmingham, Handsworth (Mr. Lee) said the other day at Question Time, the election expenses of the candidates have started to run already because the date of the election has been marked down. It is fair to make the point that this exhibition, as it goes around the country in the various constituencies of the Euro-candidates, will be an election expense. I understand that this will be tested in the courts. If it is proved to be an election expense, and if the candidates have gone over the top, they will, of course, all be unseated if they have had this information bandwagon going through their constituencies, hiring halls and so on.

In all these matters—be it this subject. North Sea oil or election expenses—we must keep control in the Council of Ministers and not hand over any powers to that Assembly.

Several Hon. Members

rose—

Mr. Deputy Speaker

Order. I hope that the House will share my desire to try to maintain a balance between those who are for and those who are against. I think that it would only be fair to conduct the business and the debate on that basis. I was looking for the hon. Member for Farnworth (Mr. Roper). He will probably return, but he is not present at the moment. Therefore, I propose to call another hon. Member who is in favour of the EEC.

Mr. Bob Cryer (Keighley)

On a point of order, Mr. Deputy Speaker. It is common practice to call speakers not on the basis of whether they are for or against any subject but on the basis of the side of the House on which they sit. The fact is that on this particular issue there are many divisions in both major parties—and, indeed, even in one or two of the minor parties whose representatives have not taken the trouble to come along to this important debate.

I suggest that to embark on a different convention could create a number of difficulties. For one thing, there may be Members here who are very much opposed to the massive expenditure in this budget which we are debating but who to some degree may well be in favour of the EEC. Therefore, I should have thought that it was impossible to make a judgment on anything other than a party basis, which this House already follows. It is well known that the House makes its decisions on the best possible basis.

Mr. Deputy Speaker

Having spent almost five years in the Chair, I think that I can judge those who, in my opinion, are for or against the EEC. I am only trying to maintain a reasonable, sensible and just basis for debate. This is a cross party matter. It is not as though it were a motion coming from one party. There are differing views on both sides of the House. It is at the discretion of the Chair as to which side a speaker is called from. It is entirely a matter for the Chair. However, I shall not start an argument at this late hour because I want to get home early. Therefore, I shall call the first one. Mr. John Lee.

Mr. Dennis Skinner (Bolsover)

Further to that point of order, Mr. Deputy Speaker. I think that this is a problem. Although you have now taken account of what my hon. Friend the Member for Keighley (Mr. Cryer) said on this matter, I think it is a mare's nest. You will have noticed that in the past few weeks, in the run-up to the direct elections, some Conservative Members who are avidly pro-Europe have become muddled in their current views—I am not saying that it is permanent. Therefore, any attempt by you to sort out the pro-Europeans and anti-Europeans at this moment, especially amongst members of the Tory Party, would be a little more than difficult. It is as well—

Mr. Deputy Speaker

Order. I do not know what the point of order is. It would present no difficulty to the Chair. Mr. John Lee.

Mr. Skinner

Yes, he is all right.

8.28 p.m.

Mr. John Lee (Birmingham, Handsworth)

I am obliged to my hon. Friend the Member for Bolsover (Mr. Skinner) for his moral and, indeed, vocal support.

It is a pleasure to follow the hon. Member for Banbury (Mr. Marten). One so often agrees with him. I shall take up just one point that he made. I raised with the Law Officers—indeed, I am awaiting a considered reply from them—what the legal position will be with regard to expenses, not just in relation to the exhibition that is presently going round the country in its lavish fashion, which will misrepresent the situation, but expenses generally. It might be in order if I were to spend a moment or two on this.

As we all know, every party and many political lobbies engage, perfectly legitimately, in election promotional exercises in the months leading up to a general election. Indeed, I am conscious of a fair number of Conservative Party posters which have been erected round the country. Invariably, the practice is that the moment a general election is called all those posters come down and all promotional activity of an extraneous kind ceases. The reason for that is that if it were to continue candidates in whose constituencies those promotional activities were being conducted would find themselves liable to have to include a proportion of those costs in their election expenses. As was pointed out, if they go over the top they are in danger of being unseated.

What I suspect has not yet been fully understood is that since the date for the European elections, so-called, has been fixed statutorily for 7 June, any kind of promotional activity that has been going on for some time past—certainly any activity in the weeks leading up to 7 June—may cause any kind of election promotional activities to be countable in the way that I have suggested. If that be so, there will be quite a number of successful candidates who may find themselves—

Mr. Deputy Speaker

Order. I remind hon. Members that the debate is due to finish at 11.30 p.m. Some may think that it can continue into the small hours of the morning, but it will finish at 11.30 p.m. Therefore, I do not think that hon. Members should raise matters that are strictly out of order. I believe that the hon. Member for Birmingham, Handsworth (Mr. Lee) is straying rather wide of the subject under discussion, which is the Community budget.

Mr. Lee

I thought that the budget included expenditure, but I certainly shall not argue with you, Mr. Deputy Speaker. I believe that I have made my point. I believe that a number of people will find themselves at the receiving end of some election petitions when the time comes.

My hon. Friend the Member for Southampton, Test (Mr. Gould) made his case as well as one normally expects him to. The fact is that there has not been the slightest sign of any improvement in the CAP. Far from the expenditure that is debited to this country being diminished, either in percentage or absolute terms, the reverse has taken place. The process has got steadily worse, and there is every reason to suppose that if the three Mediterranean countries which are presently candidates for Community membership join they will add that much more muscle to the lobby of those who are in favour of the present high-cost Community agriculture procedure. Far from the CAP being modified, let alone disappearing, I believe that we shall find it more powerfully entrenched than ever.

In a previous debate I put a question to a Conservative Member—I believe that it was the hon. Member for Devon, West (Mr. Mills). I should now like to put it to my right hon. Friend. Has there ever been any serious attempt, either during the renegotiations or at any other stage, to substitute the CAP by a deficiency payments system on a national basis? Has that question ever been put, even by my right hon. Friend the Minister of Agriculture, Fisheries and Food, admirable though he is? He is the Minister who more than anyone else is fighting to mitigate the effects of this absurd system. Has anyone fairly and squarely suggested that to Mr. Gundelach?

It is said that the CAP is an open, progressive kind of concept aimed at promoting the interests of Europe as a whole on a modern basis. Has the Community ever been asked "As a token of your earnestness, do you accept that the CAP should go and that each individual country will pay for its own agriculture on a deficiency payments basis, such as we in this country have successfully conducted ever since 1947?" I believe that we can make that statement with some pride.

We know perfectly well what would happen if that were tried. We would get a dusty answer, because there is not the slightest sign of any improvement occurring.

I should like to dot the i's and cross the t's with regard to some of the points that have already been made. I have gone through the various reports that have been made in relation to agriculture. I believe that even were there to be an embargo on price increases as a result of the present trade-off that is now going on—and in which my right hon. Friend is playing such an admirable part—there would still be a considerable increase. I believe I am right in estimating that the cost of storage and subsidy for the whole system of intervention stocks would be up by £6.5 billion—about 10½ per cent. on last year—even without there being an increase in the present round of agriculture negotiations.

My right hon. Friend opened the debate with tactful imprecision. He was careful not to commit the Government. But we are entitled to know more. Most Labour Members would repudiate the idea of the Community having further financial resources. But if that is to happen the Government should have the courage to say so and state what the resources are to be. Will resources be derived from a percentage of income tax, wealth tax or another indirect tax as mentioned in one of the documents? For example, one suggestion was that there should be a tax on energy and that that should be hypothecated to energy resources in the Community.

There are seven consultative documents and to each is attached an explanatory memorandum, which is largely superficial in character and slovenly in wording. These memoranda are at least brief compared to the documents to which they relate. In relation to documents Nos. R/3089, R/3090, R/3146 and R/3093, there is reference to doubt about the legality of the proposed carry-forward of the proposal. My hon. Friend the Member for Farnworth (Mr. Roper), who is one of the few fervent Euro-fanatics on the Labour Benches, asked whether this item would be additional to or in substitution of the new budget's expenditure proposals. The Minister said that it would be in substitution. But as a lawyer I should like to know what the illegality is and how it can be put right. It is slipshod to say that there is some doubt about legality. If it is illegal, we should know in what way.

Mr. Denzil Davies

The statement that there is some doubt is correct. Some lawyers think that it is and others that it is not. That is the problem.

Mr. Lee

That is most helpful. Perhaps my right hon. Friend would tell us whether that has been challenged in the court of the Community. If not, one would have thought that it should have been put in a form less open to challenge.

The basic question in the debate is whether the Government take the view "Thus far and no further," and that for whatever other expenditure and for however long this absurd organisation continues the Community is not to receive any more money. Any switch in expenditure should be at the expense of the common agricultural resources. If that is not the case and the position of the Government is weaker than that, how much money will the Community expect from this country? In this House we are entitled to know from what sources the British taxpayer is to be mulcted to supply the extra funds. I hope that in replying my right hon. Friend will be more precise.

8.40 p.m.

Mr. Peter Mills (Devon, West)

I must declare an interest in that I am pro-European and have an interest in agriculture. Apart from my hon. Friend the Member for Blaby (Mr. Lawson), who opened for the Opposition, I am the first pro-European to speak in the debate tonight, and I am proud of it.

I should like to take up one or two points in the communication from the Council—" Financing the Community Budget—The Way Ahead ". The first point is that the Council talks about the need for constraint in public expenditure. "Constraint" is a very important word. The general public are concerned about the level of the Community budget at this time. A growing number of people, particularly consumers, feel very strongly that things are getting out of hand. Therefore the Community must look very carefully at the budget and at the word "constraint", which should be written on its heart because the public will demand that this be so.

In the document the Commission talks about the Community budget level and a national level. I believe that the Community budget should be held at its present level and, if possible, reduced but that the national level of expenditure should be increased, particularly when there are certain problems within the Community, such as agriculture.

Let us consider the example of Germany and its desire to support small farmers there. The problem of small farmers is confined to the Germans, and if they wish to support those farmers at the level at which they are supporting them now they should pay this money out of their own national funds.

Perhaps we should set a good example with some of our social problems in agriculture, such as the hill areas. We get a contribution from the EEC for our hill farmers. If we are asking the German Government to pay for their support of their small farmers out of their national funds because that is their special problem, we should do the same to support our hill farmers. I am all for restraint in the Community budget, and I hope that in time it will be brought under control as we turn more and more to national support for particular problems.

Mr. Lee

Will the hon. Member comment on the fact that we tried to do this in relation to the pig subsidy but that was ruled out of order by the Community?

Mr. Mills

With respect, the pig problem had nothing to do with social problems. It was entirely about MCAs. coefficients and the way in which the MCAs were constructed. That is a different matter.

Next, the document talks about Community expenditure. There is no doubt in my mind that this is important. If we really believe in the EEC, we must realise that there must be expenditure. We cannot have the benefits that the Community brings without a certain amount of expenditure. Those who are opposed to the concept of the Community say that the expenditure is totally wrong. If one believes in the Community and what it is achieving, one should be prepared to pay for those achievements and the financial wherewithal to cover its needs should be provided. There are advantages, and I make no bones about saying that.

I still believe passionately in the Community because I believe it is right that there should be a strong European bloc. I believe that the Community promotes peace, that it is good from the defence point of view and that it is important for the West that Europe should be united. The aims of the Community are absolutely right. Some hon. Members do not believe that, but if one believes in the Community it follows that there must be a certain amount of expenditure.

There are disadvantages but also many advantages. When one examines British farming, in which I am particularly interested, one sees that there have been considerable grants for hill-farming areas. There have been grants from the Community regional fund, from which considerable benefit has been derived. I could go on.

I passionately believe that if this country took advantage of the Community from an economic point of view there would be a much larger European market place into which Great Britain could thrust forward with her exports. What is sad about the agricultural and food world is that Great Britain has not seized the opportunities. Germany, France and Holland have done so and have greatly increased agricultural and food exports to this country. When one examines the major reason why we are in Europe, one can see that there have to be funds for this sort of expenditure.

The paper "Financing The Community Budget—The Way Ahead" also mentions the two foreseeable elements that have to be taken into account—the introduction of Greece and Spain to the Community. I believe that those accessions will give rise to real problems particularly in agriculture and the CAP. However, I believe also—far more than do some of the weary willies in the House—that the opportunity should be seized to make the necessary changes within the CAP to deal with the entry of Greece and Spain. That will provide the politicians who are on the hook with the necessary excuse to make the inevitable changes. I welcome the entry of Spain and Greece because I believe that it will give us the chance to make the necessary changes in the internal working of the CAP.

The paper states: The Commission hopes that every effort will be made to contain the cost of agricultural guarantee expenditure and its own proposals will be directed towards this objective. I believe that that aim can be achieved and I do not accept that the position in relation to the CAP is hopeless. If the will exists, positive steps can be taken to deal with surpluses. The problem in Europe is that the will is not there to deal with structural surpluses.

About 75 per cent. of the Community budget is concerned with agriculture—95 per cent. of that figure financing intervention and only 5 per cent. financing structural reform—and there is an obvious case for introducing changes. I disagree strongly with the hon. Member for Southampton, Test (Mr. Gould), who said that there was not much point in transferring money from the intervention fund to the structural reform fund. There is every reason for doing that. If we deal with the structural problems in European agriculture, we shall start to reduce the surpluses—and that is what it is all about. It is important to ensure that far more money is channelled into structural reform within the EEC rather than into intervention.

The paper talks about a lack of buoyancy and tells us about the various methods of raising further funds. It says: For all these reasons, there is no doubt that new revenue will be needed. The only question is when. The paper says that decisions will have to be made by 1982. If we have until 1982 before we have to find fresh ways of raising increased revenue, we have time to look at the whole matter again. I hope that the Minister will ask the Community to look carefully at its budget to see where it can be pruned and where money can be diverted into changing some of the structural problems within Europe. The European Parliament can also play a part in dealing with the problem by seeking to influence the Commission and Ministers to do something about it.

In the discussions and probings of the Select Committee of which I am a member, the Chief Secretary to the Treasury said in his evidence: Finance Ministers are not necessarily the most appropriate body to decide agricultural policy ". That is correct, but they are the best Ministers to put on the necessary restraints. In the Committee I made a strong plea that the Finance Ministers should take a firm stand on these matters. They should not be left entirely to the Ministers of Agriculture. It is the duty of the Treasury to take action. Heaven knows that when I was a junior Minister at the Ministry of Agriculture the sticky, powerful hand of the Treasury was there all the time. Why cannot we have the same sort of effort and pressure from the Finance Ministers to get the required changes in Europe?

My words did not fall on deaf ears. The only problem is that Ministers are hearers but not doers. We need not only hearers but doers. The Chief Secretary said: the idea of bringing pressure to bear through Finance Ministers on Agricultural Ministers in order to reduce the Guarantee Section expenditure is one, indeed, that I have been pursuing. We want to hear from the Minister of State what progress has been made. Otherwise, it will be the same old story of hearers but not doers.

I repeat that I do not think the position is hopeless. If we can get this pressure through the Finance Ministers, we can get the restraint which is needed and, above all, the changes within the Community and within the common agricultural policy which are so necessary in the interests not only of the country as a whole and of consumers but of the producers, the agriculturists.

8.55 p.m.

Mr. Douglas Jay (Battersea, North)

The hon. Member for Blaby (Mr. Law-son) invited right hon. and hon. Members to engage in a searching scrutiny of this EEC budget. My hon. Friend the Member for Southampton, Test (Mr. Gould) directed a searching scrutiny at the budget in total. It might not be a bad idea to look at some of the details as well as at the aggregate figures of the budget. I have been attempting to do that, but, because of your appeal for brevity, Mr. Deputy Speaker, I shall take only one example of the results of the scrutiny which I have conducted so far.

A week ago I addressed a question to my right hon. Friend the Foreign and Commonwealth Secretary on the subject of the salaries of the members of the Commisison, which are, of course, part of the EEC budget. My question asked my right hon. Friend what were the salary and expenses, respectively, expressed in £ sterling, paid to EEC Commissioner Haferkamp in 1978 ". In order to be slightly more precise than some hon. Members have been tonight, I shall read the reply in the words given me by the Foreign Office Minister. They were as follows: Mr. Haferkamp's basic annual salary as a vice-president of the Commission expressed in £ sterling and with effect from 1 July 1978 is £63, 966 gross, £42, 212 after tax. A vice-president is also entitled to tax-free allowances totalling £17, 189 plus an allowance of £739 for each child. My hon. Friend went on: A common representational fund of £195,000 is allocated for the expenses of all the Commissioners from which sub-allocations are made to each Commissioner. I have no information on how much of this was allocated to Mr. Haferkamp."—[Official Report, 14 February 1979; Vol. 962, c. 556.] Those are remarkable figures. It emerges that the total annual salary and expenses, free of tax, which this vice-president receives is £42, 200, plus a little more than £17,000. That is £60,000 tax-free. I do not know what gross income one would have to have in this country to receive £60,000 after tax. But, looking at the figures, I ask myself whether it is not rather discreditable for this country to be associated with an organisation which is involved in financial scandals of this magnitude.

Mr. David Stoddart (Swindon)

Will my right hon. Friend confirm that, expressed in weekly take-home pay terms, Mr. Haferkamp will be getting £1,135 net, after tax, plus £14 for each of his children?

Mr. Jay

If I have it right, it is very close to that. I should not like to do the arithmetic in my head, but it is £60,000 per annum, after tax.

I want briefly to ask my right hon Friend a few questions to elucidate this further. Who in this organisation decides the salaries and expenses of the Commission? Have there been any comparability studies with similar authorities elsewhere?

Mr. Deputy Speaker

Before the right hon. Gentleman puts his questions to the Minister, perhaps he can tell me whether there are any vacancies.

Mr. Ernest G. Perry (Battersea, South)

Well said!

Mr. Jay

I am not sure that I have followed your question, Mr. Deputy Speaker.

I should be glad to know whether there have been any comparability studies in this matter. More seriously, it would be interesting to know whether the Commissioners decide their own salaries or whether they are decided by the Council of Ministers, or by whom. If they continue at this rate, I do not see much possibility of financial restraint in this budget. Can my right hon. Friend also say whether all the other vice-presidents of the Commission get a similar salary and expenses? How many vice-presidents are there?

Mr. Budgen

Does the right hon. Gentleman agree that one appointment that can be used for comparison is that of our ambassador in Washington?

Mr. Jay

I am sure that diplomatic salaries throughout the world could come into such a comparability study, but it would be interesting to know who decides the Commissioners' salaries and, at the very least, what is the total sum of all the salaries of the Commissioners, including the President and the Vice-Presidents. Is it also possible to know more about the sub-allocations of expenses which go to individual Commissioners? We are given a total of £195,000. This is, after all, public money. I do not know why the sub-allocations, as they are called, should be hidden from this House or from the taxpayer who eventually has to pay the money.

I should be most grateful if my right hon. Friend would give more information. It is a matter in which the public take a good deal of interest. Unless more information is provided, the impression will be given that there is a certain atmosphere of corruption surrounding a great deal of these dealings in Brussels.

9.2 p.m.

Sir John Eden (Bournemouth, West)

I want to start by welcoming document No. R/3185. I do not think that any hon. Member has so far welcomed it. I believe that it should be welcomed. It is a useful exercise in anticipating the trend of expenditure and trying to indicate the sources from which revenue is to be collected. This is not done as often as it might be done, even in this country.

We do not look so far ahead into the future and consider the way budgets are likely to be shaped in years to come. It might be a useful exercise if we started doing so. At any rate, it is helpful to be put on notice that if present trends continue, and given the likely increased costs which will arise following enlargement, alternative sources of revenue will have to be found. The fact that notice has been given might persuade those responsible for the direction of policy in these matters to determine a course of events which will make it unnecessary for the increases to be brought into effect. I believe that that is asking too much.

What matters in my view is not just the powers given to the Assembly or the powers that are available to the Council of Ministers but the attitude that is deployed in both those bodies.

This Parliament supposedly has powers to control the expenditure of the Executive, yet in a series of debates my right hon. Friend the Member for Taunton (Mr. du Cann), as Chairman of the Public Accounts Committee, has been prominent in reminding us how lamentably we fail. We fail, as I can testify from experience as both a Back Bencher and a Minister, because individual Members often put forward local or constituency cases which justify a claim for increased public expenditure. That is most often so with regional assistance. There is hardly a debate on that topic in which hon. Members do not make requests for increased expenditure, whether for an industrial development area or any other sort of development area, including tourism, with extraordinarily well-argued justification for doing so.

What we have been seeing in the European Assembly is akin to what we have seen so often in this House over regional policy. That is what worries me most when considering the future of the budget and the questions about how this is to be financed in Europe. What will be the attitude of Members of the Assembly which will dictate the reaction of individual Ministers in the Council?

The hon. Member for Southampton, fest (Mr. Gould) was right to remind us of the current situation and to put under the microscope the constitutional relationship between the Assembly and the Commission. But the recent exercise in which the Assembly has played a prominent part over the current budget has resulted in the Commission being urged by members of the Assembly to increase the total available for regional spending, not to reduce it. It is important in this matter to consider not just powers but attitudes.

It might be helpful therefore in contemplating the future also to contemplate what ways may be open to introduce some financial discipline into the Assembly's discussions. Perhaps my hon. Friend the Member for Sheffield, Hallam (Mr. Osborn) will have something to say on that later. He is a member of the Assembly and he could tell us the extent to which this is being thought about.

At present, members of the Assembly can take spending decisions without the corresponding obligation to decide where the money is to come from. Until that happens, we are likely to see a repeat of what took place over the current budget, with the Assembly, against the wishes of the Council of Ministers, calling for increased expenditure.

In considering the Community's budgetary procedures, the House should look closely at the other documents that we are debating. As has been said, they are more technical, but they are important none the less. The Community countenances a number of budgetary practices which are in conflict with the practice in this country. For example, it is common for sums to be transferred from one chapter of the budget to another in the course of a financial year. Many such instruments come before the Select Committee which examines EEC legislation. We have not in the past felt it necessary to report them to the House because the procedure which has been followed is an accepted one, covered by the Community's financial regulation of 1977.

However, the four transfers which we have reported on to the House and which are the subject of consideration this evening are of a rather different character. They would have entailed transferring money from the provisional appropriation section of the budget to the operational chapters right at the end of the financial year, when there was no prospect of the money being spent.

More than that, in three out of the four proposed transfers the policies underlying the expenditure had not even been approved by the Council of Ministers. It seems that the reason for this move was to enable the sums in question to be carried forward from the 1978 budget to the 1979 budget. A carrying forward of this kind is foreign to us. It is a procedure which would not happen here. Here sums voted in one year but not spent in that year have to reappear in subsequent Estimates and must be approved by Parliament before they can be spent. In the Community the financial regulation of 1977 clearly permits the carrying forward of sums from the operational chapters of the budget.

I question the propriety and legality of carrying forward provisional appropriations. These transfers seem to have been deliberately designed to avoid any possible legal difficulty. I was glad to hear the Minister say that the Council of Ministers has rejected these proposals. Perhaps the right hon. Gentleman will correct me if I am wrong.

Mr. Denzil Davies

The Council of Ministers is not in a position to reject the proposals but it has expressed its disfavour. Because these proposals are concerned with the non-obligatory part of the budget, there is little the Council can do. What it can do, and the Commission agrees, is to say that the money will not be spent until there is a Council policy decision on those items. The money will remain as provisional until such time.

Sir J. Eden

I am grateful to the Minister for making that clear. My anxiety persists to a greater extent than I thought likely to be the case. We are entitled to ask what has happened to these draft proposals. In the sense that they will continue to lie on the table, is there any power in relation to them reposed in the Assembly? Are we likely to see them brought into life because of the attitude of the Council?

Mr. Denzil Davies

As to the transfers and the documents, the matter has either gone through or will go through, and the Council cannot stop it. The transfers are within the non-obligatory part of the budget. As for transferring from the reserve to the operational line, there is nothing now to stop the Commission and the Assembly from carrying the sums forward to next year's budget. There is still the overriding check that the Commission agrees that the money cannot be spent until there is a policy decision.

Sir J. Eden

I am grateful to the Minister. What we should do—and I hope that the right hon. Gentleman will encourage his colleagues to do this—is to look closely at the financial regulation and consider whether it should be more tightly drawn. Article 107 of the regulation provides for a re-examination of its provisions at three-yearly intervals. The next review is due in 1980. That will provide an opportunity for this matter to be pursued.

In the tenth report of the Select Committee of this Session we commented on documents Nos. R/3312/78 and R/4102/79. These two documents, as the Minister of State made clear, raise important matters of principle. The Assembly here seemed to be writing into the two research proposals a statement that the figures for expenditure attached to those proposals are to be regarded as guidelines only, and, as the Minister of State said—it certainly so appeared to us in the Select Committee—that seemed to amount to a waiver of the legal right of the Council of Ministers under article 88 of the financial regulation to define upper limits for research programmes.

We have reported on two of these matters so far, but the indications are that several more are on the way. The House has no power to vote greater expenditure—we can only approve or reduce an Estimate—and perhaps that ought to apply to the Assembly as well.

Apart from that, while we can have some influence over the Council of Ministers through our access to Ministers here in the House, we in this place can have no influence over the Assembly. That will certainly continue to apply after direct elections. I hope, therefore, that we shall find Ministers ready to retain the concept of fixing upper limits of expenditure and that we shall give them the maximum support in so doing.

9.16 pm

Mr. David Stoddart (Swindon)

I always find our debates on EEC matters fascinating and rewarding. It is a great pity that more hon. Members are not present to listen to some of the comments and to witness some of the procedures to which we have become subject since we have been members of the EEC.

I was particularly interested to hear the speech of the hon. Member for Blaby (Mr. Lawson), for it seems that there is a glimmer of light coming upon the Opposition Front Bench, which hitherto has been—I have said this before and I say it again—so besotted by the EEC that it has accepted everything with little or no criticism. At last, right hon. and hon. Members on the Opposition Front Bench are beginning to see what the EEC could mean in terms of taking away from the control of the House and of Ministers important matters of finance and public expenditure.

Mr. Cryer

Does my hon. Friend notice that it is a curious coincidence that, although this process has been going on over several years, and right hon. and hon. Members on the Opposition Front Bench are neither blind nor deaf—or daft—on these issues, the evidence which he sees accompanies the run-up to an election this year? It is not that they are seeing the light, I suggest, but are realising that, by and large, the electors are deeply opposed to the Community, and they are trying to cash in on that position while retaining some measure of ambiguity in general.

Mr. Stoddart

My hon. Friend may well have a point. Perhaps the pressures of an election are now having some effect. Perhaps the pressures of public opinion are having some effect. Perhaps the hon. Member for Blaby is even on a side road on the way to Damascus and there may be a blinding conversion at some stage.

We hear some extraordinary speeches in our debates on EEC matters. I am constantly amazed at the erroneous notions that people have of what the EEC is all about. I am sorry that he is not here at the moment, but I must refer to the speech of the hon. Member for Devon, West (Mr. Mills), who appeared to believe that the European Economic Community was somehow also a European defence community. He mentioned the EEC in relation to defence. I thought the hon. Gentleman would know that the defence of Europe was carried out through NATO, which has nothing to do with the EEC. Apparently in this place there is an hon. Member who believes that one of the benefits of belonging to the EEC is that it improves our defence.

Mr. Marten

The reality is that Germany is by far the strongest economic power in the Community. It has the largest army in the Community. Therefore Germany, with a sort of reborn reichsmark, would dominate any defence community in a way that many in Britain would not welcome.

Mr. Stoddart

I am obliged to the hon. Gentleman for pointing out that danger. Others had better take note of that and remember it.

I deal with the documents that are before us. First, I refer to the remarks of my hon. Friend the Member for Southampton, Test (Mr. Gould). He observed that the largest proportion of the Community budget is for the support of the CAP. About 70 to 75 per cent. of the budget goes to the CAP. It is a nonsensical organisation that does not support our agricultural purposes in any way.

Most hon. Members on both sides of the House are opposed to the present operation of the CAP. They want it reformed to ensure that it takes a much smaller proportion of the European budget. That being so, the budget will have to be reduced. I understand that the Commission supports a reform of the CAP, with a consequential reduction in the total budget. At the same time the Commission brings forward proposals to raise extra taxes to deal with a budget that everybody wants diminished. That seems nonsensical. If it is not that, it is suspicious. We should be wary of any proposals that the Commission brings forward.

Britain is already paying far more than its fair share towards the financing of the EEC budget. If we take food costs into account, according to Godley and Bacon in the Financial Guardian of 1 February, the total amount paid by Britain in 1978 was £1,137 million. That is a net cost of £20 for every man, woman and child in Britain. That is the sum that we are paying to the EEC. This year the sum will be even greater. Our contribution is likely to increase to about £1,300 million, or £24 per head of the population. Every man, woman and child will pay £24 to the Community budget.

Although we are not the richest member State—it is often said that we are one of the poorest EEC countries—we are paying far more than Western Germany, which makes a net contribution of £714 million. France, which is supposed to be in a better economic position than the United Kingdom, gains £576 million. This is the situation in which we find ourselves. We pay a huge, unfair contribution to an organisation which pays us no benefit.

For a long time I have been asking exactly what benefits we get from the EEC. I read out the deficits, such as the £1,137 million that we shall pay this year. We shall pay contributions every year on an increasing basis. In addition, the people of this country, who week in and week out go to the shops, pay far more than they need for their food as a result of our membership. Therefore, we are paying for a detriment. I have been asking this question for a long time: exactly what benefits do we get from our membership of the EEC?

Last October I attended a debate in Blackpool between my hon. Friend the Member for Test and a former Member of Parliament who is now employed in Europe, David Marquand. My hon. Friend made an excellent case against our membership of the EEC and showed clearly how we were financially worse off as a result of that membership and how we had lost our independence. He demonstrated that our trade deficit had increased from £176 million in 1973 in manufactured products to £2,200 million now.

I expected an answer to that question in that debate. I expected to be told the benefits of our membership of the EEC. I expected that Mr. Marquand would show how Britain was expanding as a member of the EEC. I thought that we would be shown how much greater we had become as a nation since we entered this organisation in 1973. However, I was disappointed. Mr. Marquand told me what benefits we gained. He described them as "non-quantifiable benefits". I have been thinking about that answer for a long time. When I go home in the train, and when I go to bed, I think about those non-quantifiable benefits. However, I have not yet been able to discover what are those non-quantifiable benefits. I shall never be able to find out.

Mr. Nigel Spearing (Newham, South)

My hon. Friend may not remember that one benefit was mentioned. Whether it is quantifiable is not clear. Mr. Marquand said that we had the inestimable benefit of an EEC ambassador in China.

Mr. Stoddart

I am obliged to my hon. Friend for drawing that fact to my attention. I probably missed that as I was trying to work out what were the non-quantifiable benefits. I have not yet been informed of the benefits the country receives as a result of our EEC membership.

The document under discussion is serious. We should be obliged to the right hon. Member for Bournemouth, West (Sir J. Eden) for drawing our attention to the fact that the proposals on procedures, if adopted by the EEC, would be alien to this country. We should be obliged to him for the attention that he pays to these matters and for drawing our attention to them.

Document No. R/3185 is indeed a serious document, because it proposes things which I believe this House has hitherto never accepted. It proposes, for example, the allocation of taxes for specific purposes. I believe it is true that the Treasury and this House have never agreed to allocate a tax for a specific purpose, but in this document we have the suggestion that a specific tax should be allocated to a specific purpose. The House should take note of that. What is more, it has been suggested that not only should we pay higher VAT to finance the Community budget but that there should be taxes on alcohol, cigarettes and petrol, or perhaps on energy consumption.

In 1972, when we were discussing VAT, we had a debate on the taxation of energy and decided, strangely enough, that we would make possible a tax on energy consumption. We did not exempt energy from VAT. We zero rated it. It would be possible, therefore, to put a tax on energy consumption under the present arrangements.

I implore the House to consider very carefully what it is doing. I was glad to hear the speech of my hon. Friend the Minister of State, Treasury and his reservations about this document. He said that this is only a preliminary discussion and that the Government will be making their point of view known very strongly at the Council of Ministers. I implore the House, whatever happens, to watch the position very carefully indeed, otherwise we could find ourselves facing procedures and facing taxes which are inimical to the good government and the interests of this country.

9.33 p.m.

Mr. Richard Body (Holland with Boston)

The hon. Member for Swindon (Mr. Stoddart) will not be surprised when I say that I agree with every syllable of what he had to say. He referred to the non-quantifiable benefits, but I think he understated the case when he listed some of the quantifiable losses.

Sir Anthony Meyer (Flint, West)

As we have been talking about non-quantifiable benefits, will the hon. Member for Swindon (Mr. Stoddart) and my hon. Friend the Member for Holland with Boston (Mr. Body) say whether they consider the impossibility of another war between France and Germany a quantifiable or non-quantifiable benefit?

Mr. Body

I should be out of order. Mr. Speaker, if I were to answer that question. But might I be permitted, in one half-sentence, to say that I should have thought that the danger of a third world war—which is not outside the realms of possibility in the next decade—would arise from an East-West confrontation. It would not be some parochial civil war in Western Europe. It would be something far uglier than that. It would be between East and West. The more we harden the barriers between East and West, as the EEC is doing, the more we enhance the risk of a total conflict in that sphere. I would rather deal with what we are concerned with this evening and touch upon some of the quantifiable costs.

The Minister of State used the phrase "downright perverse" to describe the way in which we are called upon to contribute as much as we do to the Community budget. He said that there was no discernible resemblance to a nation's ability to pay. Those were apt words. But will they be matched by appropriate action? Time is running out for the Government. It is also running out for the country, if this haemorrhage cannot be stopped.

A few days ago the Chancellor of the Exchequer made the point that our outflow of wealth occasioned by the Community budget almost equalled the gains that we receive from North Sea oil. That is a most serious and grave fact. Any Government, whatever their colour, must act urgently to deal with that.

I shall now touch on one way in which the Community derives its revenue. If we must have some revenue, I would argue that VAT, undesi+rable though it is, is infinitely preferable to the present system of import levies. When our entry into the Community was negotiated, it was predicted that import levies would not be a serious burden to us. That judgment was perhaps right at that time. But things have changed considerably during the last few years and the burden of import levies is now considerable.

I am sure that all of us were concerned when, not so many months ago, the Prime Minister of Australia told an audience in London that because of the system of import levies no fewer than one-third of the dairy farmers in Australia had been driven out of business. They were farmers who had been able to send this country butter and cheese which, with the exception of that from New Zealand, was cheaper than that from any other country.

We know that thousands of beef cattle in Australia were slaughtered and the carcases burnt because we were not allowed to import them. We now know also that there are New Zealand farmers who are unable to borrow money from the bank or to face the future with any confidence because their butter and cheese can no longer find entry into our market.

I cannot see how any of my protectionist friends—and some of them are strong protectionists—can justify the way in which so many thousands of low-cost food producers in the world are being driven out of business because of the way in which the import levy system operates. We are called upon to operate the import levy system not only to our own detriment but in a way which is utterly brutal to so many of our friends. Our own agriculture has been blighted by this system of import levies.

I am sorry that my hon. Friend the Member for Devon, West (Mr. Mills) is not here, because he has argued for our membership of the EEC on the basis that it provides a good opportunity for our farmers. He argued, as have other Conservative and Labour Members, that we should have further self-sufficiency and grow more of our own food. All these matters are carefully tabled year by year and published in the annual review of agriculture.

The review that has just been published tells us how we now stand, and how we have stood over the years, with regard to self-sufficiency. I want to take the average for the period before we entered the Community and were forced to adopt import levies. Incidentally, those levies are now operating more oppressively and at a higher rate than the Corn Laws ever did at their worst period. The average was 65.8 per cent. self-sufficiency for what is called "indigenous-type food supplies". In other words, they were the types of food that we could grow reasonably well.

After two years' membership, that percentage fell minimally by 0.3 per cent. It fell again in the following year by a very small amount. The estimate for 1978 is 66 per cent., which is an increase. But after all these years of oppressive protectionism, which has been designed to assist our farmers and increase our own food supplies, there has been an increase of only 0.2 per cent.

The reality is that instead of buying the food that we are not able to produce ourselves from the cheapest world producers, we have switched to the most expensive. It is impossible to quantify the appalling losses to the British people occasioned by the savage way in which import levies are now operating.

These levies are injuring our farmers—not the large, substantial arable farmers. Our agriculture has always had livestock as its principal sector. Usually, about three-quarters of the prosperity of our agriculture has been dependent upon livestock production. Since we entered the Community, one in 18 of our farmers has gone out of business. In the main, they have been small, full-time farmers who have been engaged almost entirely in livestock production. They have gone out of business because for generations we have had access to cheap feedingstuffs for our cattle, pigs, poultry and the rest, and that is no longer the case.

They are now facing an import levy of 68 per cent. on maize, which is one of the most important of feedingstuffs. How can my hon. Friends, who so often try to justify this system, justify a tax of 68 per cent. on one of the most important types of feedstuffs, which often accounts for between 60 and 65 per cent. of the on-costs of a livestock farmer? No other business could bear that kind of taxation. We now know that wheat is taxed at over 50 per cent.

Mr. Gould

It is taxed at 100 per cent.

Mr. Body

Well, one must allow for the MCAs. It is true that it is knocking on 100 per cent., but I am being generous. One can afford to be generous to the EEC enthusiasts. We do not have to slither around with statistics. We can take the lower figure after allowing for MCAs, which is 50 per cent. That figure is considerably higher than it ever was under the Corn Laws. But it is not only the key foodstuff of the Western world but a vital ingredient in our animal feedingstuffs.

These import levies, which will continue under the present system of financing the Community budget, will not only be a most oppressive burden to the low paid, housewives and others who are sufficiently burdened by this taxation on food but will drive out of business many good and efficient farmers.

I realise that the enthusiasm of my hon. Friends has lessened.

Mr. Martin Flannery (Sheffield, Hillsborough)

I am sure that it has.

Mr. Body

We are gaining ground. The hon. Member for Sheffield, Hills-borough (Mr. Flannery), if I may say so, was not here earlier when we had evidence of that. If it were not for the CAP which gobbles up 73 per cent. of the budget, we should not be probing ways to raise more revenue for the Common Market, making it more unpopular than it is. Pro-Marketeers should join us and bring this absurdity to an end, so that the affairs of Europe may be conducted more sensibly. If I may come back to the intervention of my hon. Friend the Member for Flint, West (Sir A. Meyer), it is urgent that we do so.

9.47 p.m.

Mr. William Hamilton (Fife, Central)

I appreciate the opportunity of being virtually the first speaker who is ardently pro-Common Market. I am unapologetic and unrepentant and shall make it clear in the next election that that is what I stand for. There are considerable warts and deficiencies in the EEC, but I adhere to that position.

Before going further, we should put the budget about which we are talking into perspective. Public expenditure in these tiny islands of the United Kingdom in 1978–79, at 1977 survey prices, was £60, 850 million. The EEC budget about which we are getting het up was about £8,000 million in 1978. The Community budget, as a percentage of the national budgets of the Nine, is less than 2½ per cent.

The anti-Marketeers have had a field day. They imply that on the basis of a five-year membership we should condemn the exercise, hook, line and sinker. In its historical perspective, this is nonsense.

My party has gone on the record as saying that if it does not get precisely what it wants it will be prepared to quit the EEC. The onus is on all those people who say such things to show, in that disastrous event, in what ways we would or could be better off. I believe that the reverse is manifestly true. Never again would our European partners trust us, and I do not blame them. We signed our name to a series of treaties. We had a referendum of our people, and those who suggested that we should have a referendum were those who emphasised that they would accept the verdict of the people.

Indeed, my right hon. Friend, if I can call him that, the Secretary of State for Energy used these words when he was a pro-Marketeer: In order to protect the small man from the big multinational companies, it is imperative that the small man should get behind him the big multinational political organisations. That is as valid today as it was when he said it.

The explanatory memorandum issued by the Treasury indicates that this is an exploratory document—suggestions put forward by the Commission on whether the budget should be increased, if so how this should be done, and how it should be financed. It is for the Council of Ministers to decide whether the budget should be increased, at what rate, for what purpose, and by what means nationally. That is all that is in the document.

When my hon. Friend the Member for Swindon (Mr. Stoddart) bridled about a tax on energy, he should have remembered that our own Government are considering this. The proposal to switch the £50 road tax to a tax on petrol is an example of a tax on energy. Because the world is facing increasing energy problems, all Governments will have to consider such propositions in order to discourage the use of some forms of energy and increase the use of others. To use that as an anti-EEC argument is rubbish.

Reference has been made to figures put forward by Mr. Wynne Godley, of the Department of Applied Economics, Cambridge. He has calculated—and the figures have been quoted ad nauseam—that the Community budget costs us about £20 a head. There are people who challenge those figures—[HON. MEMBERS: "They are under-estimated, the Treasury challenges them."]—Whoever trusted the Treasury? When it helps the anti-EEC case, some of my hon. Friends quote the Treasury. I say that they should not trust the Treasury. Those figures were replied to in the form of a letter in The Guardian on 13 February—admittedly from a prejudiced source, Dr. Richard Mayne, head of the United Kingdom office of the European Commission. They were also forthrightly attacked by Woodrow Wyatt in the Sunday Mirror. In my view, the writer of that letter to The Guardian is as qualified as Mr. Wynne Godley to assess the figures. There are two views or more on the interpretation of these figures.

My hon. Friend the Member for Swindon made great play of the unquantifiable benefits. If my hon. Friend the Member for Swindon asked British Rail and local authorities in North-East Scotland what benefits they have received from the Community, he would discover how much money has been put into those areas.

Mr. Stoddart

Will my hon. Friend give way?

Mr. Hamilton

I know what my hon. Friend is about to say.

Mr. Stoddart

I, myself, do not know.

Mr. Hamilton

I shall quote some figures because it is important to quantify the benefits. Over the past five years there have been in grants for agriculture and other purposes and low-interest loans—at rates of interest that one could not obtain on the domestic market, but only by being a member of the EEC—of nearly £2,200 million from the European Investment Bank, the European Coal and Steel Community, the regional fund, and the social fund.

My hon. Friends must understand that if they put anti-Community arguments they must listen to the facts as I see them. My hon. Friend the Member for Swindon mentioned unquantifiable benefits. My hon. Friend the Member for Southampton, Test (Mr. Gould) referred to MCAs. I believe that they can be regarded properly as food subsidies and therefore direct benefits to the British consumer.

Mr. Spearing

No.

Mr. Hamilton

My hon. Friends must contain themselves. I shall get this on the record. There has been an equivalent of £1 million to £1½ million in subsidies—[Interruption.] I know that the subsidies are given to German fanners, but if we had had to pay in the form of depreciated British currency we would have had to pay £1 million to £1½ million extra per day for our food.

Mr. Gould

On the question of the monetary compensatory amounts, may I ask my hon. Friend to read the Hansard report of the debate on 13 December? It constitutes a complete rebuttal of the point that he has just made. Of course, the European Movement and other similar bodies make great play of loans and grants, and I do not dispute those facts. However, I draw my hon. Friend's attention to the equally indisputable fact that the net contribution for this year, having taken into account all those loans and grants, is £1,000 million.

Mr. Hamilton

Whenever my hon. Friend the Member for Test puts forward a proposition it is indisputable, but whenever someone else puts forward a proposition he challenges it. I attended one of the debates to which he refers and spoke along the lines that I am now following. I was replying to the point made by my hon. Friend the Member for Swindon about unquantifiable benefits. In my own area there have been known and quantifiable benefits, and there has been regional assistance of one kind or another for hundreds of projects throughout the United Kingdom.

Mr. Stoddart

I have been listening intently to my hon. Friend and I appreciate that he is taking up my comments. However, as my hon. Friend the Member for Southampton, Test (Mr. Gould) pointed out, we are discussing the net contribution after the grants have been taken into account. Would not my hon. Friend consider that if we were not a member of the EEC there would be more than £1,000 million to put into Scotland as well as into my area, which has not received subsidies from the EEC?

Mr. Hamilton

I do not accept that for a moment. My hon. Friend puts these arguments forward as if they were based on incontrovertible hard facts. They are not. The further one gets from the first day of membership of Britain in the EEC, the more difficult it is to work out the facts in purely arithmetical, statistical terms. My hon. Friend the Member for Swindon made great play about unquantifiable benefits. My point is that there are also quantifiable benefits.

It being Ten o'clock, the debate stood adjourned.