EUROPEAN COMMUNITY (BUDGET)

HC Deb 16 July 1979 vol 970 cc1029-96

3.45 p.m.

The Financial Secretary to the Treasury (Mr. Nigel Lawson)

I beg to move, That this House takes note of Volume 7 of Commission Document No. 7633/79 relating to the Preliminary Draft General Budget of the European Communities for the financial year 1980, together with Volumes 1, 2, 4, 5 and 6 and Documents Nos. 5528/79 and 6405/79.

Mr. Speaker

I have selected the amendment in the name of the Leader of the Opposition.

Mr. Lawson

The preliminary draft budget for 1980 will be considered by the EEC Budget Council on 23 July, which I hope to attend. The Government therefore felt that the House should have the opportunity to debate the Commission's proposals even though the Scrutiny Committee had not made a recommendation for debate by the time this was announced. As a result of today's debate I shall be able to take into account at the Council meeting next Monday the views that hon. Members express.

The various documents relating to the preliminary draft budget for 1980 are characteristically voluminous. They lie on the table beside me. The Treasury's explanatory memoranda, dated 27 June and 11 July, will, I hope, guide hon. Members through the thickest. Volume 7, in two parts, plus an annex containing triennial estimates, is the most important. It contains the Commission's general introduction and detailed analysis. Of the other volumes, No. 3, containing the preliminary draft of the Council, is not yet available. I regret that. Document 5528/79 contains a global appraisal by the Commission of the budgetary problems of the Community. That was considered at the Joint Foreign and Finance Council on 2 April. Document 6405/79 relates to the maximum rate applicable to non-compulsory expenditure under the 1980 budget. That will be taken into account in the usual way by the Budget Council. Explanatory memoranda have been provided on both documents.

Monday's Budget Council will, as usual, consider and establish the draft budget by qualified majority voting. The draft budget will then be forwarded to the European Parliament. The Council will no doubt also have the triennial forecasts before it, but is unlikely to take specific decisions on them.

The Treasury's explanatory memoranda contain much information on the way in which the Commission has prepared the preliminary draft budget, on the task of the Budget Council, and on individual parts of the budget likely to be of most interest to the House. As our time today is limited, I do not propose to make many detailed comments at this stage, but I will, of course, be happy to respond to specific points put to me by hon. Members when, with the leave of the House, I wind up the debate.

The United Kingdom contributes to the Community budget under the own resources system, which, following the completion of the transitional arrangements of the Treaty of Accession, will be applied in full from 1980. As is explained in the memoranda, the actual United Kingdom gross contribution will depend on the volume of own resources actually established. However, on the basis of the original proposal the gross United Kingdom contribution would amount to about £2,079 million. That does not mean that that will be the figure at the end of the day. [An HON. MEMBER: " It never is."] As the hon. Gentleman says, it never is.

The Commission has since prepared a rectifying letter which, if adopted as it stands, could increase the total budget by about a further 8¾ per cent. and add £155 million to the gross United Kingdom contribution, bringing it up to some £2,235 million. The budget is bound to be significantly amended as a result of consideration initially by the Budget Council on 23 July and subsequently by the Council and the European Parliament, which together constitute the budgetary authority under the rather complicated constitutional arrangements of the Community.

The final total of the budget will therefore not be known until the end of the year, although I hope and expect a lower figure to emerge.

Mr. Douglas Jay (Battersea, North)

Why?

Mr. Lawson

That is the view of the majority of the member countries of the Community. However, what concerns Her Majesty's Government chiefly is not the size of the gross United Kingdom contribution but the scale of our net contribution to the Community budget after taking into account receipts. At this stage it is impossible to put a precise figure on what that will be, but it is clear that on the basis of existing policies the United Kingdom net contribution to the 1980 Community budget will be in excess of £1,000 million. That is, quite frankly, intolerable.

Immediately on taking office, the Government made clear their grave concern about the size of the United Kingdom's present and prospective net contribution to the Community budget. As my right hon. and learned Friend the Chancellor of the Exchequer explained in his Budget speech, we consider it quite unjust, and out of keeping with the spirit and intention of the Community, that Community policies should, through budgetary transfers to which they give rise, be hindering the United Kingdom's efforts to help itself and to restore its economy to health.

Mrs. Elaine Kellett-Bowman (Lancaster)

May we take it that, having made those interesting observations, my hon. Friend and his colleagues will press for a substantial increase of the regional fund, from which the United Kingdom benefits to the tune of nearly 28 per cent? Does he regard it as somewhat misleading that in the preliminary draft budget there appear not the original figures agreed in the draft budget for last year but those in the draft supplementary budget, which altered the orginal figures?

Mr. Lawson

I do not think that it is of great help to go over the 1979 budget history. That would take far too long. As for whether we should be seeking more from the regional fund and a beefing-up of the regional budget, I shall turn to those matters in due course. I ask my hon. Friend to be patient and bear with me.

As I was saying, the Government consider the United Kingdom's present and prospective net contribution to the Community budget to be unjust and out of keeping with the spirit and intention of the Community.

It may well be undesirable that any EEC member State should suffer a budgetary loss on this scale. It is certainly wrong that the United Kingdom, which regrettably is one of the poorer members of the Community, should be doing so.

As hon. Members will be aware, the Government have been campaigning hard within the Community to correct the present unacceptable situation. At the European Council in Strasbourg on 21 and 22 June, my right hon. Friend the Prime Minister secured an agreement among her colleagues that the EEC Commission should study the effect of present budgetary transfers and bring forward proposals for solving the problem. As my right hon. Friend reported to the House on her return, this means that at last we have agreement to tackle our inequitably high net contribution to the Community budget. That is far more than the previous Prime Minister and previous Administration, for all their bluster, ever achieved.

Mr. Jack Straw (Blackburn)

Will the Minister make it quite clear exactly what was achieved at Strasbourg? Is it not a fact that nothing was agreed in terms of a decision to tackle the problem? It was merely agreed that the Commission should produce a reference paper describing the financial consequences of applying the budgetary system in 1979 and 1980—a great deal less than an agreement to tackle the problem.

Mr. Lawson

It is the first stage in tackling the problem. It is a stage that the previous Government never achieved through all their sabre-rattling and bluster. I suggest that the first step is the hardest to achieve.

Mr. Tony Marlow (Northampton, North)

As the next stage of tackling the problem, will my hon. Friend take the opportunity to tell our friends in Europe that if something substantial is not done very soon there is a real risk that the British people will feel that they want to withdraw from the European Community?

Mr. Lawson

The British people made clear in the referendum that they do not wish to withdraw. That does not in any way derogate from the seriousness of the situation, and, indeed, it is becoming increasingly serious. That which my right hon. Friend achieved in Strasbourg is an indication that the Government's new and positive approach to the Community is bearing fruit.

The Government will continue to take every opportunity to impress on our Community partners the seriousness of the problem and the need for substantial, rapid and lasting relief. In particular, we shall be drawing attention to the deficiencies of the existing financial mechanism, as a result of which it is quite incapable in its present form of meeting our needs.

The financial mechanism in its present form, which the House knows dates from 1975, was the jewel in the crown of the previous Administration's celebrated renegotiation of the United Kingdom's terms of entry into the Community. It has proved an abysmal failure. That is chiefly because it was designed to correct only an excessive gross contribution to the EEC budget, whereas the trouble lies with our net contribution, which in turn is largely attributable to the low level of the United Kingdom receipts from the budget. For example, Community budget expenditure in the United Kingdom amounts to about £10 per head against an EEC average of between £25 and £30 per head. Moreover, the mechanism had carefully built into it a number of restrictions whose overall effect is further to limit the size of any refund that the United Kingdom is likely to obtain.

A clear measure of the mechanism's inadequacy in relation to our needs is that even on the most favourable assumptions we would qualify for a net refund, in respect of the 1980 budget that we are discussing, of only one-quarter of our net contribution of £1,000 million or so—and that is assuming that the United Kingdom meets one vital condition, that it should be in aggregate balance of payments deficit on current account over the three preceding years ending in 1979. If this condition were not met—and it is touch and go at present whether it will be met—the net refund would diminish to a mere £30 million, which is ludicrously inadequate in the context of the sums at stake.

Hon. Members who read the draft budget will note that there appears in the 1980 preliminary draft budget, for the first time, provision for a refund to the United Kingdom under the financial mechanism of the order of £40 million.

By removing some of the present restrictions on its operation, but without altering the underlying concept, it would, I believe, be possible to ensure that the financial mechanism yielded a substantial and reliable refund to the United Kingdom. However, so long as the mechanism remains concerned only with the correction of an excessive gross contribution, not to mention the absurdity of having it keyed to balance of payments, it cannot provide relief on the scale that the United Kingdom now urgently requires.

We shall at the same time reiterate our support for a better balanced United Kingdom EEC budget in place of one overwhelmingly biased in favour of agricultural spending. But helpful though a better balance could be, I must make clear that there is no realistic solution to the United Kingdom's budgetary problem along this route. This answers, to some extent, the point made by my hon. Friend the Member for Northampton, North (Mr. Marlow), although I will go into detail later. Many member States will fiercely resist any attempt to cut back drastically expenditure on the common agricultural policy. Yet without such a drastic reduction in agricultural expenditure, we cannot hope to achieve a pattern of expenditure, and therefore of net contributions, which is acceptable to the United Kingdom within existing Community revenues. I am glad to have the support of right hon. Gentlemen on the Opposition Front Bench.

This Government, like many others in the Community, for we are not alone, will need a great deal of persuading that these revenues should be increased. Moreover, even if they were, there is no guarantee that the United Kingdom would benefit significantly from any such increase, certainly not once enlargement has taken place.

We shall be actively seeking a more effective arrangement than the financial mechanism in its present form. Dealing only with the gross contribution will not be good enough. It is the net position which matters. I am convinced that we and our partners will find it necessary to discuss in detail what arrangements would bring about a quick and lasting solution to the British problem on the budget.

I have already referred in general terms to the well-known preponderance of the common agricultural policy in the Community budget. For 1980, agriculture once again absorbs about 70 per cent. of the budget. I should tell the House that the credits in the 1980 preliminary draft budget were based on the Commission's proposals for a price freeze in the 1979 agricultural price fixing. This was a breach of the convention that the preliminary draft budget should not anticipate Council decisions. Moreover, the Commission also assumed the implementation of an unrealistically large co-responsibility levy on milk. The House has already expressed its opposition to the discrimination against the United Kingdom embodied in the proposed co-responsibility levy.

In the event, the Council of Agriculture Ministers, on 18–21 June, did not settle on the Commission's proposals but allowed a small price increase, the lowest average common price increase since the United Kingdom's accession to the European Community, but at the same time imposed a freeze on milk prices. The co-responsibility levy was left at the 1978–79 level of 0.5 per cent., with no change in the distribution of its impact on farmers.

The preliminary draft budget before the House has already been overtaken, to some extent, by events. The Commission, as I mentioned earlier, has hastily prepared a rectifying letter which will be before the Budget Council on 23 July, next Monday, and which will shortly be deposited with the House.

Mr. Frank Hooley (Sheffield, Heeley)

Would the hon. Gentleman agree that the recent settlement has added another £860 million to the calculations of the budget?

Mr. Lawson

I would not agree with the hon. Gentleman's figure. I would like to continue my speech because this is a brief debate.

That is not the end of the change that has occurred to the preliminary draft budget. The main elements of the guarantee section expenditure are production and consumption, world commodity prices, on which the hon. Member for Sheffield, Heeley (Mr. Hooley) is a great authority, and exchange rates. These are difficult to predict, especially as long in advance as the budget timetable requires. Consequently there is the real prospect that the Commission may have to bring fo ward yet another rectifying letter this autumn. This would adjust the current forecast provision in the light of the latest information then available. Even so, it would be prudent to recognise that the expenditure is subject to further change, for example as a result of the 1980 round of price fixing.

I would like to comment briefly on two other aspects of the agricultural expenditure which dominate the budget. It is still far too high, and it continues to be dominated by milk. Before allowing for the recent price-fixing changes, the preliminary draft budget allocated nearly 40 per cent. of guarantee section expenditure to milk on the Commission's own presentation of the figures. That is at least one-quarter of the total preliminary draft budget. The rectifying letter will no doubt mean that these figures increase by about 5 per centage points. At least, however, for the first time since our accession, the price of a product in surplus was frozen. We need to press ahead on this path to bring the wasteful and expensive production of agricultural surpluses under control.

On the rest of the budget, the Government's position, both in the Budget Council itself and in the discussions that have already taken place at official level, is much influenced not only by acute concern at the overall level of the United Kingdom net contribution to the budget but by the overriding need at the present time to curb public expenditure in general. We have therefore adopted, and will continue to adopt, a highly critical approach to the Commission's proposals for additional expenditure. We are not alone among member States in so doing.

Mr. Tam Dalyell (West Lothian)

If we are talking about a highly critical approach, what are the Government doing to enhance the powers of the Court of Auditors? Have the Government any proposals to look at alleged and possible misuse of funds? I will not use the word " scandal ". I will restrict myself to saying " misuse of funds " at the present time. What is the position on the Court of Auditors?

Mr. Lawson

Needless to say, we are wholly opposed to any misuse of funds. I will try to give the hon. Gentleman a full answer on his specific point about the Court of Auditors if, with the leave of the House, I have the opportunity to wind up the debate.

I do not wish today, for obvious reasons, to anticipate the outcome of discussions and voting in the Budget Council on Monday on particular items. I should perhaps mention the particular question, raised by my hon. Friend the Member for Lancaster (Mrs. Kellett-Bowman), on our potential attitude to Commission proposals for the regional and social funds from which we have drawn, in the past, some modest benefit. The Commission has proposed significant increases in budgetary provision in 1980 for these two funds. The attitude that we adopt has to take account both of the potential net benefit to the United Kingdom of expenditure under these two headings and of the Government's plans to reduce public spending which must, of necessity, limit the claims that we make on these funds.

It is important to draw the attention of hon. Members to the fact that the expansion of the regional and social funds can, in any event, make only a modest contributon to remedying the gross imbalance between United Kingdom receipts from, and contributions to, the Community budget. There can be no question of any adequate solution to our problems being achieved through budgetary expansion. Even though the system of national quotas guarantees the United Kingdom a modest extra benefit from expansion, our position on the proposals for any expansion of the regional fund is somewhat luke-warm.

On the social fund, where there are no national quotas, we must be rather more cautious at the Budget Council. We shall obviously react more favourably if it turns out that the Commission plans to use the extra funds in a way that will clearly benefit the United Kingdom.

I have concentrated my comments on the proposals within the Commission section of the budget. The provision for the other institutions is predominantly for administration, including provision for staff. Again, we have adopted a severely critical approach. The proposals for budgetary provision in 1980 for the European Parliament were drawn up by the previous Parliament and took account of provision made in a supplementary budget for the needs of the new directly elected Assembly in the second half of 1979. The proposals for 1980 project this forward on a full-year basis but the newly elected Parliament may well have further views on this provision which would be made known, along with its modifications and amendments to the Commission proposals, in the autumn, for further consideration by the Budget Council in November.

I turn finally to the amendment tabled in the name of the right hon. Gentleman the Leader of the Opposition and his right hon. and hon. Friends. I have already made clear that the Government consider that the present situation, so far as our net contribution to the Community budget is concerned, has become manifestly and massively inequitable. This does not mean—I underline these words—that we hold to the concept of the so-called juste retour—the doctrine that each member of the EEC should get out of the Community precisely as much as each puts in—to the last penny. But it does mean that the present situation cannot be allowed to continue. It is in that spirit that I invite the House to accept the Opposition's amendment.

4.10 p.m.

Mr. Denzil Davies (Llanelli)

I beg to move, to leave out from " House " to the end of the Question, and to add instead thereof: urges Her Majesty's Government, in view of the United Kingdom's massive and ever increasing net contribution to the Community Budget, to press for a fundamental reform of the Budgetary arrangements so that Britain's contribution to the Budget is at least not greater than the receipts. The Financial Secretary has set out briefly the effect, as he sees it now, of this preliminary draft budget. The Opposition accept entirely that it is a preliminary budget and that the figures that he has given must to some extent be imprecise, since no doubt they will be changed. On the other hand, in view of the fact that the budget does not cover large areas of expenditure we can be reasonably confident about the way in which the figures will come out at the end of the day.

The Financial Secretary said that the net contribution was likely to be about £1 billion in the calendar year 1980. It might even be higher. It might be about £1.2 billion. So at one level at least this debate is about public expenditure of £1 billion, and possibly even more next year, made by the United Kingdom.

From that point of view, it is a fairly simple matter. But apparently there the simplicity ends, because this item of public expenditure is very different from the other items of public expenditure that we debate in the House. Not a penny of this £1 billion will be returned to the people who sent us to this House. The British people who pay the taxes to produce this £1 billion or more will not receive it back in any shape or form. It will not be used to build hospitals, at least in this country. It will not be used to help pensioners or the disabled, or to build schools. This money goes across the exchanges to the other countries of the European Community and, of course, those countries are in direct competition with us in many economic activities. So we are discussing a unique proposal for public expenditure. The money goes directly to our competitors, and it is bound to damage us.

This public expenditure is not subject to cash limits. The Financial Secretary was a great advocate of cash limits when he was in opposition, and I have no doubt that he adheres to the same view in government, but there is no question of applying cash limits to the £1 billion or more of public expenditure that we are discussing today.

Apparently the Secretary of State for Industry is to come to the House tomorrow, possibly to knock £150 million or £200 million off the Industry budget. The Secretary of State for Industry, however, has no control over this item of public expenditure. The Chief Secretary to the Treasury, who deals with public expenditure, is not in the Chamber for this debate. I do not criticise him for that. The reason is that he recognises his impotence in this matter. That is why he has delegated responsibility to his subordinate, the Financial Secretary. But the hon. Gentleman will be going to Brussels or Luxembourg on Monday, and he will be shuttling back and forth over the next few months between those two places and London. With him will go that great bundle of documents, but he will be arguing about only the minutiae and the footnotes of those documents, because most of the expenditure is outside the budgetary mechanism.

The brutal fact is that the problem that we are discussing today can be resolved legally only by those countries which are receiving the £1 billion from us agreeing to give up their right to receive that money and to let us keep some of it ourselves. That is the irony of the situation that we face. The problem is that those countries which are the recipients of our bounty will be asked, apparently, to join together in deciding not to accept the money after all but to let us keep it.

In this House, therefore, all that we can really do—though no doubt the matter will develop as time goes by—is to table an amendment to express our concern at this inequitable state of affairs.

The Financial Secretary said that he accepted the spirit of the amendment but did not accept the principle of keeping the budgetary contributions in balance—in other words, that the country should not have to pay more into the budget than it received out of it. I do not see why he should object to that principle; it is a perfectly fair one. There is nothing anti-Community about it. Why should we pay more into the Community than we receive from it? Why should not we balance our contributions between gross payments and receipts? I do not understand the hon. Gentleman's acceptance of the spirit of the amendment, because it is quite clear about that. It is also clear in seeking a fundamental reform of the budgetary mechanism.

The hon. Gentleman told us that he was concerned about the financial mechanism—the way in which it could be balanced, but the amendment is concerned with more than that. It is concerned with a fundamental reform of the budgetary mechanism.

The amendment also states that we are now making a massive net contribution to the EEC, and we have been told that it could be more than £1 billion next year. That contribution, if it is £1 billion next year, is probably about 1 per cent. of our gross national product. In other words, we are contributing about 1 per cent. of our GNP to the other countries of the EEC. Perhaps the size of that contribution can be made more vivid and more dramatic-looking if we consider that this year and next year we are paying over to the Community almost the equivalent of the benefit to the balance of payments that we are getting and shall be getting from North Sea oil. If this contribution increases over the years we may find that most of the balance of payments benefit of North Sea oil will be eaten up by our budgetary contributions to the EEC.

We are not debating a budget in the accepted sense of that word. Although the documents are described as " the draft budget ", they are not really a budget at all. They are estimates of expenditure. The real budgetary decisions, if they can be so described, have been taken elsewhere. The Ministers of Finance in the Community do not take much part in the budgetary process as we understand it. The decisions on expenditure are not taken by the Ministers of Finance; they are taken by other Ministers deciding expenditure, and then the Ministers of Finance or their deputies look at the estimates, as will be done when the Financial Secretary goes to Brussels on Monday.

This was borne out clearly by what happened recently as a result of the Luxembourg farm price agreement. The Minister of Agriculture, Fisheries and Food came back from Luxembourg when, after great difficulty, we managed to extract from him—not from the Treasury—the information that the budgetary cost of that agreement for us would be £50 million. If the Financial Secretary is concerned about the budget, he should start re-asserting the authority of the Treasury in Whitehall in terms of our contribution to the Community budget.

I tabled two questions to the Chancellor of the Exchequer about our contribution to the budget. They were replied to by the Minister of Agriculture, Fisheries and Food. I suggest that the Financial Secretary should start here in his own Department, and reassert some control over the budgetary mechanism. The agreement in Luxembourg put an additional £50 million of public expenditure on the budget. I am not concerned with the other payments coming back. If this Government are to reduce public expenditure over the next year, that means that £50 million will have to be knocked off some domestic expenditure—money that we can ill afford to lose.

Mr. Hugh Dykes (Harrow, East)

The right hon. Gentleman is injecting a spendid amount of Welsh indignation into his remarks in criticising these budget problems, which have risen to substantial proportions. But why did his own Gov- ernment start getting worried about these matters only as late as last October or November? Very little was said before then. It was perfectly easy to anticipate the development of these problems in the last few years, especially with the results coming from the North Sea. Why did not the right hon. Gentleman's Government say more a good deal earlier?

Mr. Davies

That is not true. I believe that I took part in the last debate on the EEC, and I made it quite clear then what our contributions would be. I said then that they would probably be £1 billion in the coming year. I know that the hon. Gentleman is making a party point, but this is not a party matter. It has taken a considerable amount of time. It was only when the figures started to crystalise that the other countries could be persuaded even to listen to us about this matter. It has taken some time. I accept that. I hope that the hon. Member will not try to make a party point on this issue, because that is not my purpose. I was merely criticising one aspect by which questions were transferred from the Chancellor of the Exchequer to the Minister of Agriculture when they should not have been.

Quite apart from the lack of control of Finance Ministers over the budget, there is a more fundamental point to which we have tried to refer in the amendment—the need for fundamental reform of the budgetary mechanism. Both the revenue and expenditure sides of the budget are harmful and unfair to this country. They are also out of date and irrelevant to the problems that face Britain and the other EEC States.

The Commission obtains its revenue in three ways. First, there is a VAT-based charge with a ceiling of 1 per cent. There is also a tax on food imports and a tax on other imported goods.

The VAT charge is unfair, especially to this country, because it takes no account of a country's ability to pay. It is regressive. The Financial Secretary did not say much about this, but I hope that when he winds up the debate he will give us the Government's view on the VAT charge and the need to introduce some element of progression into the contribution. Will he also tell us the Government's view—a Commission paper on the subject was discussed at the last joint meeting to which he referred—about the Commission's tentative proposal to increase the VAT contribution ceiling from 1 per cent.?

I hope that the Financial Secretary will make it quite clear this evening, as we did in Government when this matter was discussed, that his Government will not agree to any increase in that 1 per cent. VAT ceiling unless and until our budgetary contributions are satisfactorily and equitably resolved. The last Government made that clear in Brussels, and I hope that the present Government will do the same.

I come next to the tax on food imports. The revenue side of the budget needs to be fundamentally altered because the tax on food imports is applied to North American wheat and on other food coming into this country. Much of the money thus raised goes towards providing butter mountains in Europe. No one in his right senses could argue that there was any sense in that kind of system. The problem must be resolved in the first instance on the revenue side. It is no good saying that we can put it right by tinkering with the mechanism.

There is then the tax on imported goods, which makes no sense as a means of raising revenue. There may be an argument for taxing imports on grounds of general trade policy, but as a revenue raising mechanism the system is quite ridiculous. It is regressive and nonsensical.

Mrs. Kellett-Bowman

Does the right hon. Gentleman agree that if, over the years, the last Government had negotiated an energy policy similar to the CAP we should have balanced our books very handsomely in terms of our EEC contributions?

Mr. Davies

No, I do not agree with that.

We then must look at the expenditure side of the budget, because that, too, is completely out of date and irrelevant, and is harmful to this country. The Financial Secretary said that at least 70 per cent.—the figure is probably closer to 75 per cent.—of all the revenue goes on agriculture. However, the Financial Secretary can do nothing about the level of agricultural spending when he goes to Brussels and Luxembourg on Monday because it is a charge on the Community budget. Short of changing the Treaty of Rome, nothing can be done to alter that arrangement. When he goes to Europe, therefore, he will be arguing about 25 per cent., or even less, of the budgetary expenditure. Most of that expenditure is outside his consideration, and he can do nothing about it by way of qualified voting, the veto or anything else.

Whatever importance one attaches to agriculture in Western Europe, one could not argue that 75 per cent. of the Commission's expenditure should go in farm support. It is not as though the poorer agricultural areas were getting most of the money. Apart from Ireland, most of the CAP spending on agriculture goes to the richer farmers of Western Europe—to the farmers of France, Denmark, Holland and Germany.

A regional development fund was set up in an attempt to try to redress the balance, but the curious anomaly is that less than 10 per cent. of the budget will probably go to poorer areas under the regional fund while the other regional development fund—the CAP—will provide 70 per cent. of the money for the wealthier areas.

I urge the Financial Secretary and his colleagues to press for a dismantling of the CAP and the establishment of a proper regional fund which will help the poorer agricultural areas and help those industrial areas that badly need change. The arrangements for paying out expenditure under the budget are hopelessly inequitable and out of date. They may have made sense 20 years ago, but in spite of the massive change that has occurred in the economies of Western Europe since the war, they have remained unchanged.

I therefore ask the Financial Secretary to press for a fundamental change. The case for it is very good. It could be accepted in many other European countries. It is that the Treaty of Rome has been overtaken by events, and it is now time for all the countries of the EEC to redraw many of the provisions of the treaty to make them relevant to the needs of the 1980s.

No amount of tinkering with the financial mechanism will remedy the problem. It is no good the Financial Secretary saying that this is all a matter of net payments and that the gross payments do not matter. It is no good pretending that it will be solved by some general spirit of good will. Too much money is involved for that. The countries that will receive the money will not agree to a change out of a spirit of general good will. Far more will be needed than the occasional cup of tea at the Elysée Palace, and the occasional pilgrimage to a French nuclear power station will not solve the problem. It will be solved only by hard negotiation. I believe that the day will come sooner than the Financial Secretary thinks when he and his colleagues will be faced with the decision to act unilaterally on the problem. When that day comes, the British Government, of whichever party, will have to decide to act unilaterally. I hope that if it is the Conservatives they show courage in doing so, because we on the Labour Benches would certainly support them.

Mr. Dykes

What suggestion does the right hon. Gentleman have of the unilateral action which should be taken?

Mr. Davies

I did not want to go into that matter, but many suggestions have been made and they have been fairly drastic. One is that over a period we should put the Community on notice that we intend gradually to reduce our contributions. There have been other suggestions. There will come a time when the British people will not fork out £1 billion and more every year for the Community without getting any appreciable benefit from it. The unilateral action will have to be taken to reduce our contribution if no agreement is forthcoming fairly soon from the other member States.

In the meantime, although we are glad that the Financial Secretary has accepted the spirit of our amendment, I think that his acceptance does not meet the point of the amendment. I hope that when he goes to Brussels and when he and his ministerial colleagues attend the meetings they will stand up for British interests, because this situation will not be allowed to continue for much longer.

4.30 p.m.

Mr. Michael Shaw (Scarborough)

As I listened with interest to the right hon. Member for Llanelli (Mr. Davies), my thoughts moved towards what was said by my hon. Friend the Member for Harrow, East (Mr. Dykes). One tends to encounter difficulties when one has led from the Dispatch Box in government and then takes a few short paces to lead for the Opposition. Without expressing ill will, I must tell the right hon. Gentleman that the tenor of his speech today was different from the tenor of the speech that he made last year.

I accept that there are problems and the right hon. Gentleman emphasised the need to tackle them. That was his message today. However, I do not know how the right hon. Gentleman can talk about the need for re-examining the regional fund after what happened last year when, because of the vote by the right hon. Member for Heywood and Royton (Mr. Barnett) in Europe, the amendments were not cancelled. Trouble ensued because the Labour Government refused to back the decision. That was not an act of leadership, nor was it decisive. The issue was clear at the time. Had the Labour Government held fast, the result would have been different.

Last year play was made of the size of the documents that we are discussing. It is a pity that we cannot use the original documents instead of cyclostyled documents which are more bulky. However, the documents are helpful to those who take an interest in budgetary discussions because they contain full explanations of expenditure—whether one likes that expenditure or not.

We are discussing the 1980 budget. It is the first budget after direct elections. That means that its details will be examined by a number of new committees composed of new Members who are anxious to make it clear that they are seriously interested in the work of those committees.

I imagine that the draft budget will be scrutinised closely by the committees and in debates in Parliament. I agree with my hon. Friend the Financial Secretary that we must at all costs resist any suggestion that there should be spending for spending's sake. That is a danger when new committees are appointed. At the same time, because the members of the committees will feel important and feel that they have a purpose, they will seek ways to turn formerly national policies into Community policies. As a result the debates will be more closely reasoned than in the past.

During discussions on the 1978 budget I felt the need to press on the European committees the need for them to take a greater interest in the various items in the European budget. The interest that was aroused then and which was continued last year will be present in greater measure this year.

The Financial Secretary has expressed even more clearly the general view of the Government. They will take that view with them to Europe together with views expressed by the House today. There is a large increase in the preliminary draft of the social fund budget. That issue will exercise the mind of the Financial Secretary. I shall not deal with the generality of the social fund but I refer to chapter 54 which refers to provision of 100 million European units of account to the European Coal and Steel Community and deals with social measures in connection with the restructuring of the steel industry. In view of the difficult decision on Shotton, about which there is to be a debate in the House, hon. Members will wish to know how that new provision in the European budget will affect such a dire situation. Will we be able to make use of that provision?

I fully understand the Financial Secretary's view about the need for overall economy and that small increases in the regional fund would not provide the balance that Britain needs. My hon. Friend is right. None the less, there is a place for a regional fund in the European budget.

One must remember the possibility of our entering the European monetary system later in the year. My view is that if we are to pursue such a common system in the Community, and if values of money are to be harmonised, other conditions in the Community, such as climate and geographic position, must be taken into account when support and encouragement is given. There must be other regulatory measures if we are to make the EMS work. Some form of regional fund assistance must be one of our weapons.

Chapter 57 deals with interest rate subsidies. I wonder whether we shall insist that if any progress is to be made on our entry into the EMS we must benefit from that chapter and the 200 million EUAs. We are entitled to a proportion of them.

The right hon. Member for Llanelli mentioned the common agricultural policy. I am glad to hear that a rectifying letter will be issued next Monday. The budget takes on a more realistic character with that letter. I am sorry that we do not have the benefit of it today. Having had a rectifying letter so early, we must have another rectifying letter when we know the state of the harvest and world markets. World markets may change very rapidly in the next few months if all that we hear about the Russian crops is anything to go by. Therefore, I echo the words of the right hon. Member for Llanelli that, whatever changes there are in the first rectifying letter, and the second that I assume will be received in September, they will be upwards.

Our contribution to the common agricultural policy is rising all the time. How can we change that? I listened to the words of my hon. Friend the Financial Secretary with a certain amount of gloom, but I agreed with what he said. It will be difficult to make sizeable reductions in the methods and policies of other members of the Community. Yet I believe that we must aim for that. We must also aim for other changes so that we can be seen to be highlighting other shortcomings in the budget, which arise largely from the fact that the policy that was laid down for the Six is not workable or suitable for the Nine. We know full well that when it comes to a membership of 13 or 12 the policy will be even more inappropriate.

Therefore, there must be changes. I hope we succeed. Our arguments will have more strength when the ceiling of 1 per cent. in VAT is introduced. I stress that, although the CAP is the first of the Community policies—many say that it is the only real Community policy—we have not handed over the whole of the support of our agricultural industry to the CAP; no country has done so. Although such a large sum goes through the European budget, large sums also go through national budgets.

We must get back to the original concept of the CAP and make sure that it supports an efficient Community agricultural policy. Where we find pockets of the CAP that are not efficient we must examine them and decide whether it is due to social reasons or to some tradition in the country concerned—for example, the part-time farming in Bavaria. I believe that a strong case can be made that if that is the way the Bavarians want to farm the Germans themselves should pay for it. That would cut a substantial sum from the CAP budget. Alternatively, we could decide that support was not necessary in those areas. That is another aspect which we should look at seriously.

We must go into this matter with two things in mind. First, I entirely disagree with my hon. Friend the Member for Northampton, North (Mr. Marlow), who said that if we cannot get what we want we should threaten to come out of the Community. I believe that that is a disastrous way of negotiating. We should make it quite clear that we are in the Community to stay and that we mean to argue our case so well that we shall achieve justice for everybody. Justice is on our side. If we are prepared to argue and press our case, we shall win through. That is the only way to do it. We must show our good will and determination, and we shall win through.

I do not think it is sufficiently considered at times but the budgetary authority consists of the Council and of Parliament. Council and Parliament have to agree, but Parliament has the final word. On certain matters, which I agree are the more important, the Council has the last word. In other areas, Parliament has the last word. But at the end of the day it is Parliament that has to announce that the budget has been adopted.

Mr. David Stoddart (Swindon)

Will the hon. Gentleman make it clear that, in this context, when he talks about Parliament, he is talking about the European Assembly? This House is Parliament the other body is the Assembly. It will cause a great deal of confusion unless we get the wording right.

Mr. Shaw

I am grateful to the hon. Member for Swindon (Mr. Stoddart). Things are improving, though. By the time I have been on my feet for two minutes I usually get that sort of interjection. I hesitate to say how long I have lasted this time. None the less, I thought that at long last everybody had accepted the fact—as indeed has the European Assembly—that it is called Parliament. All the friends of the European Assembly call it Parliament. The quickest way of proving whether a questioner is sympathetic to the concept of Europe is whether he calls the European Assembly an Assembly or Parliament—unless, of course, he is reading from the Treaty.

The maximum rate is always exceeded and therefore there must be agreement on that rate. But, apart from that, the terms of the Treaty are so ambiguous in some respects that it would need a decision of the court on many of them. I believe that that would be not only a waste of time but against the interests of the Community. I reiterate that the two sides must get together in the end.

I hope that my hon. Friend the Financial Secretary will find that the spirit of conciliation, which I truly believe was beginning to emerge under the old European Parliament and the Council, will come to the fore even more rapidly so that agreement can be reached on this budget and on all suceeding budgets.

I wish my hon. Friend every success in his first meeting on Monday in conciliation with the Parliament and in the further negotiations.

4.48 pm

Mr. Douglas Jay (Battersea, North)

As these documents and much else show that the economic cost to this country of membership of the EEC has now reached crippling proportions and, indeed, is still mounting month by month. The dynamic, long-term consequences are proving even more damaging than the immediate impact during the first few years.

The budget contribution which we are discussing today is only one part of the crippling burden, but it is certainly bad enough. It is worse now, as the figures we have been given today show, than the first confirmed pessimists ever predicted. We now have everyone, including the Prime Minister, the Chancellor of the Exchequer, the Financial Secretary and Lord Cockfield in the House of Lords, condemning the consequences of this budget to this country. We are all anti-Marketeers now, or so it would appear from this debate. They all agree that these budget arrangements are completely unfair.

It is very much less clear to me what the Government really intend to do about it. As I understand the Financial Secretary, they are not even putting forward their own precise proposals for remedying the present budget situation. According to The Economist of 23 June, our net contribution in 1978 was already £830 million. According to its estimate, it will be at least £1 billion this year and £1.2 billion in 1980, which is 25 per cent. or 30 per cent. more than our fair GNP share would involve.

I wish that the Financial Secretary would tell us more clearly than he did earlier whether even this £1.2 million net for 1980 is correct. We know from his valuable explanatory memorandum of 27 June that, at any rate about a fortnight ago, the United Kingdom's gross contribution in 1980 was estimated at the astonishing figure of £2,079 million. But, as I understood the Financial Secretary today, already—within two or three weeks—that has proved to be an understatement. I think that he said that it is now to be rectified—if that is the right word—to over £2,200 million. Have we any firm grounds for believing that the reverse payments—the payments back to this country—will bring that huge figure of £2,200 million down to even £1.2 billion net? We seem to hear nothing but a vague expression of opinion today.

Even if there was a reduction in that figure of £1.2 billion net, they are outrageous figures. I wholly agree with the Financial Secretary's epithet in describing them as " intolerable ". I hope that he meant " intolerable ", since that should mean something that we are simply not prepared to put up with. They are intolerable burdens both on the United Kingdom balance of payments and on the budget. After all, we get nothing for them in exchange. Almost everything else that the EEC does, from fisheries to dearer food, does further damage to this country.

In any case, before the debate concludes, may we have a fairly precise estimate from the Government of what the net budget burden will be in 1980, after allowing for the new food price agree- ment of a fortnight ago, when the Minister of Agriculture, Fisheries and Food failed to get a general price freeze? Presumably the Commission's estimate would for that reason have to be re-estimated upwards because of the alteration in the food price figures.

Apart from the United Kingdom's contribution, the EEC budget is growing at an ever more alarming rate. According to the relevant document today, the general budget, which was only 4.64 billion EUAs in 1973, had risen to 13.7 billion in 1979 and is estimated to reach 16.6 billion in 1980—which is about £10,000 billion—of which we are expected to find 20 per cent. These are enormous figures. As we all know, 70 per cent, is spent on agriculture, in effect for the purpose of doubling the price of food. We are being asked to pay between £1,000 million and £2,000 million into this budget for the benefit of paying about double for our food from overseas compared with what we would pay if we were not members.

These figures and what we have heard today are a pretty shattering condemnation of the original terms in the 1972 Treaty of Accession on which we were asked to join the EEC, and only a slightly lesser condemnation of the renegotiated terms of 1975, which I opposed and condemned at the time. What will happen in two years' time when, according to the Commission itself, the EEC budget exceeds the present sources of revenue?

I believe that we must not accept the specious argument that in order to lower the proportion of the total budget spent on agriculture other portions of the budget must be increased. I have already seen that argument peeking out in the Commission's documents. The only effect of that would be to increase the total when what we ought to do is to reduce it. Here I support what my right hon. Friend the Member for Llanelli (Mr. Davies) has said.

The Government have a God sent chance to say now that they will not agree to any new sources of revenue until the CAP and the budget share have been drastically reformed. If they will say that emphatically today, at least we will have made a little progress. But so far they have not said so. Indeed, in spite of the Financial Secretary's words—I almost said " boasts "—all they have done about the budget so far is to invite the Commission to examine the matter and make proposals". Apparently our Government are not making any proposals at all, but are simply inviting the Commission to have a look at the whole thing and to make some proposals, but we do not know what. I do not believe that that will frighten the French or get us anywhere at all. Why do not the Government do what the French would do in these circumstances—make precise proposals and set a time limit before which they have to be accepted? If they did that, a little progress could be made.

Meanwhile, the Minister of Agriculture, Fisheries and Food's surrender over the food price freeze is bound to increase budget expenditure still further. I quote from the more recent edition of The Economist of 30 June. In an article on the meeting of Agriculture Ministers under the heading " From Bad to Worse" it is said that the Ministers' package will push up the farm price support budget about $1 billion above what it would have risen to anyway—an 18 per cent. increase on the 1979 figure. Is that a correct interpretation of what the Agriculture Ministers did? The Econonist adds that, allowing for the green pound devaluations, average EEC food prices will rise about 6½ per cent., and that no measures were agreed to tackle the Community's monstrous 20 per cent. milk surplus. The Economist also calculates that the latest food price agreement alone will inflict a further loss on EEC consumers of nearly $6 billion and hand to farmers throughout the Community a windfall of over $5 billion. That is another example of how the CAP is working.

In examining the budget and the CAP, we must always remember that neither of them represents the total balance of payments loss which EEC membership is now inflicting on us. In addition, we are burdened with a huge trade deficit with the Six, mainly in manufactured goods. The Department of Trade has just given me the figures in a written answer, and, like the budget figures, they get worse and worse. In 1970, before we entered the EEC, United Kingdom trade in manufactures with the Six showed a small surplus of £160 million. In 1978, it had turned into a deficit of £2,550 million. In the first quarter of 1979 this deficit was running at over £900 million, or an annual rate of about £3,600 million.

There were possible distortions in the figures for the first three months of this year, but even if one writes down the annual rate to £3 billion, which is what it would appear to be, it shows that the dynamic losses inflicted on us by EEC membership are far greater than anyone ever estimated. If one adds even half of that trade deficit to the balance of payments loss caused by the budget and the common agricultural policy, one finds that the total balance of payments loss must now be about £3 billion a year, which is surely far greater than our earnings from North Sea oil in balance of payments terms.

If the Financial Secretary can give us the Treasury's latest estimate of what our North Sea oil earnings are running at in balance of payments terms, I should be glad to hear it; but I suspect that it is well below £3 billion a year. It is this huge balance of payments burden which is holding back our whole economy at present and is a crushing burden which this country cannot be expected to sustain any longer.

In these circumstances, what do the Government do? They have taken one positive step in this field in the last four weeks. They have deposited £3½ billion of the United Kingdom's gold and dollar reserve with the European monetary co-operation fund—without, incidentally, any authority from Parliament, and without clearly telling Parliament that they had done so. On this point, the Prime Minister, when I inquired what was happening at Question Time, did not even know whether or not this deposit had been made. But I have since learnt, from a letter from the Prime Minister, that the deposit was made on 6 July this year.

However, when a similar transfer was made by the Labour Government after the war, to the International Monetary Fund, in December 1945, full legislation was passed by this House in order to authorise the transfer of part of our gold and dollar reserve to an overseas authority. I understand that it is argued that this is not necessary because this transfer is classed as a swap and it is alleged that we get a security in return. The Government should really explain a little more clearly what this argument amounts to. What is the security that we get in return?

I would argue that, whether or not legislation is necessary, certainly the Government should have some authority from Parliament to transfer 20 per cent. of the United Kingdom's currency reserve to an authority overseas. So far, they have not acquired that.

However, the most pressing question of all, and one to which no one has given a clear answer this afternoon, is how we are to free ourselves from the total economic burden of EEC membership, as it is now falling on us, which threatens our whole economic prospect over the years ahead. All experience of the EEC shows that this will be done only when we make clear that unless fundamental changes are made, we cannot remain members for much longer. If that is what the Financial Secretary meant by " intolerable ", I would most strongly support him.

Another recent issue of The Economist, dated 23 June, showed that France and Germany are both now making huge financial and economic gains out of this country. For instance, if we left the EEC, not merely would France and Germany lose large markets for manufactured exports, but they would have to spend over £800 million on subsidising food overseas in order to be able to get rid of the food that they are now selling to us at high prices. The fact of the matter is that if we left we should gain very substantially and other major members of the EEC would economically lose.

Surely that is a fact to be taken into account in any bargaining that we conduct in the future. The argument of saying " We shall stay in whatever you do. Now, please, will you hand back some of this money? ", will simply not get us anywhere. If the Minister believes that it will, I think that he has failed to read the whole story of our membership of the EEC.

Mr. Robert Maclennan (Caithness and Sutherland)

I am sorry to interrupt my right hon. Friend, particularly as I did not hear his opening remarks. However, with regard to his assertion that the British market has been inundated with French and German goods and that if we were not members of the EEC this would not be so, and our market would not be open to these goods, will he say why that is so? Is it because he would expect high tariff barriers to be erected against German and French goods? Is he suggesting that we would be part of the siege economy?

Mr. Jay

No, of course I am not suggesting that. I wish that we did not have a siege economy on food, either. All I am saying is that anyone who understood the situation knew that this trade deficit would arise, and therefore it was extremely foolish to plunge ourselves into that situation. However, I must not be led too far from the argument.

Finally, when will the Government recognise these hard facts, whether or not they like them, and what measures will they take to remove these crushing burdens on our economy?

5.6 p.m.

Mr. K. Harvey Proctor (Basildon)

It is a privilege to make my maiden speech in this debate. It is a particular pleasure for me to speak after the right hon. Member for Battersea, North (Mr. Jay) and my hon. Friend the Member for Scarborough (Mr. Shaw), the views of both of whom I respect very much indeed. It was in the Young Conservatives in Scarborough that I first cut my political teeth.

I have the honour and privilege to represent in this House the electors of Basildon. It is a large constituency—the second largest in England and Wales—with over 103,000 voters. It is a very varied constituency. It has a new town, Basildon, with its associated residential areas of Laindon to the west and Pitsea to the east, and two more traditional towns well known in this House, Billericay and Wick ford, to the north. There are several charming villages and farms in between which must not be forgotten.

The election result in Basildon on 3 May was notable. It was one of the best in the country for the Conservative Party, with a swing of a little over 11 per cent. My grateful thanks are due to a hard-working agent, Mrs. Peggy Marshall, and a happy and enthusiastic band of Conservative Party workers.

Many former Labour supporters voted Tory for the first time. They did so for numerous reasons. Of course, many wished to buy their own corporation or council homes. Many are already doing so, thanks to a Conservative Administration. Many wanted improvements in the commuter service into London, on both the Liverpool Street line and the Fen-church Street line. Many skilled workers were dismayed at the depressing of their differentials as a result of pay curbs and controls.

Many people, having fled from the problems created in inner London by New Commonwealth immigration in the 1950s, 1960s, and 1970s, voted Tory because they did not want that self-same problem to follow them into the new town.

At this juncture, I pay a warm tribute to my predecessor, Mr. Eric Moonman. He had been a Member of the House on two occasions—from 1966 to 1970 for the seat of Billericay, and from February 1974 until this year for the Basildon constituency. He was well known in this House for his work for many causes, particularly that of mental health. In the constituency he had the reputation as a good constituency Member of Parliament, and I hope to follow in his footsteps.

I also hope to follow in the footsteps of my hon. Friends who have represented part of my constituency—the hon Member for Essex, South-East (Sir B. Braine), the hon. and learned Member for South Fylde (Mr. Gardner), the hon. Member for Holland with Boston (Mr. Body) and the hon. Member for Brentwood and Ongar (Mr. McCrindle).

There are three points that I wish to make, two of which I believe will command almost universal support and the first which may not. First, the gross Community budget is too large and should be reduced. It should not be used as an engine to drive us into economic and monetary union, as set out in the documents before the House. I agree with the right hon. Member for Battersea, North that we should not be seeking further sources of finance for the EEC until we have sorted out the CAP position.

Secondly, the Community budget contains a grevious imbalance—and I refer of course to the common agricultural policy, which my hon. Friend the Financial Secretary mentioned as absorbing 70 per cent. of the budget. The Conservative Party is committed to radically re- forming the CAP—and the sooner the better for the British taxpayer, consumer and farmer. I share the views of right hon. and hon. Members who have spoken in the debate that our share of the net contribution to the EEC budget is too large. The financial mechanism of 1975 that was intended to reduce our contribution has been calculated in the preliminary draft budget, volume 7A pages 513 to 517, at 68 million units of account or some £44 million as against the deficit of over £1,000 million. That is peanuts. It is not good enough. It is a Conservative manifesto pledge that we shall reduce the burden that the Community budget places on the public sector borrowing requirement and the British taxpayer. If unilateral action is required and nothing else, then unilateral action it must be.

I quote from an observation in paragraph 96 of the White Paper of 1971: Thus in the Government's view neither our contribution to nor our recepits from the Community budget in the 1980s are susceptible of valid estimation at this stage. That was rather an understatement. It went on: And it is for this reason that the Community declared to us during the course of the negotiations that if unacceptable situations should arise ' the very survival of the Community would demand that the institutions find equitable solutions '. So they must.

In all these areas where change is required I believe that the Government will have the full support of the House and the country. Whether Ministers wear a velvet glove in preference to a mailed fist is of purely academic interest. At certain times both will be required. What our people seek are results.

If it is not trying the patience of the House too much, I shall close with some general observations on the current position of the EEC. Three options are open. There is federalism and economic and monetary union, leading to a single currency, common economic policies, common taxation and common external policies. That will lead inevitably to a supra-national State—a United States of Europe.

Secondly, there is a continuation of what we have now—the break-up and breakdown of the EEC in disagreement, mutual distrust and recrimination. Unless the EEC can get to grips with the large food surpluses, the CAP will collapse and with it the whole edifice of the bureaucratic structure of the EEC Commission. Some right hon. and hon. Gentlemen may think that that time should not be long away.

Thirdly, a more positive view is that we should seek to establish a partnership of nation States, each sovereign and supreme. That would require the EEC to change its rules and role, its format and outlook, to reject the Treaty of Rome as outdated and old hat and establish a free trade area in Western Europe—as wide and diverse as possible. That is the sound and sensible approach—the middle way.

Some have supported federalism honorably because they believe that the nation State has has had its day. I believe that they are out of keeping with the spirit of the age. The renaissance of the sovereign State and this our independent Parliament is at hand.

5.16 p.m.

Mr. Russell Johnston (Inverness)

It is a pleasure to follow the maiden speech of the hon. Member for Basildon (Mr. Proctor). It is a civilised tradition of this House that an hon. Member is congratulated by an hon. Member from another party who may not necessarily agree with him. I suspect that had the honour fallen not on me but on the right hon. Member for Battersea, North (Mr. Jay) the area of agreement would have been considerable. Nevertheless, I greatly enjoyed listening to the hon. Member for Basildon, and I am sure that the House will in future benefit from his contributions. He referred to Mr. Eric Moonman, who was well respected here. I judge from his clear, assertive but not aggressive manner that the hon. Gentleman will earn our respect in the same way.

As the right hon. Member for Llanelli (Mr. Davies) rightly observed, this is not a budget but an accumulation of expenditures. It does not have any social or political objective unless it is in agriculture to retain stability of production and supply—and at present I shall leave aside the arguments on cost. However, before moving to these questions, may I ask the Minister a specific question? There are moves afoot in the Community to fulfil a specific role in the problem of the Viet- namese refugees. There will be proposals this week in the European Parliament to that effect, and approaches have already been made to M. Cheysson, the member of the Commission responsible. Does the Minister believe it is a function of the Community to help with problems of that kind or is it more properly a function of individual sovereign States acting independently rather than in co-operation? The Vietnamese situation has appalled many of us. The need to do something about it is urgent.

It is clear from what the Financial Secretary said that the Government do not intend to seek the solution by making the budget more interventionist—in fact, the contrary is true. Let us look at the two areas in which intervention is possible. The first is the regional fund. Everyone agrees that at present, even taking account of the projected increase, this fund is too small to affect appreciably the unemployment problems of the Community or the depressed regions. But effective resource transfers which will have some impact can be achieved only by the regional fund.

When talking about our budgetary contribution, the Financial Secretary said that it was clearly wrong for any Community country to suffer a budgetary deficiency on the scale that we are suffering it, given our economic situation. I accept that it is contrary to the whole spirit of the Community that weak economies like ours should have to bear such a burden, and if there are to be transfers that will have an impact these must be sizeable ones from the richer countries to the poorer countries.

But the Minister appears to be arguing that the concept of the regional fund as a resource to help weaker members is one that he would reject. I point out that this was always the concept that the Commission held as long ago as the early 1960s. After all, a greatly enhanced regional fund was always seen as the other side of the coin of economic and monetary union. Is the Minister saying that he no longer sees it in that sense? If so, that represents a considerable change. What limit would he place on the size of the regional fund?

It is doubtful whether we can get out of the situation by increasing the overall size of the budget, and in real political terms it is difficult to see any marked decrease in the amount spent on the common agricultural policy. Certain things can be improved and it can be decreased to some extent, but not dramatically. Therefore, surely we must look—if we are interested in the Community as such—at both the regional fund and the social fund, certainly if we view the Community as developing along its present lines rather than as the hon. Member for Basildon saw it.

My second point is that there is considerable scope for redistribution in the social fund. How does the Minister see its future? Reference has been made to the steel industry's problems, but there is a much wider consideration.

In his contribution the Financial Secretary played down the role of the regional and social funds, but these should be central if the Community is to advance. He referred to the fact that the Government hoped to cut down public expenditure, and increased regional expenditure is public expenditure. But it is public expenditure with a specific employment objective, which I hope that the Minister will not rule out of hand. He referred in approbatory terms to the fact that the regional fund had fixed quotas and, by golly, we should get our share. Does he believe that the Community, if it went along with an increase in the regional fund, would also like to see larger quotas for each section, as a price for increasing the total? I share the general concern about the balance of the budget, but I would very much regret solutions being seen in exclusively nationalistic terms.

I agree with the criticisms made about the right hon. Member for Llanelli. It seems to be a characteristic of all British Ministers that as soon as anything goes wrong they threaten to leave the Community. I do not agree with that approach because it is neither constructive nor beneficial.

Mr. Denzil Davies

I never said that.

Mr. Johnston

The right hon. Member never went that far, but he was talking about timetables and targets and giving the Community notice. Obviously he had some concept of himself as sheriff, putting a notice on the fellow's door and warning him.

The Minister went out of his way to reject the juste retour but at the same time he seemed to take a step nearer to it. To do that at a time when we need all the help and support we can get from our Community partners is not a step in the right direction.

5.27 p.m.

Mr. Ronald Bell (Beaconsfield)

It gives me great pleasure to speak after my hon. Friend the Member for Basildon (Mr. Proctor). I admired his maiden speech greatly and agreed with it. I admire his confidence and the forthright way in which he expresses his opinions. The House looks forward to the day when he is no longer inhibited by the convention of not being controversial. It gives me special pleasure to congratulate him because for so long I have agreed with the views that he has expressed outside the House. I had always hoped that one day he would have the opportunity to express them inside.

Everyone has agreed today that something must be done, because the present situation is intolerable. But having listened to the debate I still wonder what will be done. My hon. Friend the Financial Secretary said that the gross contribution was excessive, but that what really mattered was the net contribution. That is not a proposition with which I agree. I invite my hon. Friend to consider how that works out. Our gross contribution is enormous—it is more than £2,000 million a year and probably getting bigger.

For those of us who do not want to see the Common Market becoming a super-State, that is a menace in itself. But there are those—and one hears more of them every month—who want to remedy the situation by increasing the expenditure of the Common Market in other ways. They take the view that if food accounts for 75 per cent. of the budget the problem can be solved by increasing the size of the budget so that the expenditure on food, while remaining substantially the same, becames a much smaller proportion of a much larger budget. That argument has no attraction for me.

I listened with interest, as I always do, to the hon. Member for Inverness (Mr. Johnston), who talked favourably of the social fund. Indeed, my hon. Friend the Member for Scarborough (Mr. Shaw) also dealt with this subject. I am always pleased to speak after hon. Friend, because I never agree with what he says. An expression such as "social fund" has a virtuous ring. It is something everybody should be in favour of. The fact that it is "social" and also a "fund" means that it must be a good thing, and the bigger the better. The bigger the social fund, the more money can be spent on deserving causes. But what it all comes to is that we are then put in the role of going to Brussels with a begging bowl for our own money.

Where does the money come from? There is a diversity of sources, but the main source by far is the agricultural levy. What one is doing under that system is putting up the price of one's food by paying a heavy levy—let us say, for the sake of simplicity, £2,000 million, although that is a slight overstatement—and getting some, or even all, back by way of a great number of little grants, loans, and goodness knows what, for all kinds of industries and enterprises—all decided, of course, by the Commission in Brussels. Therefore, one greatly increases the price of one's imported food. On that argument, the country concerned would be reasonably content if it got most of its money back in grants to particular sections of its enterprises decided upon by the bureaucrats in Brussels. Again, such an argument has no attraction for me.

The right hon. Member for Battersea, North (Mr. Jay) was asked whether he was suggesting that the imbalance in our trading account might be rectified by restrictive policies. I should not be too worried about the restoration of tariffs. After all, when we entered the Common Market we reduced protective tariffs on motor cars, tariffs which were much higher than those of the European countries we were joining. Lord Stokes paid for a very expensive advertisement dealing with this subject.

Mr. Straw

Lord Stokes's shareholders paid for it.

Mr. Bell

I accept the correction. The advertisement said that entering the Common Market was good for British Leyland. I do not think Lord Stokes held that view for more than about 15 months. I imagine that nobody holds that view now. If in a somewhat weak period in a nation's economic life—and we would all agree that this is a somewhat weak period for us—one dismantles relatively high tariffs when entering a partnership with people who are dismantling relatively low ones, one is not exactly helping one's stumbling and faltering industries. However, the relevant point about the budget is that if we had not gone into the EEC, or if in some way we restored the situation which existed before we went in, we should be better placed competitively because we should not have lost our main competitive advantage—namely, cheap food.

We had many disadvantages. I suppose that every country has its pluses and minuses. The two big pluses we had were cheap food and the 50 per cent. de-rating of industry, which, since it was pre-GATT, could not be attacked. We threw away both pluses. At the same time we dismantled high tariffs in return for the dismantling of low tariffs. Then we wonder why things have not turned out well.

I animadverted to these considerations at the relevant time, as did others. However, that is historical, and the question now is what are we to do about it? I must point out to my hon. Friend the Financial Secretary that it is not much use describing the difficulties and asking for assessments and the like. We may get something, but we shall not get much, and it will hardly be relevant.

The fact is that the Community was constructed from the beginning on the basis that food importers paid for the Community. It made sense as long as there were six members. It did not make sense on that basis for the biggest food importer of the world to join it. That is the real trouble, and we know it. It was pointed out at the time, as were the other considerations. My hon. Friend the Financial Secretary says that we must not talk about pulling out, because the British public voted to stay in. That is true, but they did so on certain basic representations. If those representations can be made good, I, too, shall favour our staying in.

What were those representations? The first was that, as the result of our joining the Community, the price of food in this country would be raised by about 1 per cent. I am sure that the Minister remembers the frequent references to that figure in those days. The second representation was that the cost in food, and in the loss of competitive position, flowing from the difference in tariff levels, would be not just offset but swamped by the dynamic reaction of our entering the Common Market.

Very often the seat from which I rose to speak is occupied by my right hon. Friend the Member for Sidcup (Mr. Heath). He and my noble Friend Lord Barber were the prime exponents of the swamping doctrine—the flood which it was said would make the cost of going in negligible in a mere matter of two or three years. It was calculated what the increase in the gross domestic product would be as a result of the dynamic effect of going in. It was said that the effect would be relatively enormous.

Mr. Jay rose—

Mr. Bell

I see that I have stimulated the right hon. Member for Battersea, North to intervene.

Mr. Jay

The hon. and learned Gentleman stimulates me to remind the House that the right hon. Member for Sidcup (Mr. Heath) said in his White Paper that the Government were confident that our trade balance with the Six, if we joined, would be "positive" and "substantial". Those were the words used, and I remind the House that we now have a deficit of about £3 billion a year.

Mr. Bell

I accept that form of words, but it was the underlying argument that concerned me. It was accepted that if one did the arithmetic statically, one would obtain a disadvantage. We were always accused of overlooking the dynamic aspects—namely, the stimulus obtained from going in. It was sometimes compared to jumping into a cold bath, and that is a good comparison.

The third element of the assurances that we were given is to be found in the White Paper to which my hon. Friend the Member for Basildon referred in his excellent speech, namely, that there would be no erosion of essential national sovereignty. If, by any readjustments, negotiations or agreements, the price of food can become 1 per cent. higher by reason of our membership of the Community, the dynamic reaction can be seen and possibly quantified and if there is no erosion of our national sovereignty, I see no objection to our continuing as a member of the Community.

However, I am not optimistic of achieving that aim, at any rate in the next few months. I wish that others would bear in mind constantly the broadcast to the French people made by President Pompidou after his conversations at the Elysée, sometimes in the Elysée garden, with my right hon. Friend the Member for Sidcup. It was a broadcast of the utmost interest, because, in his capacity as head of State, the French President said that he had talked with the British Prime Minister and that they had agreed that for France the common agricultural policy was vital. They had agreed that France could not agree to a tariff-free area unless the other nations of the Common Market shared among them the burden of French agriculture. He said that the British Prime Minister had promised that if Britain were allowed into the Community, she would not seek to destroy the common agricultural policy.

Unless the French President was misleading the French people, and doing so within 24 hours of the conversations with my right hon. Friend the Member for Sidcup, and in a way that was published to the world, we accepted that as the condition of the gate to our membership being opened by France. I have never read a démenti of that. How do we now set about making a fundamental change in the common agricultural policy? That fundamental change is the crucial condition of any advance towards the conditions that I have set out.

I have attempted to describe the difficulties as I see them. I have not provided a solution to them. I cannot say where we should go from here, but I am entitled to say, like the yokel, "If I were going there, I would not start from here."

5.43 p.m.

Mr. Ron Leighton (Newham, North-East)

It is a great pleasure to follow the sagacious speech of the hon. and learned Member for Beaconsfield (Mr. Bell). I too, should like to offer my congratulations to the hon. Member for Basildon (Mr. Proctor). His constituency is a part of the country that I know well and I enjoyed his lucid speech. I hope that we hear more from him in the future months. What I have to say may well follow upon his comments.

Over the years there has been a long debate about the balance of costs and advantages which might accrue from this country joining the Common Market. The argument on what benefits we should obtain from membership is now over. The question which remains is how great is the damage that is being done to us by that membership. In almost every quantifiable field our membership is highly disadvantageous to us.

We always knew that there would be costs attached to the farm policy and we always knew that the budget would be tilted against us. However, we were told that there would be great gains on trade which would compensate for that. As has been explained, the opposite has taken place and we have a huge trade deficit. We urgently need will minimise the damage that has been done to Britain by our membership of the Common Market and that will get a better deal for Britain.

We are considering specifically the subject which is monstrously unfair to Britain—our contribution to the budget. The Financial Secretary has said that it is an intolerable burden for Britain. Why? It is because it is financed by three taxes, the so-called own resources. First, there are the customs duties on manufactured goods which no longer come to the Treasury but go to Brussels. We still conduct most of our trade outside the Common Market and, therefore, we pay in more than most of the other countries. Secondly, there is a levy on agricultural imports. We import more food than any other country, whereas most of the other Common Market countries are self-sufficient. Therefore, we contribute more in that respect. Thirdly, there is a notional rate of VAT.

All that bears heavily on Britain. As the hon. and learned Member for Beaconsfield has pointed out, it was a system that was devised by the French civil service—not the French nation, its peasants and its workers. The French civil service is trained to work in what it sees as the French national interest and it laid down the finance regulations as a condition of our joining. In that sense, it is anti-British.

The accession abatement arrangements are now ending and the full horror of that condition is becoming apparent. On the front page of The Guardian this morning figures are quoted not of £800 million or £1 billion, but of £1½ billion as our contribution. If we examine what the money is spent on, we discover that at least three-quarters of it is spent on agricultural surpluses. Yet in this country we do not have agricultural surpluses because we import food. Therefore, we lose out in both ways—we pay in more but we get out less. Already, according to the article in The Guardian, we are by far the largest contributor to the budget. We pay three times as much as the richest country in the Community—West Germany. Already we are the paymaster and yet we are the third poorest country.

Therefore, a chronic inequity has been built into the arrangements and it is becoming worse. It is getting worse because of the actions of the present Government. The last meeting of the Agriculture Ministers saw the 1½ per cent. increase in food prices. The food mountains will increase, even in respect of dairy products where there was a price freeze. The Commission has told us that, despite that freeze, there will be a 5 per cent. increase in dairy surpluses. I understand that the Commission will soon come forward with a supplementary budget. Therefore, more money on top of that which has been extorted from us already will be needed.

The temporary arrangements which have cushioned us so far are ending and our contributions are spiralling out of control. Yet we in this Parliament have no control over what we are spending. That is amazing. Our people are being taxed, we are contributing to the budget and yet we have no control over those contributions.

In the Treasury answer to the hon. Member for Northampton, North (Mr. Marlow) the Financial Secretary said: The latest available estimates of the costs per head of the United Kingdom's net contribution to the Community budget are £11.20 in 1978 and £14.80 in 1979. These figures take account of refunds under article 131 of the Treaty of Accession."—[Official Report, 2 July 1979; Vol. 969, c. 450.] That was an enormous increase in one year, and I remind the House that such figures are always underestimated. The average British family will soon be subsidising the richer nations of Western Europe by at least £100 a year—the equivalent of 3p or 4p reduction in the standard rate of income tax. I know of no instance in history of any nation agreeing to pay an annual ransom of that sort to other countries, except perhaps when countries have been defeated in war and have agreed to pay reparations.

The whole process is highly inflationary. It puts up food prices. It increases public expenditure—something which Conservative Members often complain about. It increases our public sector borrowing requirement, which leads to either higher interest rates or higher taxes. It is a luxury that we cannot afford.

The subsidies paid in Europe mean that each cow in the Common Market is subsidised by as much as £100 a year. British taxpayers are subsidising the richer nations of Western Europe by twice the amount that we give in aid to impoverished Third world countries. The Government are worried about public expenditure and have lopped off £50 million of the aid that we give to such countries. Yet, without any parliamentary control, hundreds of millions of pounds more are being given to the richer countries of Western Europe. I cannot understand how the Government justify that.

To make things worse, that money is going across exchanges as a burden on our balance of payments, thereby making the full economic cost much greater. The cost is magnified by the restrictive fiscal and monetary policies that are made necessary by that burden. We have to constrain our economy in order to reduce imports so that we can correct the current account deficit. The estimates of most reputable economists are that the reduction in our gross domestic product has to be magnified three times—giving us a total reduction of between £3 billion and £5 billion. That is the real cost to our economy of our contributions to the budget. In addition, of course, we have to add on the trade deficit.

That is disastrous. We agree with the Financial Secretary that it is intolerable. We are redistributing wealth from the poor to the rich. The disparities in living standards are widening and the budget is making them worse. The Government talk about cuts in public expenditure at home, but they are not prepared to do anything about cutting public expenditure in relation to the Common Market.

Everyone is asking what we should do about the problem. I think that we shall have to take unilateral action. A distinguished Conservative Member—I shall not embarrass him by giving his name—explained in a public speech that the whole procedure is madness and that there is no logic in the CAP. Its raison d'être is that it is a method by which the ruling parties on the Continent bribe sections of the agricultural population to vote for them. That hon. Member said that he did not mind that, but he did object to those parties using British taxpayers' money for the bribes.

We have spent five years trying to reform the CAP and have had little success. The vested interests are such that I do not believe that we shall be able to reform the policy. What are we to do? I suggest that we should put a ceiling on the amount of taxes that we are prepared to pay.

We could withhold our taxes. I know what de Gaulle would have done if he were in our position. He would have withheld the taxes for a year and would not have taken his seat until the Common Market came to its senses. He was a good Frenchman. What about some of our Ministers being good Britons?

If we cannot get changes in that way, and if the other members of the Common Market want to continue to run their agriculture as they do at present, let us have an exemption for Britain so that we may do something different. We shall have an opportunity soon. The Commission has told us that it is running out of money and will need new taxes. It is talking about taxes on tobacco, alcohol, petrol and so on. We should block any changes until the drastic reform of the CAP has been brought about We want a completely different basis for financing the Community budget

I expect the Government to fight, to stand up for British interests and to do what de Gaulle did for the French. If they do that, they will receive the support of the British people, who are not willing to put up with the present position for much longer. If the Government continue with the policies that are runing this country and leading to its permanent decline and de-industrialisation the demands for Britain to get out of the Common Market will grow stronger.

5.57 p.m.

Mr. Tam Dalyell (West Lothian)

I begin on a note of common ground. There are many who feel that it is deeply unsatisfactory that our debate should be truncated, even though it is in prime time. May I lay down a marker for next year by urging that a debate on the European budget ought to have a full day up to 10 o'clock?

As an unreconstructed pro-Marketeer, I am beginning to feel a bit like the last of the Mohicans, but I had better not try to answer the points raised by my hon. Friends because I shall get involved in a long debate.

I have a sharp and precise question in addition to the one that I asked during the Financial Secretary's speech. What is being done about the question of the court of auditors' investigative powers? We see on television a man driving his pigs from one side of the Irish border to the other, apparently attracting a levy every time he does it.

As a member of the former Public Accounts Committee Sub-Committee I know that the questions concerning the Como butter and the Italian lorries are still unresolved. It is about time that someone came to terms with the problem of the relationship between the court of auditors of the Commission and the police forces of the nation States. We shall not get far in determining cases of alleged fraud if there is not a working relationship with the police forces of the nation States.

When the budget committee of the European Parliament went to Rome, the Italian auditors were less than helpful on those problems. [Interruption.] Well, may there be mirth and ribaldry among my hon. Friends. I hope that some sort of answer will be given to what is a real problem. Those who miss a bus may have to pay a taxi fare. We missed the Community bus and I concede that we are paying a taxi fare. Like so many other costs, the taxi fare goes up year by year. We may be in the position of casting envious glances at those of our partners in the Community who are having something of a subsidised ride.

The budget for 1980, initially proposed by the Commission, represented a signicant step forward in the attempt to provide a better balance between agricultural and non-agricultural spending. The proposals made by the Commission in June envisaged a decline in the share going to agriculture, from 65 per cent. to 58 per cent. in commitments and from 68 per cent. to 64 per cent. in payments. On the other hand, major increases in social spending, regional funding, support for energy and industry and Third world aid were put forward.

The Commission was obviously aware of the need to limit the overall growth in the Community's budget, which it set at 9 per cent. for payments and 13 per cent. for commitments—that is barely keeping pace with the rate of inflation for the Community. All this seems to be fairly reasonable. It is appropriate that the Commission should now seek to limit the overall growth of Community spending and should aim at a switch from agricultural spending to the other sectors of the budget.

However, the basis on which the Commission made these proposals was its determination to seek a price freeze for agricultural products in surplus and very moderate and prudent price increases elsewhere. Here, however, following the drawing up of the preliminary draft budget, the Commission was overruled by the Council of Ministers. Its decisions, permitting a significant overall increase in agricultural prices, have had a major effect on the budget, increasing agricultural spending by 1.3 billion European units of account, so that the initial moderate increase in agricultural spending now becomes a major one with the overall increase in the budget being set at 22 per cent. for commitments and nearly 19 per cent. for payments.

Whereas, under the Commission's original proposals, agriculture accounted, as I have said, for 58 per cent in commitments and 64 per cent. in payments, it will now account for 61 per cent. in commitments and 67 per cent. in payments. This is rather a different picture and surely I am entitled to ask that we consider where responsibility lies. Bluntly, it does not lie with the Commission or with the European Assembly, which supported the prudent price doctrine in the interests of tighter budgetary control. Responsibility lies with the Governments of the member States, including our own, who overruled the Commission in the agricultural price review and who are directly responsible for this extra burden on the European taxpayer and the return to this major disequilibrium within the budget.

That having been said, the budget contains certain significant improvements. The major increases in social spending and regional spending will permit the less prosperous regions and countries of the Community to have made available to them more significant amounts to fight unemployment and regional decline. As a Scot, I realise that we have a good deal to be grateful to the Commission for as regards Commission infrastructure projects.

The growth in energy spending is particularly significant: the Commission suggests increases of nearly 200 per cent. for the energy sector which would then have more than 150 million European units of account available, concentrated particularly on envisaging new sources of energy and encouraging energy saving schemes within the member States.

I ask a specific question about Culham and the reversed field experiment. The Financial Secretary said that he would answer questions when he replied. The experiment's construction is included in the proposal for a research and training programme for 1979–83 for the EAEC in the field of controlled thermonuclear fusion. This programme, unfortunately, has not yet been approved by the Council. It has been reported in the New Scientist and in the British press that the United States Department of Energy has offered to support the Culham project by providing hardware to a total sum of 8 million dollars. This offer is conditional upon the building of a large plasma current project of sufficient calibre to give results significantly in advance of those presently attainable. A project has already been approved by the UKAEA, which has a lower initial specification but which could be upgraded to meet the United States' requirements. I should like to know what the financial decisions are likely to be for that major Culham project.

It is also proposed to allow for the first time significant appropriations—more than 50 million EUAs—to help industrial sectors in particular difficulties. If this is finally approved, it will be the first year that any important budgetary effort has been made in this direction.

Finally, the growth in development aid spending continues with this sector now accounting for nearly 10 per cent. of the total budget. Many hon. Members on both sides of the House will approve that.

All the amounts that I have given for sectors other than agriculture can be criticised as being insufficient, but it may be that this is the maximum that can be absorbed under present payment systems. The record, particularly as regards the social fund, shows that the Commission has been in great difficulty in spending the amount of money available to it. This is because of the very stringent checking procedures and also because a relatively small number of officials are available for this kind of work.

It should be recalled that the overall establishment plan of the Commission remains small with the total administration accounting for less than 4 per cent. of the preliminary draft budget as revised. The total staff available to the Commission has increased only slightly in the past few years despite major new tasks being given to the institution as regards external relations, industrial policy, fishing policy and development.

If the Commission has to undertake such tasks, extra staff will be needed. It is no good hon. Members on both sides of the House talking about what the Commission should do for the Vietnamese boat people, for example, unless it is not provided with the wherewithall.

When the Government consider what line to take and when the Council of Ministers draws up the draft, I hope they will bear in mind that the preponderance of agricultural spending to which they have agreed will necessarily aggravate the problem of Britain's budgetary contribution. In the short term, undoubtedly, some new mechanism can be worked out which could limit the damage. In the longer term the only solution is to seek some reform of the common agricultural policy which will bring to an end the open-ended commitment to finance stockpiling, and will strengthen the social and regional policies of the Community so that a better balance can be achieved for the less prosperous countries. There is little point in preaching economy if the largest single sector of the budget is to escape the spirit of economy completely.

The Commission's original budget proposals were a reasonable basis upon which a dialogue could start between the European Parliament and Council. There has now been a setback following the agricultural price review. The Governments of the member States and the European Parliament should work together to restore a better balance.

If I have gabbled my speech, Mr. Deputy Speaker, it is because other hon. Members wish to speak and I think that they should have a chance to do so.

6.7 p.m.

Mr. Jack Straw (Blackburn)

I am grateful to my hon. Friend the Member for West Lothian (Mr. Dalyell) for his speed and his kindness in allowing me to speak.

Not one hon. Member who has spoken this afternoon has been happy with the size of the budget, with the fact that 70 per cent. of the budget is devoted to agriculture, nor with the totally disproportionate burden that Britain has to bear. Many of my hon. Friends are also deeply unhappy about the Government's performance in their first three months in office. Their performance in Europe has been very different from their promise.

Reference has already been made to the Luxembourg farm price review. Apart from the Conservative manifesto commitment to insist on a freeze for all products in structural surplus, the Minister of Agriculture, Fisheries and Food went to Luxembourg and specifically said shortly before he began his negotiations that the Commission had the full-hearted support of the British Government in its proposals not only for a freeze on products in structural surplus but for a " general freeze " on prices this year. He said that the Council's main priority must be to make a start on eliminating surpluses so as to reduce the cost of the CAP. As we know to our cost, the result of the Council of Agriculture Ministers meeting in Luxembourg was a failure for the British Government. Surpluses have been increased, the cost of the CAP has been increased, and there has been no freeze on prices save on milk.

The failure in Luxembourg was followed by one in Strasbourg. It is important to compare the rhetoric of the Government with what was achieved. When the Prime Minister returned from Luxembourg from the Heads of Government meeting, she claimed " a 100 per cent." success. She said that she had obtained all that she had gone for. Ministers should not be tempted to mislead the House about what exactly was agreed in Luxembourg. If we read the communiqué, we find that the Commission merely agreed to carry out an examination and to submit a reference paper describing the financial consequences of applying the budgetary system in each member State. It also agreed to examine the financial mechanism. An indication of the weakness of the commitment may be gleaned from the fact that the day after this the French President was reported in The Guardian on 23 June as saying: All that has been agreed is that the Commission is to see if the budget's anomalies which exist are inequitable or excessive. The prospect of making any real progress on our budgetary contribution in the light of the French attitude and that of the other countries is exceedingly slim, because any reduction in our budget has to be paid for by other member States. That is a point to which my right hon. Friend the Member for Llanelli (Mr. Davies) has already referred.

Secondly, we must take into account not only the self-interest of the member States, which is bad enough, but the deeply ingrained views and philosophies of the Commission, which is preparing the review about which Conservative Members make so much play. What is the Commission's approach to the so-called inequities within the budget? What is its approach to examining the budget in any detail?

Two recent statements from the Commission disclose a great deal. A written answer was given by the Commission to Lord Bessborough, a Member of the European Parliament. Lord Bessborough asked his question on 26 September 1978 and received a reply on 22 December. It took three months to produce the following reply: The Commission has always been reluctant to publish information "— about the relative net transfer from the EEC budget to each State— because the figures give a false impression of what the Member States do for the Community and of the economic benefits they derive from it. The Commission also believes that calculations of a fair return do nothing to create a spirit of European co-operation. The Commission set its face against any serious investigation of the inequities in the budget. Equally worrying is its attitude to the components that make up our budgetary contribution. The Commission has made clear that its view of equity, although it has moved a little since last December, applies only to value added tax. Paragraph 39 of the Commission's document " The Way Ahead ", referring to changes in budgetary contributions, said: Customs duties and agricultural levies would of course be excluded from the scope of this correction. VAT accounts this year for only 43.8 per cent. of our contribution. Customs duties account for almost as much at 42.5 per cent. The rest comes from agricultural levies. Over 55 per cent. of our contribution comes from customs duties and agricultural levies which the Commission has so far said it excludes from any consideration of equity. I hope to hear from the Financial Secretary what attitude the Government intend to take on that piece of Commission obduracy.

More fundamental than the method by which the gross contribution is calculated is the problem of what happens to the cash once it is in the Common Market coffers. As long as the common agricultural policy exists in its present form it is difficult to conceive of Britain as anything other than a net contributor to the Common Market. Given that situation, both the old Six and the Commission will fight hard for the CAP. We have to take account of the deep commitment of those who work in Brussels and the Commission to the concept of the CAP. It is all that they have got out of 20 years of the Common Market.

In paragraph 24 of its document " Into the 1990s ", the Commission said that the EEC must maintain the asset of a powerful agricultural sector based on a strong common agricultural policy. We can expect no encouragement of the kind of major changes in the CAP needed by Britain if there is to be a signicant alteration in our net contribution to the Common Market.

Some hon. Members have spoken of the possibility of the regional fund becoming an avenue for giving back to Britain part of what it gives to the rest of the EEC. Even that prospect is not encouraging. I do not believe that the House or the country have woken up sufficiently to the consequences for Britain, or for the Common Market, of the accession of Greece, Spain and Portugal. This will impose further and serious strains on the Common Market and particularly on Britain. Although the population of the EEC will increase by only 20 per cent. if those three States join—Greece is already in the process of accession—the numbers involved in agriculture within the EEC will double. As so many of the social problems of those countries are agricultural, the drain on the regional funds will be towards those countries and not to us.

In their excellent report on the EEC budget earlier this year, their noble Lordships said: It is likely that the net benefit to the United Kingdom from the Fund would be substantially reduced and possibly eliminated once all three applicants have joined the EEC. The problems of securing a reduction in our contribution would pose difficulties for any Government. That is accepted. I am profoundly depressed, however, at the tactics of the Conservative Government. There is little evidence so far that the EEC takes the United Kingdom's new found "communautaire" approach as a sign of strength. It is taken much more as a sign of weakness and compliance. When the Prime Minister, as Leader of the Opposition, stood at the Dispatch Box and accused my right hon. Friend the then Prime Minister of being too abrasive, she was saying that she would be only too delighted to hand over a number of cards, aces and trumps, in the interests of Community spirit.

Unless we take a tough stand, there is no possibility of securing real change. There is deep concern on the Opposition Benches that France, particularly, and the other EEC States, will not permit us to stop paying them £1,000 million in cash unless we start paying them a similar benefit in oil. I had hoped to hear from the Financial Secretary what kind of horse trading on energy the Government have in mind when the matter comes to be settled finally at the Dublin summit. I do not believe—nor, I think would many other Labour Members—in such self-inflicted blackmail. We are much more likely to get what we want by adopting to tough stand, preferably along with Italy, but if not, by ourselves.

We should adopt a tough stance that accepts the possibility that we refuse to pay our contributions unless there is a clear commitment from the EEC on greater equity. Those who say that this is "non-communautaire" should recall the attitude taken by General de Gaulle in June and early July 1965 in defending what he saw as his self-interest and the sovereignty of France. In the early hours of 1 July, he effectively withdrew France from the Common Market until he had secured agreement. That took a further six months. If the French can adopt that tactic and win, there is no reason why we should not do the same. The situation for Britain is as serious as that which threatened France in 1965, and it requires similar tactics.

The Commission's paper on the inequities in the budget is due to be published in September. The Dublin summit which, one hopes, will finally decide these matters, will not be held until late November. I invite the Financial Secretary to spell out, when he replies, his proposals for consulting the House in the intervening period. Will the Government, as I hope, publish a White Paper on their reaction to the Commission's proposals? Will they also promise a full debate—not one that finishes at 7 p.m.—on this matter before the Dublin summit, so that when the Prime Minister and other Ministers go to Dublin they have the full backing and support of this House for their policies?

6.18 p.m.

Mr. Frank Holey (Sheffield, Heeley)

The most interesting of the documents before the House is the annex to volume 7. It is clear that the Commission is seriously worried about the financial consequence, of the lunacy of the common agricultural policy. Page 7 of the document says: Once more, therefore, there is the prospect of the own resources available within the present legal framework running out". I emphasise the words "the present legal framework" because that seems to give us a hold on the matter when we come to renegotiate this impossible situation. The Commission goes on to say: The actual moment when present own resources might run out depends entirely on arrangements for agricultural expenditure in 1980. If the Council does not follow the Commission's proposals "— of course, it has not followed the Commission's proposals"— on agricultural prices and connected measures this will inevitably have the effect of making present resources run out earlier". In other words, the Commission is very worried about the consequences which the present agricultural policy will have on the financial arrangements. To try to alleviate this somewhat the Commissioners have worked out two calculations which they call by the delightful titles of hypothesis 1 and hypothesis 2. Presumably those are terms which we have to add to Common Market jargon.

On hypothesis 1, the Commissioners try to calculate what will happen if the idiocy of the common agricultural arrangements continue. It is alarming. The gross budget in 1980 will be £10 billion. By 1981, the figure will be £12.6 billion. By 1982, it will be £15 billion. Within a couple of years, therefore, on existing policies and arrangements, the budget will jump by 50 per cent.

On hypothesis 2, which is assuming rather recklessly and optimistically that the Commission can contain agricultural spending, we have £10 billion in 1980, £11.8 billion in 1981 and £13.1 billion in 1982. That represents a jump of 31 per cent. in two years.

The Commissioners claim that if they can enforce their hypothesis 2 arrangements, the agricultural part of the budget will go down to about 49 per cent. and more money will be available for the social fund, and so forth. But they are also worried about the revenue side of the account. They point out that tariff reductions under the Tokyo round will reduce the yield of customs levy. They also point out that if world food prices go up, the gap will be narrowed, resulting in a reduction in agricultural levies. So they are pushed back on to VAT.

At the moment, VAT is 0.76 per cent., as opposed to the maximum of 1 per cent. on the calculation base which is allowable now. On hypothesis 2, which is assuming that agricultural expenditure can be contained, VAT can be kept at 1 per cent. in 1982. But on hypothesis 1, if it cannot be contained, VAT will jump to 1.25 per cent.—a 25 per cent. jump over what is allowable at present.

I understood the Financial Secretary to say that the Government would not allow that sort of jump. I hope that he will say that again and again. I hope that he will say that in no circumstances will we allow this jump, with a VAT take of 1 per cent., going, up to 1.25 per cent.

Unfortunately for the Commissioners' recommendations and suggestions, their calculations have been knocked sideways already by the agricultural deal just concluded in Luxembourg. Our Minister of Agriculture, Fisheries and Food and his colleagues did not accept the Commission's proposals. They did a deal which, according to the Scrutiny Committee's calculations—which are said to be based on information from the Commission—will already increase the budget by £860 million and will increase the VAT take from 0.76 per cent. to 0.88 per cent. in 1980. It means that we are heading at very high speed for the 1 per cent. take which the Commission hoped we should not arrive at until 1982.

I am afraid that, as between hypothesis 1 and hypothesis 2, the Commission is already losing out at a high rate of knots and that by the end of the year it may have lost out entirely unless something very drastic is done about it.

What are the consequences of these figures for the United Kingdom? The Financial Secretary has admitted already that our gross contribution is £2,079 million. But we have also our share of the additional £860 million. I accept that we have not yet got this famous rectifying letter, but no doubt it will come through the front door of No. 12 at any minute. Certainly it will be of the order of £860 million, and our share of that is about £155 million. So that pushes up the 1980 figure for the United Kingdom to £2,235 million.

If we start to look at the Commission's hypotheses 1 and 2 and assume that nothing is done about our 20 per cent. contribution to these extraordinary figures, we find that in 1982 we may be liable for a gross contribution of £3,350 million. That is on the Commission's hypothesis 1, assuming that we do not contain the agricultural policy consequences. On the Commission's more generous calculations, hypothesis 2, we shall still be liable for a contribution of £3,000 million, although, to be fair, on the second calculation we may at any rate expect a slightly larger refund in terms of the different balance between agricultural spending and social, regional, energy, industrial and research spending. On the second calculation of the Commission, there might be some slightly better drawback for the United Kingdom than on the first. However, the figures are clearly horrific.

My conclusion from this extremely interesting and frank document is that the Commissioners are very worried men. They see themselves heading rapidly for a ceiling, a dead end or a wall, and they are desperately urging the Council of Ministers and member States to show a little intelligence in the apportionment of funds between agriculture, regional policy, foreign policy, social policy and so forth. Unfortunately, on the basis of the latest results of negotiations, there is no evidence that there is a consensus among the member States about how the agricultural policy shall be contained and how a reasonable apportionment shall he made.

In those circumstances, the very minimum that the Government can do is to say that that ceiling is absolute and unbreakable, that the VAT take will in no circumstances exceed the 1 per cent. which is agreed on the present legal arrangements, and that any proposition to the contrary will be vetoed by the United Kingdom at all times. Of course, there is the wider calculation of reducing this absurd payment of £1,000 million—perhaps even £1,500 million—across the exchanges to the richest countries in the world. I echo the words of one of my hon. Friends. It is surely the height of obscenity that this country should pay two and a half to three times as much to subsidise the world's richest countries as, we do to help the poorest.

6.27 p.m.

Mr. Richard Shepherd (Aldridge-Brownhills)

It was not my intention to intervene in this debate. The arguments about the nature of the budget and the United Kingdom's contribution to Europe have been well rehearsed already. However, when one hears the extent of our contribution to the budget in net terms, one becomes aware of welling concern and great anger. This is of some importance to us, because, since the beginning of May, on the Commission's arguments alone, it may be that we have transferred in net terms as much as £300 million to Brussels. In fact, we may have transferred as much as £1.5 million since this debate began.

I want to express in the strongest possible terms my support for those right hon. and hon. Members on both sides of the House who have expressed their concern about this matter. I represent a constituency in the West Midlands which has suffered from the results of a tremendous imbalance in the rise in the price of food, for example, and the effect that going into the European Community has had on our industrial production.

Had the effect been as projected originally, our objections would not be felt so strongly. But we are watching a massive transfer of our wealth to nations wealthier than ourselves. That must inhibit our ability to respond to our need for industrial regeneration. That gives concern to many people throughout the country and throughout this Chamber.

Without making a long or a laboured speech and without any peroration about the future of the EEC, I wish to stress the fundamental objection felt in this Chamber and in the country to the EEC. We find ourselves in a position in which no matter how we vote today—whether we reject the budget, stand on our heads or jump out of the window—it makes not the slightest difference. The issue of sovereignty gives us fundamental concern. It is a mockery that we discuss these matters in this House when whatever action we take—to reject or support—is of no consequence in Brussels or the Community at large.

I repeat that when I entered the Chamber it was not my intention to speak on the subject. I accept that I am ill-prepared, but I wished to voice the concern felt by many about the EEC, the shape of its budget, and our impotence in effecting any changes.

Although discussions are to take place in September or November, and perhaps alterations can be made if the President of France realises that there is an injustice, as each month goes by we are transferring to the EEC another £100 million of our scarce resources. I make that point because I cannot for the life of me see why the President of France and the Chancellor of Germany should think of changing the structure of the common agricultural policy. That policy is a cornerstone of the Community. It is fundamentally in their interest to see the transference of that wealth, and there is nothing that I can think of that will encourage them to change it.

6.31 p.m.

Mr. Peter Shore (Stepney and Poplar)

It is my pleasant duty to open my remarks by congratulating the hon. Member for Basildon (Mr. Proctor) on his maiden speech. We all welcome and appreciate his remarks about his predecessor, Eric Moonman, a colleague whom we all miss. Virtually all of us were enheartened by the hon. Gentleman's approach, which seemed to me to be a healthy and a non-ideological approach to EEC affairs. His general message on the future of Europe, of national States co-operating for common aims where it is sensible to do so, and the way he turned his face against a supranational Europe, will find an increasingly resonant echo on both sides of the House. We look forward to his future contributions, especially on the whole question of the EEC.

It has been a timely debate, and one of considerable importance. It is timely because the budget Council of the EEC is due to meet on 23rd July, and the Financial Secretary is to attend that meeting. On that occasion the Council will formally establish the 1980 budget. It is essential that the views of the House should be expressed and conveyed to the Council of Ministers before that meeting takes place. That is why we tabled our amendment, and that is why, if the Government had not accepted it—and I am glad that they have—we would have voted upon it.

Until this budget matter is resolved we must take a stand, certainly we on the Labour Benches must, and we shall have to back up our resolution with our votes where that is necessary. I hope that it will not be necessary. If the Government's actions match the general sentiments that they have expressed, there will be an extraordinary unity in the House that I would be the first to welcome and the first to assist.

The issues that have arisen from the documents before us are simple to state. In a sentence, they are the size of the budget, the shape of the budget and the wholly unacceptable contribution—whether considered to be a gross or net contribution—that falls upon the people of these islands. The 1980 Community budget provides for actual expenditure of around 15,000 million European units of account, or, translated into more familiar terms, some £10,000 million.

These figures were the Commission's estimates before the meeting of the Agriculture Ministers that ended on 21 June. They were based on the assumption of an overall price freeze on foodstuffs in 1980. If Commissioner Gundelach is correct the result of that day's work, when our Minister of Agriculture, Fisheries and Food abandoned his commitment to maintain an overall price freeze, has added at least another 1,000 million EUAs, or about £700 million, to the 1980 budget that is before us.

This is not only a large but a swollen budget. As my right hon. Friend the Member for Battersea, North (Mr. Jay) said, we cannot fail to note the relentless increase in the size of successive EEC budgets. In the first year of our membership, 1973, the total budget was 4,600 million EUAs. By 1976, three years later, it had risen to around 8,000 million EUAs. By 1978 it was over 12,000 million EUAs. As we have just seen, it is of the order of 16,000 million EUAs in 1980. That is an increase far beyond the increase in the normal cost of living and inflation during that period. It is an increase of 250 per cent. in seven years.

What has propelled the budget upwards throughout the period is, above all, the growth of expenditure and the common agricultural policy. The CAP has grown from 3,600 million EUAs in 1973 to over 10,000 million EUAs in the budget for 1980. I shall not go over the ground on the CAP again today. But, whatever else can be said for it—and I do not think that anyone will doubt this—as a system of agricultural protection it is exceptionally costly in budgetary terms.

Our share of the budget has, quite properly, attracted the greatest attention. To the man in the street, and perhaps even to some hon. Members, the size of our gross contribution, as set out in the Treasury's explanatory memorandum, will have come as a shock. In 1980 the United Kingdom gross contribution will be no less than £2,079 million, which is equivalent to 20.8 per cent. of the total budget.

There will be budget expenditure in the United Kingdom, which will result in a much smaller net sum. However, it the proportion of gross to net remains at two to one—I invite the Minister to Give his assessment of the ratio—our net contribution cannot be less than £1,000 million in 1980. My own assessment, which has been reinforced by certain documents that I have looked at, is that it will be, even in 1980, substantially more than £1,000 million.

How can a country such as ours, where average income is only 75 per cent. of the Community's average, be a massive donor to, rather than a substantial recipient from, the Community budget? What about the immense increase in our net contribution? As my hon. Friend the Member for Newham, North-East (Mr. Leighton) explained, the answers are to be found in the extraordinary methods of financing the Community budget, which were agreed as long ago as 1970, and the acceptance of which by the then Conservative Government was one of the crucial surrenders made to overcome the French veto on Britain's entry.

I refer to the system of financing known as "own resources", the three-tax system. That is now hitting us with such force because 1980 marks the end of the seven-year transitional period, and the first full year in which the "own resources "system applies to Britain. However unpalatable, 1980 is nowhere near the end of the story. We were provided, for our illumination, with the Community's forecasts for 1981 and 1982. I am grateful to my hon. Friend the Member for Sheffield, Heeley (Mr. Hooley) for drawing attention in his brief but excellent speech to the contents of that document.

According to one hypothesis, by 1982 total expenditure will reach 22,500 million units of account. According to the other hypothesis, under which the Minister of Agriculture, Fisheries and Food will do what he should have done this year—namely, control agriculture prices—it will still reach 19,600 million units of account in 1982.

Neither total is acceptable. On the latter hypothesis, the implications for Britain are a contribution rising to over £2,600 million a year. On the other hypothesis it will rise to over 3,000 million a year. That is what the Commission estimates awaits us in two years.

Against that background we must turn our minds to the Commission's document, "Global Appraisal of the Budgetary Proposals of the Community", which was published before the budget. There has been too little comment on it during this brief debate. " Problem " is the key word to that document. Within two years the sum of the existing own resources taxes will fall short of total budgetary expenditure. That is why the Community invites us to turn our minds, not to retrenchment but to how we can increase the flow, volume and definition of our own resources to finance that increased expenditure.

I know the answer that we should and must give. The Community is running out of cash, and that provides us with a major opportunity. We must not fail to take it. It is an opportunity, not to make minor adjustments or revise financial mechanisms but to recast the way in which the money is raised and the burden of expenditure is fixed inside the EEC. That is why our amendment refers to the need for a fundamental reform. That is why it advances the doctrine that the contribution to the budget by Britain should be at least no greater than its receipts.

It is helpful that at least the House now has a common vocabulary when speaking about these issues. That is important. The British voice that will be heard on the other side of the Channel in Brussels must appear to be strong and united if it is to be heeded.

We shall need a strong, consistent and persistent effort if we are to achieve any changes in the arrangements. My hon. Friend the Member for Blackburn (Mr. Straw) and other hon. Members are right to say that there is a strong interest in favour of the status quo. Britain is the principal country which supports and subsidises the European budget and the other nation States. We must produce compelling arguments and persuasive reasons if those other States are to abandon voluntarily that which they are now enjoying.

My hon. Friend was right in what he said about the Commission. It has its own view and doctrine. That doctrine requires it to maintain its grip on what it calls its own resources and to develop those resources for the future.

We must go far beyond the optimism with which the Financial Secretary opened the debate. He said that the present arrangements were out of line with the spirit and intention of the Community. I wonder where he has been in the past eight years. Not only are they not out of line but the budgetary arrangements were tailored precisely in 1970, and several months before, as a condition for the opening of negotiations for Britain's entry to the Community. There is no doubt that we are in for a difficult time.

I shall not tell the Financial Secretary now what assistance or advice we shall give him. We shall take his optimism at its face value and see what he comes up with in the next few months.

6.45 p.m.

Mr. Lawson

With the leave of the House, I shall reply to the debate, I begin by congratulating my hon. Friend the Member for Basildon (Mr. Proctor) on his excellent maiden speech. I shall not comment in detail on the many points that he made about his constituency and the germane arguments that he put to the House about the matter that we are discussing.

One of his remarks stuck in my mind. He said that the British people seek results in this difficult matter. That is right. It is not a question of discussing precisely the best negotiating tactic to achieve those results. At the end of the day we shall stand to be judged by the people according to the results that we can achieve. What I have said about my hon. Friend is more than a formality. I hope that we shall have the pleasure of hearing him on many occasions in future.

The right hon. Member for Stepney and Poplar (Mr. Shore) described my opening remarks as optimistic. That description surprises me. I believe that the huge net contribution that we are making—and, indeed, the large contribution that the Italians are making—was not the intention of the Community. It is hard to demonstrate that it was.

However, the right hon. Gentleman is right to say that once that situation has arisen it is not easy to put it right because vested interests are created.

Optimism is too strong a word—perhaps "hope" is better—to describe what I said. All that I said that may give ground for optimism was that this Government have achieved more in two months in this direction than the last Administration did in their entire five years of office. That is a fact.

This is only the first step. There are many steps to come. The existence of the problem is recognised and the Commission is now grappling with it. I am sorry that, in the interests of the country, Labour Members are not prepared to welcome this first step. They are however right to say that there are many steps still to be taken.

I shall try to reply briefly to some of the points raised in the debate. The hon. Member for West Lothian (Mr. Dalyell) asked me about two specific points. First he asked me about the Culham project. I shall write to him on this subject. That matter is apart from the main theme of the debate, although it is important in itself.

The hon. Member also asked me about the court of auditors. Of course, we do not support any misuse or abuse of Community funds. I do not know what the hon. Gentleman has seen on television but obviously he has time to watch television and has seen some curious things. The court of auditors is a relatively new institution. I do not think that it has been demonstrated that its powers are inadequate but if it does appear so this will be examined. If the court can produce evidence of the misuse of funds and can propose measures to rectify the situation and improve the control of spending of Community funds, that will have cer- tainly the support of the present Government.

Mr. Dalyell

We have good relations with the police forces of the various States. Not only I saw on television, but many people have seen, pigs driven from one side of the Irish border to the other attracting funds. The Como butter case has not been cleared up, and there are certain other allegations. The Commission itself estimates the fraud to be £2 million. Another estimate is £100 million. My right hon. Friend the Member for Deptford (Mr. Silkin), when asked on the television programme, said that he thought the amount was £1,000 million. These matters need to be cleared up.

Mr. Lawson

I quite agree. It is also fair to say that for many years—I am not talking about terrorism and so on—things have happened, such as smuggling across the Irish border, which have nothing to do with the existence of the European Community, as the hon. Member for West Lothian knows.

Mr. Nigel Spearing (Newham, South)

I have been here for most of the debate. Does the hon. Gentleman recall that I asked him two questions about the court of auditors? Can he tell the House whether the Government have agreed to the discharge of the court of auditors report for the 1977 budget? If so, were they satisfied that no further action was required?

Mr. Lawson

In the Government's opinion the court of auditors report for 1977 was most valuable. There may well be cases where the court needs greater powers. If so, it is up to the court to bring them to the attention of the Community and member Governments.

I pay tribute to my hon. Friend the Member for Scarborough (Mr. Shaw), who was a Member of the European Parliament for many years. He did a sterling job there and was a senior member, if not chairman, of its budget committee. He played a very important part in that committee's proceedings.

My hon. Friend asked me, specifically, whether there could be a special contribution for temporary social measures from the social fund in connection with the restructuring of the steel industry. I entirely understand his concern in this matter. Unfortunately, there is a complication here, which I suspect my hon. Friend is aware of, as he is an expert in the minutiae of Community law. The resources of the European Coal and Steel Community are strictly limited. Although the Commission has proposed, for that very reason, that those resources should be supplemented by a special contribution from the main Community budget, I am advised that there is no legal basis for such a payment. Therefore, I should have no alternative but to oppose it if it were proposed. I understand that other member States take the same view.

The right hon. Member for Battersea, North (Mr. Jay), a veteran anti-Marketeer, once again made a very penetrating contribution to the debate. I do not propose in my remarks now to refight, as I thought he did, the whole question of whether we should be a member of the Community. That is a perfectly fair debate, but it is not what is before the House today.

The right hon. Gentleman tried to trump his right hon. Friend the Member for Llanelli (Mr. Davies), who said that the gross contribution to the European budget dwarfed even our balance of payments benefits from North Sea oil, by saying that our balance of payments deficit with the Community countries, of about £3 billion, dwarfed the benefits from North Sea oil. That is not the case. It does not alter the seriousness of the matter that we are debating, but the balance of payments benefit from North Sea oil now runs at about £4½ billion a year. So it is still greater than the other figures that have been quoted. To some extent that suggests what our balance of payments would be like were it not for North Sea oil.

The right hon. Member for Llanelli and other hon. Members made great play of, as they tried to make out, the exacerbation of the problem. I think that there was general agreement throughout the House that we were faced with a very serious situation. However, they said that the problem was exacerbated by the recent agreement at the meeting of the Council of Agriculture Ministers, and that my right hon. Friend the Minister of Agriculture, Fisheries and Food had something to answer for on that count. I think that they have got this matter wholly out of perspective.

One of the problems is the curious way in which the Community does its arithmetic in certain cases. I think that the right hon. Member for Llanelli will understand what I mean when I tell him that the figure of 1,300 million units of account, or £875 million, which the Commission alleged was the increase in the agriculture budget as a result of the settlement, is largely accounted for by the fact that the Community had assumed a milk levy averaging 5 per cent. of the support price, and this extra levy was not agreed. I think that most hon. Members will agree that that was a good thing.

Most of us would believe that a milk levy was a tax, and that it was revenue. Under Community arithmetic it is classified not as revenue but as negative expenditure. Therefore, the absence of this negative sum is the main contributor to the apparent increase in agricultural expenditure as a result of the settlement. The true increase is some £265 million, and not £875 million, of which our contribution is £50 million. If we offset against that the benefits of the butter subsidy—I know how keen Opposition right hon. and hon. Members always are on subsidies in general and food subsidies in particular—we get a net benefit of £30 million.

Mr. Denzil Davies

But the hon. Gentleman cannot offset that against the budget. It still means that our budgetary contribution has risen by £50 million, which is an increase in public expenditure.

Mr. Lawson

That is quite right, but it is a much smaller increase than the figure that has been bandied about.

There are two further points that the right hon. Member for Llanelli ought to bear in mind. First, it would have been a very good thing if we had been able to secure a freeze in the prices of all agricultural commodities that were in surplus, but it was not possible to achieve agreement on that. Agreement was obtained on a freeze in the price of milk, which was the most important, and on the other commodities the increase was very much less than the rate of inflation. It was in fact a reduction in real terms. Overall, it was the smallest increase ever secured at any review since the accession of Britain to the European Community.

Mr. Shore

Before the hon. Gentleman becomes too euphoric about that, may I ask whether it is not also the first time the Commission itself has put forward a proposal for an overall freeze? Is it not a fact that through the exercise of the veto on the Agriculture Council we could have prevented any departure from those proposals?

Mr. Lawson

That is not so. It is true that it is the first time the Commission has put forward a freeze on everything, and that is very welcome. But if we had exercised the veto that would in so sense have meant that the Commission's proposals stood, which is what the right hon. Member for Stepney and Poplar is suggesting. Unfortunately, that was not the position. It was really a matter of negotiating the best possible arrangement with our partners in the Community.

The right hon. Member for Battersea, North also asked about the ECU swap, and why there had been no parliamentary authority, as he put it, for that swap. Indeed, he asked why this was different from the International Monetary Fund arrangement after the war. The difference is that this is a swap. In exchange we get ECUs—European currency units—which could be described as a basket of European currencies. This swap can be reversed. There is nothing irreversible about it. Indeed, the parliamentary authority is contained in the Exchange Equalisation Account Act 1979. I think that this was made clear by the previous Administration when the matter was under discussion. Therefore, no additional parliamentary authority was required to engage in this swap operation, a swap that can be reversed at any time.

Mr. Jay

The authority in that Act depends on the assumption that what we get in exchange is a security. Can the Financial Secretary explain in what sense we get a security in exchange?

Mr. Lawson

We get a security in the sense of a basket of currencies. I am sure that if the right hon. Gentleman wishes to challenge this in the courts it would make for some entertaining reading for some time.

The hon. Member for Blackburn (Mr. Straw) mentioned the agricultural decision and asked whether we agreed with the Commission and took into account only VAT when assessing whether there was justice in the budgetary arrangements. Of course not. That is precisely why I said that we believe the right way forward is an improved financial mechanism. It is regrettable that the existing financial mechanism has proved such a failure. This was a mistake in the renegotiations undertaken by the Labour Government in 1974–75. But the point of a financial mechanism is that it sweeps up everything. It addresses itself to the net contribution which takes into account all the own resources contribution—not merely VAT but the levies, which are very much smaller than my hon. and learned Friend the Member for Beaconsfield (Mr. Bell) seemed to make out, and the customs duty. It also takes into account expenditure on the CAP and, indeed, all other expenditure. It looks at the net result, having taken all these things into account. That is why we believe that the best approach is to get an improved mechanism which will produce justice in regard to the net contribution.

If another approach is offered, we shall be happy to consider it. But we feel that that is the best approach for the very reason which the hon. Member for Blackburn suggested—that it takes all the elements in the equation into account. As I made clear earlier, one of the big mistakes with the financial mechanism negotiated by the last Government was that it did not take all the elements into account, but considered only the revenue side and not the expenditure side of the budget.

Mr. Straw

Will the Financial Secretary also deal with my point about the need for a White Paper to be published, following the publication of the Commission's proposals in September on the budgetary changes? Does the hon. Gentleman agree that the Government should publish a White Paper and that there should be a full debate before the Dublin summit in late November?

Mr. Lawson

I have taken note of the hon. Gentleman's suggestion. It is a serious point. I am sure that my right hon. Friend the Chief Whip, who is present, will also have heard the hon. Gentleman suggest that there should be a debate before the Dublin summit. I can see that there is force in that argument. However, from time to time I hear of difficulties of fitting things into the parliamentary programme. Fortunately, that is not my problem, but is my right hon. Friend's problem. However, I take note of what the hon. Gentleman has said. It is a serious suggestion.

The right hon. Member for Llanelli made heavy weather of his disappointment that there was so little between the two sides of the House on this matter. There could be a big difference. Had the Labour Party had as its policy taking Britain out of the Community, there would have been a fundamental difference. But that is not its policy, and I am glad that it is not. That being so, there is very little difference between us, and the right hon. Gentleman knows it. I think that he made very heavy weather of trying to pretend that there was some kind of difference. To drag in the extraordinary fact the Minister of Agriculture, Fisheries and Food had answered a question on the effects of the price review rather than the Chancellor of the Exchequer, as if it was a big issue, seemed to be making heavy weather of this. The right hon. Gentleman should not also be worried about the Treasury losing its place in the hierarchy of Whitehall.

The right hon. Gentleman asked what we proposed. The question really is "What does he propose?" It is absolutely clear what we are proposing. It is to fight very hard indeed within the Community for justice. We shall fight to achieve, we hope through an improved corrective mechanism, a method by which in future it will be impossible for us to be paying a sum of, say, £1,000 million across the exchanges as a net contribution to the Community budget.

Mr. Denzil Davies

Will the Financial Secretary deal with my point about VAT? Will he make it clear that this Government, like the last Government, will not agree to any increase in the VAT ceiling of 1 per cent.?

Mr. Lawson

I have made it quite clear that we do not look with any favour on an increase in the resources for the Community budget. I agree with the point which the right hon. Gentleman and others have made—it is a fairly obvious one—that the fact that the Community is approaching the limit of its own resources, and will be needing more money, is a very important element in the negotiations that we shall be having. However, we shall, if possible, be seeking a solution before that point in time is reached.

I conclude by repeating that we have achieved more in two months than the previous Administration did in five years. We have a long way to go, but we are not interested in any lectures from Opposition Members on how we should behave. We are grateful for their support, and I shall go to Brussels on Monday fortified by the wide degree of bipartisan support for the stand that we shall be taking.

Amendment agreed to.

Main Question, as amended, put and agreed to.

Resolved, That this House urges Her Majesty's Government, in view of the United Kingdom's massive and ever increasing net contribution to the Community Budget, to press for a fundamental reform of the budgetary arrangements so that Britain's contribution to the Budget is at least not greater than the receipts.