EUROPEAN COMMUNITY (BUDGET)

HC Deb 22 November 1979 vol 974 cc582-726

[Commission document 9250/79, and unnumbered documents on the draft of the general budget of the European Communities for 1980, and on a letter of amendment thereto, are also relevant.]

4.23 pm

The Chancellor of the Exchequer (Sir Geoffrey Howe)

I beg to move, That this House takes note of Commission document No. 9093/79 on budgetary questions, together with supplementary information in documents 9369/79 and 9721 with addendum 1, and also Commission document COM(79) 620 final on convergence and budgetary questions, and fully supports the Prime Minister in her determination to secure the objectives approved by the House on 16 July. The House will see in the motion a reference to 16 July, the occasion when the House approved a motion which read: 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."—[Official Report, 16 July 1979: Vol. 970, c. 1096.] Those remain our objectives, in line with my observations about a month before, when I said in my Budget speech: We have already made it very clear to our partners that this situation cannot be allowed to continue … It is plainly unfair, and it is against the interests of the Community itself."—[Official Report, 12 June 1979; Vol. 968, c. 238.] We cannot expect the Community to progress on such an insecure foundation. The subsequent debates in another place on 9 July and, as I said, in this House on 16 July demonstrated that the Government's view on this question was universally shared. The European Community will not fulfil its own purposes or play its due part in promoting greater stability and welfare in a troubled world, as we should all wish, while it permits this manifest inequity to continue.

This country, seventh in order of GNP per head, will, if nothing is changed, be far and away the largest net contributor to the Community budget in 1980. On unchanged policies, our position will continue to get worse. As I shall go on to show, I have heard no argument that justifies the position under which the United Kingdom is transferring resources to much richer member States through the Community budget. The Community cannot thrive when its financing produces such perversity, hindering the efforts of its member States to grow more harmoniously.

In the financial mechanism agreed in Dublin in 1975, the Community recognised in terms—and I quote from the preamble to that mechanism— that conditions incompatible with the proper functioning of the Community could arise when a member State's economy is forced to bear a disproportionate burden in the financing of the Community budget. It has been, and remains, the purpose of Her Majesty's Government to get that situation changed.

I have argued the case at meeting after meeting of the Community Finance Council and at many other meetings with colleagues in the Community, and so have my right hon. Friends the Prime Minister and the Foreign Secretary and, indeed, every one of my right hon. and hon. Friends who have had dealings with Community institutions. My right hon. Friends the Prime Minister and the Foreign Secretary will continue so to argue at Dublin, and they will wish to do so against a background of renewed expression of support from the entire House. I shall devote most of my time this afternoon to that end, by spelling out the arguments on which we have been, and shall be, relying and listening with interest to the way in which other right hon. and hon. Members believe that our case can best be put.

In this debate I shall leave to my hon. and learned Friend the Minister of State the main burden of dealing with the many other issues, important but not so fundamental, which arise on the 1980 budget. They are being looked after in Brussels by my hon. Friend the Financial Secretary, which is why he cannot be present for today's debate. I shall begin, however, by saying just a few words about that issue.

The House will see that there is reference on the Order Paper to several documents relating to the draft budget. The draft budget, as amended, was established by the Council and subsequently referred to the European Parliament. If all the proposals made by the European Parliament were accepted, they would to a considerable extent reinstate the reductions made by the Council in the preliminary draft budget, including provisions for the regional and social funds. As the Parliament also made proposals in other areas, including on provisions for agricultural expenditure, the total effect will be to increase the commitments in the budget by nearly 10 per cent., from about £11,000 million gross to about £12,000 million gross.

There was a time when it was considered to be the main purpose of elected representatives to curtail the spending capacity of the Executive, but in Europe as well as Westminster the roles increasingly seem to have become reversed.

Mr. Russell Johnston (Inverness)

With respect to the right hon. and learned Gentleman, that is really a rather unfair remark. Where the European Parliament is proposing an increase, for example, in the regional fund, it is endeavouring to secure a better redistributive element in the budget.

Sir G. Howe

I appreciate the hon. Gentleman's way of putting the point, but it remains, I think, a not unfair observation on the way in which Assemblies tend to operate in these days. Elected representatives tend more often to be encouraging executives to spend money than to diminish taxation. The old principle, no taxation without representation, tends to slip all too easily into no representation without subsidisation.

Mr. Mark Hughes (Durham)

Will the right hon. and learned Gentleman accept that the European Parliament, irresponsible as it is, said "No increase whatever in agriculture expenditure on commodities that are in surplus"? It was the Council of Ministers, including our Government's Minister, that put up the expenditure. The right hon. and learned Gentleman should not blame that Parliament for increasing expenditure over which the European Parliament has no control—contrary to Tory election pledges.

Sir G. Howe

I do not wish to lay blame as universally as that. However, I draw attention to the extent to which the pattern of increasing expenditure occurs all too frequently.

My hon. Friend the Financial Secretary will be discussing the proposals made by the European Parliament with Ministers from other member States tomorrow. I assure the House that he will, as he did at the first budget Council in December, convey again the Government's general approach to the need for restraint in expenditure. He will be concerned also to uphold the decisions of the Council of Ministers on the total expenditure, although, of course, it will be right to consider carefully the proposals made by the European Parliament for adjustment within those totals. In due course, he will inform the House of the outcome of the budget Council's discussions.

I turn to the even more pressing and substantial question of the United Kingdom's share of the budget. Certainly there are some signs that our efforts to bring home to our Community partners the seriousness and urgency of the problem have begun to bear fruit. Opinion in other member States has come increasingly to recognise the existence of an inequity in the Community's budgetary arrangements and the need for action to be taken. I believe that they have yet to grasp the full scale of the problem and to accept the necessarily radical nature of the measures that are essential if a solution that matches up to the problem is to be found.

It is right to acknowledge the part played so far by the Commission in creating a greater awareness and understanding of the United Kingdom's budget problem. A major influence has been one of the documents that is on the Order Paper today, the so-called reference paper on budgetary questions. That demonstrates clearly the scale of the problem. As recently as 1976, when, admittedly, we were shielded by the transitional arrangements, the United Kingdom's net contribution was less than £170 million. The Commission's forecasts show that by 1980 the United Kingdom will be one of only two significant net contributors to the budget. However monetary compensatory amounts are attributed, our net contribution in 1980 will be over £1,000 million. That will be at least 40 per cent. higher than Germany's net contribution, although Germany's GNP per head is twice ours. In recent years, Germany's net contribution has stabilised and even declined, yet Britain's continues to rise.

The reference paper shows the nature of the problem. It clearly shows the two causes. First, the United Kingdom's excessive payments to the Community are the lesser cause of our high net contribution. The major factor in creating the imbalance is that the policies financed by the budget do not bring enough benefit to the United Kingdom. In 1980, when Britain's share of the Community GNP will be about 16 per cent., we shall finance over 20 per cent. of the budget but receive only 10 per cent. or even less. Therefore, there is no justification for the burden which these arrangements place on the United Kingdom.

Some of my European colleagues have observed that the budget reflects, and is intended to reflect, and implements Community policies. They say that it is not designed or intended as an instrument for redistributing wealth among member States or as an instrument for transferring resources from one member State to another. I am delighted to hear the purpose of the budget described in that way. However, it is not the way in which it works now. We have not sought to argue—although we might well have done—that the United Kingdom should expect to be a net beneficiary as are the other two less prosperous member States. However, we complain that the budget embraces redistribution with a vengeance in that it redistributes to those who have, taking from those who at present have not.

During the accession negotiations in the early 1970s, the Government of the day were not unaware that a problem of this sort might arise. We pointed out to the original Six that, if the then prevailing trends in Community spending were to continue, the United Kingdom would, by the end of the transition period, emerge as the largest net contributor to the budget. The other member States contested that assertion. They argued that planned changes in the balance of Community expenditure would ensure that that would never arise.

In order to assure the United Kingdom that it would be safeguarded against any such risk, the Commission, in a paper prepared for the Council and quoted in paragraph 96 of the 1971 White Paper, stated: Should an unacceptable situation arise … the very survival of the Community would demand that the institutions find equitable solutions. That situation has arisen. Therefore, it should be manifestly unacceptable to the Community as well as to one member State.

Mr. J. Enoch Powell (Down, South)

From what the right hon. and learned Gentleman has said, in the event of this requirement not being reasonably satisfied, our membership of the Community would appear to be in question.

Sir G. Howe

The right hon. Gentleman will have to wait to see how far we get in satisfying that requirement. The words are clearly set out: Should an unacceptable situation arise … the very survival of the Community would demand that the institutions find equitable solutions. It is that demand to which the institutions of the Community are now seeking to respond in response to our approaches. For that reason, we now seek the equitable solutions which were recognised by the Commission as being necessary in 1971.

The restructuring of the Community budget which was envisaged at the time of accession has not taken place. The Community continues to spend 70 per cent. of a rapidly growing budget on various forms of agricultural support. That contrasts with the 40 to 60 per cent. laid down in 1970. It has had an inevitable consequence. The United Kingdom is in danger of inheriting Germany's mantle as chief paymaster to the Community without the economic strength of Germany to support it. Some people in the Community complain that the United Kingdom seeks another renegotiation. For that reason they argue that our demands are unacceptable. I reject that argument.

The solution to our emerging budgetary problem that was devised in Dublin in 1975 has proved inadequate. It was so hedged around with conditions and restrictions that, so far, we have failed to qualify for any refund. Even if the impediments were removed wholly, it would still fall far short of what is required. If the existing constraints of the present Dublin mechanism were taken away, it would be worth no more than £350 million net. Even on that basis, the United Kingdom would be left with a large net contribution of either £700 million or £900 million, according to whether monetary compensatory amounts were attributed in one way or another.

That contribution would be about the same size as Germany's and still several times bigger than that of France. The main reason for the inadequacy—

Sir Derek Walker-Smith (Hertfordshire, East)

On the question of the difference made by the attribution of the MCAs, the Treasury table shows a substantial figure. However, I see that page six of the Commission's reference paper on budgetary questions in paragraph 12(1) concludes: So long as the current situation is maintained, United Kingdom MCAs of under three and a half per cent., the attribution of MCAs will be of little practical significance. There appears to be a clear dichotomy or contrast in consistency between the two approaches. Will my right hon. and learned Friend clarify that point?

Sir G. Howe

I should be grateful if my right hon. and learned Friend would give me that reference again.

Sir D. Walker-Smith

I was quoting from page six, at the end of paragraph 12(1).

Mr. Deputy Speaker (Mr. Bernard Weatherill)

Order. One speaker at a time, please.

Sir D. Walker-Smith

I beg your pardon, Mr. Deputy Speaker. Any implied rebuke should be directed to my right hon. and learned Friend, who, after the manner of the profession in which I practise and in which he practised with such distinction, expected an answer to his question. The answer is that the reference is page six, paragraph 12(1), in the concluding sentence.

Sir G. Howe

I do not have that document at the moment I have the other one. Perhaps my right hon. and learned Friend will return to that point later.

As I understand it, if MUAs are to be attributable, as we would contend, to the benefit of the exporters, then the size of our contribution next year will be substantially larger than it would be if they were attributed the other way round. The difference between their figures, even if one operates the Dublin mechanism to the full, would be about £200 million—the difference between £700 million and £900 million.

Mr. Mark Hughes

Does the right hon. and learned Gentleman accept that in real economic transfers any change in MCA location can be no more than cosmetic?

Sir G. Howe

It is for the reason that MCA location and MCA allocation represent an underlying transfer of resources that we contend, as we do, that they should be treated on the basis of benefit to the exporter rather than the importer. They are part of the conjoined operation.

The main reason for the total inadequacy of the Dublin mechanism in its present form, even if it worked, is that it is concerned only with the United Kingdom's excessive gross contribution. As I have already said and the Commission has acknowledged, an even more important cause of the problem is the low level of receipts in the Community budget. It is that part of the problem that any effective solution must take into account, as well as the part covered by the present financial mechanism.

Mr. Ronald Bell (Beaconsfield)

Does what my right hon. and learned Friend has just said mean that what we are seeking by way of amendment will not be a reduction of our gross contribution of £2¼ billion but that the spending of an equivalent sum in this country by the Commission or the Council of Ministers would be seen as an adequate balancing factor?

Sir G. Howe

I hope not, but perhaps my hon. and learned Friend will allow me to come to my exposition of that in a moment.

Our complaint is against the size of the net budgetary transfer, amounting to about £1 billion next year, which is the net outcome of putting alongside each other the contributions gross and the receipts gross. We are not contending that the right way of remedying that situation is an enlargement of the expenditure of Community funds. What we are contending is that a mechanism should be designed which operates on both sides of the account so as to reduce effectively our net contribution to bring it to broad balance; but we have not suggested that it should be achieved by an enlargement of the spending programme.

There are a number of misconceptions and misunderstandings in arguments about our position which I should like to take this opportunity of correcting. The first is that which says that North Sea oil, for example, has so transformed the United Kingdom's situation that we should have no difficulty in shouldering this burden that has been thrust upon us. That argument is quite without foundation. North Sea oil is, of course, a real benefit, but the additional income from oil and gas is fully reflected in our figures for gross national product and GNP per head.

Energy is only one resource. Mexico is not rich nor is Japan poor because the first has oil and the second does not. Income per head is the best measure of relative prosperity, and oil alone will not make the United Kingdom rich by EEC standards, even if oil prices continue to rise. North Sea reserves are fairly small relative to the size of our economy. Oil and gas production will contribute little more than 2 per cent. to the GNP in 1979; and even in the mid-1980s, the likely years of peak production, less than 5 per cent. of GNP is likely to be due to North Sea activity.

The North Sea is of benefit to the balance of payments, but oil and gas do not guarantee a surplus. Even this year, after all, we are heading for a large current account deficit despite the contribution from North Sea activities but the case for reducing our net budgetary contribution rests not principally on the state of our balance of payments but chiefly on the inequity of the real resource transfers involved.

Another misconception is that our budgetary transfers provide no real indication of the total balance of cost and benefit to us through Community membership. Of course, there is far more to Community membership than budgetary gains and losses. We certainly do not quarrel with that, and indeed we assert it. It is central to the philosophy of the Common Market that growth in trade and the removal of tariff barriers benefit all participants, but there is no evidence of large gains in that area which are unique to Britain, still less of gains which would justify the United Kingdom being called upon to pay a massive budgetary price to secure them. In the case of the common agricultural policy, as we all realise, there are some resource costs, not gains, for the United Kingdom over and above the budgetary costs, so we certainly do not accept the argument that special benefits to us outside the budget could satisfy a large budgetary price.

I have also heard the argument that the United Kingdom could and should solve the problem itself by changing its pattern of imports. The argument is that this would reduce our payments in to the budget which we make through levy and duties. In the first place, that argument has little relevance to the fact that nearly two-thirds of our net budget contribution results from a low level of receipts from the budget; but in any case we cannot direct importers, even if we wanted to, to import more from the Community, or their exporters to export more to us. We observe Community preferences. We cannot do more without breaking the international obligations of the Community, notably the General Agreement on Tariffs and Trade.

A very substantial reorientation of United Kingdom trade has already occurred. Between 1973 and 1978 the share of United Kingdom imports from the Community rose from 32.8 per cent. to 38.06 per cent., a very marked shift. It is true that because of its historic trading pattern the United Kingdom imports a higher proportion of her GDP than some other Community countries, though not as much as some of the smaller member States. But there is no reason why it should be penalised for that. The Community is dedicated to expanding world trade and not to national autarchy.

There are those who say that the customs duties and agricultural levies are own resources of the Community and ought not to be scored as our contributions. The answer to that, most simply put, is that the Community recognised them as national contributions in designing the 1975 financial mechanism. They are the legal property of the Community, but nobody in his right mind would contend that the legal tail should be allowed to wag the economic and political dog. They impose a financial and economic burden on the countries which levy and transfer them.

Another argument is that we must not seek a juste retour, as it is put. We are not attacking that slightly exotic and bizarre Community principle. The United Kingdom is not arguing that every member should regularly get back what it puts in; but we cannot help observing that in 1980 six or seven members will be getting a juste retour or better.

There is a Community principle to give some measure of protection through the budget to members which are less strong economically. We are not even asking that the United Kingdom should always get out of the Community budget as a whole as much as it contributes, despite the fact that a country in our economic position must have a good case not just for that but for being a net recipient. We should be quite happy to be in a position such as France, which in recent years has sometimes been a net beneficiary, sometimes a net contributor, but both on a small scale.

It is not a juste retour that we seek, only the removal of the present unfair burden, because the burden is a very substantial one. Our forecast net contribution in 1980 is equal to the entire planned expenditure on national roads, all educational buildings and all hospitals and other health buildings put together. It significantly exceeds our programme of overseas aid, and already in 1979 it has been a major factor in eliminating the invisible surplus which the United Kingdom has enjoyed for 30 years. But, unlike aid expenditure, the bulk of it benefits countries which are already among the most prosperous in the world, with standards of living for the most part well above those of the United Kingdom level.

Mr. James Hill (Southampton, Test)

The Common Market principle of juste retour came in when we started developing the regional policy fund. I believe my right hon. and learned Friend would agree that both our major partners in the Community have been less than favourable in their approach to the size of the fund, which again has had an effect on the British economy.

Sir G. Howe

The point, I think, is that the underlying argument of the juste retour argument, as I understand it, is that one ought not to be looking at each Community policy separately in each single year and expecting equality of transfer on that programme in that year for every member State. We are not arguing for that. What we are saying is that, if one takes the totality of Community programmes, they should not be operating as a machinery for the transfer of resources from one member State to another, particularly if they do it on a developing and growing pattern year after year.

That is why we say that we are labouring under an unjust burden and that additions to public spending on this scale are particularly onerous at a time when the Government are being compelled to make painful cuts in our domestic public expenditure in order to contain public sector borrowing and so to achieve our overriding aim of reducing inflation and improving our country's economic performance.

Our 1979–80 contribution is already equivalent to 11 per cent. of the United Kingdom PSBR and to the product of a 2 per cent. rate of value added tax. The balance of payments cost is equally unwelcome when our current account is once more in deficit, despite the boost that it has received from North Sea oil.

I turn to the criteria for a solution and begin by saying that the need for solution is immediate. Her Majesty's Government could not accept suggestions that things will improve in time because policies will develop which suit the United Kingdom, or because the common agricultural policy will be improved, or because the United Kingdom economy will become more closely integrated with that of the rest of the Community. As solutions to the budgetary problem, those have so far turned out to be false trails. Of course, they are important in their own right, but they do not begin to solve this particular problem.

We have three requirements, and we have made them plain. The solution must act on the whole of the problem—not just on the high contribution but on our low receipts. It must operate in respect of 1980 and subsequent years. It must be robust. This time the agreed solution must be one which, so far as can possibly be foreseen, will last as long as the problem, until the improvements in the CAP and other activities finally redress the balance of their own accord. Neither I nor any succeeding Chancellor will wish make speeches in this House in a year or two about yet another debate within Europe on this same subject.

Mr. Nigel Spearing (Newham, South)

The right hon. and learned Gentleman said something about the CAP adjusting the mechanism in the course of time, or words to that effect. Is he implying that he wishes to see this country as a "net beneficiary" because of the large proportion of agricultural surplus in this country that could bring the balance? Does he not agree that the whole system cannot be put into balance until either the CAP is abandoned or a completely new CAP is negotiated?

Sir G. Howe

What I said was that we needed a solution that would last as long as the problem, until the improvements in the CAP and other activities finally redress the balance of their own accord.

Mr. Spearing

What improvements?

Sir G. Howe

Improvements in other activities. It is possible to visualise changes in the structure and pattern of the CAP and other policies which could redress the balance. But unless and until that happens—and—

Mr. Spearing

Ah!

Sir G. Howe

— it is not my task this afternoon to embark on that debate—the solution that we seek to the budgetary problem must survive that long, because, as I was saying, neither I nor any succeeding Chancellor will want to make speeches to this House in a year or two in yet another debate within Europe on this subject.

It follows from that that it will not be sufficient to offer a temporary measure that will afford relief for only a year or two and then leave us in as intolerable a position as ever. It is in everyone's interest, the Community's as much as our own, that the problem should be solved once and for all. It does not mean that the immediate solution for which we are looking need last for ever. If the longer-term developments that I have mentioned take place, our problem could eventually disappear. But it would be wrong to resort to a purely temporary or short-term solution until that had come about, because that could only result in the Community having to face a repeat performance of these present difficulties in a few years.

To those who ask how these criteria can be met, I would answer that they can and that the Commission's reference paper demonstrates this. I am not wedded to any particular preference or any particular mechanism. Any solution is acceptable so long as it satisfies the conditions that I have spelt out.

One approach, for example, would be to set up an entirely new and separate mechanism. In its simpler form, that could consist of a single rule limiting the United Kingdom's net contribution in a way that would satisfy our overall objective. Alternatively, a new mechanism might act to raise the United Kingdom's receipts per head from their present low level to a figure more in line with the Community average or with Britain's share in Community GNP. Another approach might be to build on the existing financial mechanism so that it provided effective and assured relief for our excessive gross contribution.

As I have said, by removing certain arbitrary and unjustified conditions and restrictions in the present mechanism, the United Kingdom could secure a refund of about £350 million in 1980. That would be a useful start, but it would certainly be nothing more than a start.

Any solution that measured up to the United Kingdom requirements would have to take into account also that part—the larger part—of the United Kingdom net contribution that results from our low level of receipts. Revisions to the existing financial mechanisms could, therefore, provide a satisfactory solution only if the present machinery for reimbursing an excessive gross contribution was supplemented by provisions designed to raise the level of United Kingdom receipts or to limit our total net contribution.

In the rather special circumstances of this debate, I think that it is not inappropriate for me at this point to confirm press reports that the Commission has now prepared a further communication for the European Council. The full text is not yet to hand; as soon as it is, I shall make it available to the House. However, on this problem I understand that it makes proposals relating to the financial mechanism which, if agreed, would result in a reduction in the United Kingdom's contribution. It also makes certain sug- gestions about the possibility of providing funds for investment in certain areas of United Kingdom public sector expenditure.

It would not be right for me to say any more about the details of the document at present, nor about the Government's attitude towards it, because we shall need to study it carefully. I would only add that the Government have certainly been glad to see some recognition of the point that I have been making this afternoon, namely, that solutions need to embrace receipts as well as contributions.

The House will not expect me, this afternoon, to anticipate further the discussion that my my right hon. Friend the Prime Minister will be having in Dublin when Community Heads of Government meet shortly to discuss this issue.

Mr. Jack Straw (Blackburn)

One understands the Chancellor's desire not to anticipate the discussions in Dublin. However, his speech, although very informative, has had one remarkable absence, and that is any reference to the concept of a broad balance being the target for which the British Government are aiming.

Will the right hon. and learned Gentleman take this opportunity of confirming that the target of a broad balance, which must mean a reduction of £1,000 million, is the target that the Government are seeking? Will he also take the opportunity of denying a report which appeared in the respected newsletter Agence Europe, which said that reliable sources suggested that the United Kingdom Government would be seeking a reduction not of £1,000 million but of 1,000 million EUAs, which is a good deal less than £700 million?

Sir G. Howe

At the commencement of my speech, I explained—and I am grateful to the hon. Gentleman for giving me the opportunity to return to the point—that we had adopted the very same objectives as were set out in the resolution passed by the House on 16 July. In response to an intervention by one of my hon. Friends, I indicated that our objective was broad balance. I was going on, in the very next sentence of my speech, in closing, to say that I simply remind the House that my right hon. Friend and I have repeatedly stated our objective to be a broad balance in the United Kingdom's accounts with the Community.

That is, indeed, the sense of the motion before the House today. It is the solution that is demanded by equity. It is, indeed, the position that France has long been in, and which she and the rest of the Community have long accepted as being appropriate for her. In view of the relative strength of our two economies—France has a GDP per head almost one and a half times as high as our own, and the French President himself has not been slow to draw the comparisons to the advantage of his own country—I am amazed at our own moderation in arguing that the United Kingdom should be similarly placed.

But we are not asking for Community handouts, any more than we are blaming the Community for those economic ills which are essentially of our own making.

As I said at the commencement of my speech, all that we are asking is that the Community should not make it more difficult for us to help ourselves by draining away resources that we badly need at home. It is for action to correct the present inequity that we are fighting and for which we shall continue to fight. It is for that action that I invite the unanimous support of the House this evening.

5 pm

Mr. Peter Shore (Stepney and Poplar)

I am sure that it was right—and that the House would agree—for the Chancellor of the Exchequer to open the debate, coming as it does a week before the Dublin summit. I believe that those who will take part in that very important conference should be in no doubt about where the most senior economics spokesman of the Government stands. Therefore it would not have been appropriate to have left this debate—as the Government left the previous debate on 16 July—to the Financial Secretary.

I may also say to the right hon. and learned Gentleman that I find myself in close harmony and agreement with a great deal of his thinking and reasoning. Perhaps I may say this on a personal note. It is seven years since the right hon. and learned Gentleman turned his stubborn and tenacious mind to the consideration of these matters, and it is indeed a particular and special pleasure to me to see those qualities turned to the defence rather than the abandonment of our economic interests in the EEC.

Before turning to the motion, let me say straight away that unless there are some very substantial last-minute changes of attitude, Britain and the European Community are now set on a collision course. The Dublin summit faces a crisis of major proportions, a crisis that few people in this country have yet grasped. Therefore, I thank the Chancellor for his contribution to that awareness. More significantly, it is a crisis that still fewer people in Europe have yet begun to understand.

There can be no doubt that the country is threatened with an economic crisis in its relations with the EEC. For about four years now we have been running an appalling trade deficit of over £2,000 million. In the past 12 months, that is to say in the year up to and including the month of September, the deficit has grown still larger. It reached the shocking total in this past 12 months of £3,300 million. But for the growing export of Britain's North Sea oil, the deficit would now be close to £4,000 million.

It is against that background and the certain prospect of a falling GNP and of major cuts in public expenditure that we must consider this still further increase in Britain's payment to the EEC budget, which is now certain to exceed—as the Chancellor confirmed this afternoon—£1,100 million in the coming year.

As the right hon. and learned Gentleman told us on other occasions, unless there is a change there will be still larger impositions upon us in the years 1982 and 1983.

Mr. Hugh Dykes (Harrow, East)

Although I appreciate that an anti-EEC posture is the quickest ticket—or is so regarded—to the future leadership of the Labour Party, when the right hon. Gentleman refers to a crisis in the Community, I assume—

Mr. Shorerose—

Mr. Deputy Speaker

Order. Only one hon. Member may be on his feet at one time.

Mr. Dykes

When the right hon. Gentleman refers to a crisis in the Community, does he none the less acknowledge, in referring to my right hon. and learned Friend's remarks earlier, that the Government clearly stated that no blame attached intrinsically to the Community for what developed by way of an excessive net contribution as a result of—

Mr. Shorerose—

Mr. Dykes

The right hon. Gentleman gave way.

Mr. Shore

I am not giving way to allow the hon. Gentleman to make a speech. I gave way for him to make a proper intervention. I think that he is abusing that opportunity. No doubt he will be able to catch your eye, Mr. Deputy Speaker, at a later stage.

Mr. Dykesrose—

Mr. Shore

No. I shall not give way. I understood the hon. Gentleman's point. I do not accept it. I shall come to it, deal with it and say something about the origins of our present situation, which are of a different kind from the packaged potted history that the hon. Gentleman tried to offer us a moment ago.

This is a crisis. It is not just an economic crisis. As I shall make plain later, it is a political and constitutional crisis for the Prime Minister, the Government and the Community. There is a growing sense of outrage in the country over the extent of the tribute that Britain is being forced to pay to the EEC. As the House will know, and as the Chancellor confirmed, Britain's gross contribution to the budget has risen from £181 million in 1974 to an estimated latest figure of £2,181 million in 1980. That figure was given by the Financial Secretary in a written answer on 8 November. More significantly, our net contribution has risen in the same period from £31 million to over £1,000 million now. It will be £1,100 million in 1980 and, as we well know, this figure will rise in subsequent years. Britain has already become the paymaster of the Community or, as the Prime Minister likes to describe it, Sister Bountiful.

What the British people cannot understand, and will not be persuaded to accept, is that our country, which is far from the richest of the Nine, and which accounts for less than 16 per cent. of the total income of the EEC, contributes between 20 and 21 per cent. of its revenues. They cannot understand why a country whose per capita income is only 75 per cent. of the Community average should be the smallest recipient in terms of budget expenditure.

The budget arrangements are, as I shall make plain, totally without logic or justice. The time has come for a major change. The Government have chosen deliberately, and rightly, to highlight this issue. When we last debated the preliminary draft budget of the Community on 16 July the Financial Secretary, who opened the debate, made clear the Government's view on these impositions not once but three times in the course of a 45-minute speech. He stated the position in the strongest terms. He said that it was quite frankly intolerable .. unjust and out of keeping with the spirit and intention of the Community and manifestly and massively inequitable."—[Official Report, 16 July 1979; Vol. 970, c. 1031.] Those were strong words—words that I welcomed when I promised the Government then that if their actions matched the general sentiments they expressed there would be an extraordinary unity in the House, which I should be the first to welcome and assist. To signal and register our support we moved an amendment—the one that the motion reaffirms today; an amendment which on 16 July the Government were pleased to accept and which they reiterate in their motion today.

The Government have had plenty of time in the intervening four months to examine the situation with their Community colleagues and to consider how this manifest injustice can be remedied. The Prime Minister has again and again returned to the subject and has conducted high profile diplomacy with Chancellor Schmidt, Mr. Commissioner Jenkins, and only this week with President Giscard d'Estaing. We know exactly where she stands.

In her Winston Churchill memorial lecture delivered on 18 October, this year, the right hon. Lady had this to say: I must be absolutely clear about this. Britain cannot accept the present situation on the budget. It is demonstrably unjust. It is politically indefensible. I cannot play sister bountiful to the Community while my own electorate are being asked to forgo improvements in the fields of health, education, welfare and the rest. The imbalance is not compatible to the spirit of the Community. Its continuation would undermine the sense of solidarity and common application which lies at the basis of Community endeavour. Splendid. We agree—and also with the broad aims and the remedy which the Prime Minister proposed.

As the right hon. Lady put it in the same speech, We seek a remedy which will restore a broad balance and which will last as long as but no longer than the problem. … We look for decisions at the European Council next month and no later. I know that the Prime Minister has not received wholehearted support from her Community colleagues, and no doubt many timid voices in the Foreign Office and elsewhere have been urging her to make a retreat. But she has not done so and I salute her for it.

Indeed, on 1 November the right hon. Lady went out of her way at Question Time to reaffirm that her objective at Dublin was a broad balance between our contribution and our receipts and added: The"— present— situation is unacceptable."—[Official Report, 1 November 1979; Vol. 972, c. 1443–44.] Only this week, as the President of France concluded his talks, the Prime Minister made clear that there was no question of accepting what she described as half a loaf.

As I understand it, all that has been said from the Government Front Bench is a total and complete reaffirmation of the Prime Minister's stand. We are not talking about small and middling reductions. We are talking about the achievement of a broad balance to be agreed at Dublin and not later. This strong stand meets with our full support.

The country is, however, entitled to know how it came about that we find ourselves in 1980, and thereafter, faced with so massively disadvantageous a payments system. The explanation is simple. In 1970, after 14 years of the Community's existence, the member countries agreed to make a change, a change from the old system of contributing to the budget according to the size of their GNP. That was a total change, which, incidentally, was made virtually irreversible by embodying a new system of finance in a Community treaty. The Community treaty was completed three months before and as a condition of the opening of negotiations for Britain's entry. The Luxembourg Treaty of 1970 abandoned payments based on national income and, in its place, imposed the trilogy of taxes—levies on food imported from outside the EEC, customs duties on goods imported from outside the EEC and the yield of 1 per cent. VAT.

My direct answer to the hon. Member for Harrow, East (Mr. Dykes), who intervened at such length, is that we knew and the Community knew that no country would be more disadvantaged by this new system than the applicant United Kingdom. Indeed, when the "Mr. Europe" of the day, Mr. Anthony Barber, held his first meeting with the Community in Luxembourg on 30 June 1970 at the opening of the negotiations for the United Kingdom's accession, he said that unless a new system could be found the burden on the United Kingdom could not be sustained and no British Government could contemplate joining. When it was made clear that Britain's acceptance was the only way of lifting the French veto, the then Prime Minister and Mr. Barber's successor as Mr. Europe, the right hon. and learned Member for Hexham (Mr. Rippon), ate and swallowed Mr. Barber's words and agreed precisely to the very arrangements that Mr. Barber had, in such measured terms, rejected and condemned.

This is not an exercise in hindsight on our part.

Mr. Dykesrose—

Mr. Shore

In the course of the European Communities Bill on 20 June 1972, the Opposition moved an amendment specifically aimed to delete the Luxembourg budgetary arrangements from the list of treaties that the Bill sought to embody in English law. Speaking for the Labour Opposition, seven and a half years ago, I said: The Chancellor of the Duchy or the Prime Minister undoubtedly shifted his stance and changed his mind. History will tell … I believe there will be a judgment on them. But I cannot think of any decision in the whole of Britain's post-war history which will cost the nation more dearly than this decision to surrender to terms which are so greviously disadvantageous to us". With characteristic understatement, I estimated the net contribution as being in excess of £400 million a year, to which the right hon. and learned Member for Hexham replied that I was distorting the position To try to strike terror into the hearts of the British people."—[Official Report, 20 June 1972; Vol. 839, c. 312–14]. The House voted on our amendment and the Government carried the day by 279 votes to 270. It is almost embarrassing to look today at the names that appeared in the Division list. The Prime Minister and the Chancellor of the Exchequer were both there. They were not then talking about the insupportable burden, the total injustice, or about playing Lord or Lady Bountiful. On the contrary, they had no doubt at all about the benefit of the EEC's monetary arrangements and expressed their judgment in their votes.

So when the present Chancellor of the Exchequer proclaimed publicly his astonishment at the size of the British contribution during his Budget speech in June this year, and when he repeats so firmly and so agreeably this afternoon his entirely correct analysis, in my view, of the way that the European system operates to our disadvantage, I can only say that it was an extraordinary onset of amnesia that separated his present from his past. I say this to him particularly because he was the co-pilot of the 1972 Bill in all its stages through the House.

The British people are entitled to know that the effect of these arrangements was both predictable and predicted and that a mixture of weakness and miscalculation brought the Conservative Government to accept, on behalf of this country, an unequal, unfair, disgraceful and humiliating treaty which it is impossible now for this Government, or any British Government, to accept.

Mr. Russell Johnston

I recognise the long and consistent view that the right hon. Gentleman has held and I am possibly pre-empting remarks that he may be about to make, but would he explain to the House what effect the renegotiation had on these arrangements?

Mr. Shore

Naturally, my right hon. Friends attempted to put right in 1974–75 the disadvantages that had been inherited. Of course they did. Of course they put forward the so-called corrective mechanism. But it was not adequate. It is no good asking me whether I thought it was adequate. I did not think it was adequate. I told the country that I did not think it was adequate and I did my utmost to persuade people to vote accordingly. But where were the right hon. and hon. Gentlemen of the Conservative party? There was not a word of criticism saying that this was a mechanism that should be changed or that it was manifestly defective in a number of its particulars. A total silence fell upon them. So I believe that it is very proper that Conservative Members should now maintain a silence and not seek to interrupt my remarks.

Mr. Dykesrose—

Mr. Shore

I want to turn now to the remedies. At the Strasbourg summit in July the European Council instructed the Commission to prepare a "reference paper" on the budgetary question. A great deal of work has been done, and this is before the House among the papers that we are discussing today. All the posibilities faced by the Commission, however, fall far short of our requirements. They range from a refund of about £160 million to—on this point, I am not quite clear whether I have the other figure right from the Chancellors remarks. Did the Chancellor say that at the highest point the figure was £700 million or was it a much lower figure of about £360 million? Does the Chancellor recall which of the figures he used?

Sir Geoffrey Howe

I cannot give them off the cuff. I shall have to write them down.

Mr. Shore

I should be grateful if the right hon. and learned Gentleman would do that. We have had such a barrage of figures from these documents and they are constantly changing. It is, therefore, a little difficult to be certain.

The possibilities faced by the Commission seem to be all concerned with correcting the corrective mechanism—that is to say, devising various formulae for partially refunding Britain for the excessive gross contribution that we are forced to make. This is not good enough. All these proposals are temporary and they do not go to the heart of the matter, which is related to the whole structure of the taxes.

Other approaches to find a way of bringing us into broad balance were very properly ruled out both by the Chancellor of the Exchequer this afternoon and by his hon. Friend the Financial Secretary who spoke on 16 July. There are those who have always said "Change the common agricultural policy". Of course, everyone is in favour of changing the CAP but we all know, realistically, that the forces supporting the CAP in the EEC are far stronger than those seeking to change it. From Mansholt to Gundelach, it is the same story with the same result. Certainly, it is inconceivable that changes could be made in the CAP to meet the Prime Minister's proper deadline, which is Dublin, and not later. As the Financial Secretary rightly concluded in his speech four months ago, there is no realistic solution to the United Kingdom's problem along this route.

Equally, as the Chancellor of the Exchequer made clear today, there is no solution by way of enhanced regional and social funds, or an enhanced total expenditure by the EEC. By expanding the regional and social fund we would get only a modest contribution—something which would not have any serious effect on remedying the gross imbalance between our receipts and our contributions. It would be a snare and a delusion for us to pursue that path in the hope of finding a solution.

I also accept—although for different reasons from those of the Chancellor of the Exchequer or the Financial Secretary—the Government's rejection of the doctrine of the juste retour. Of course, that would be an enormous short-term improvement, but my objections to the EEC financial system go deeper still.

We need a fundamental change in the tax package that finances the Community budget. That is at the heart of our present difficulties. We need a system of taxation which in intent and effect takes from those who have the broadest shoulders and redistributes to those who have the greatest need. That can no more be done through agricultural levies, customs duties and VAT than through a tax on Community windows and Community salt.

As I said at the beginning of my speech, Britain and the EEC are now on a collision course. Eight years ago, after the then Prime Minister had surrendered our interests by accepting the EEC budgetary system, he at least managed to write into the Council record these words: Should an unacceptable situation arise, then the very survival of the Community would demand that the institutions find equitable solutions. I agree with the Chancellor that the unacceptable situation is with us now and that the future of the Community is indeed at stake. The Community's willingness to change a manifestly unfair system of taxation will be seen by the British people as the litmus paper test of the reality of the Community itself.

It is also a basic test for the Prime Minister. As I said to her a fortnight ago in an exchange across the Floor, it is not just her personal prestige but the country's reputation that is clearly involved in the Dublin summit. There can be no retreat, not after the considered, deliberate and successive statements that she has made. We must, as a nation, say what we mean and mean what we say if we are to have any credibility in our future relations with the EEC.

It is not good enough to rattle the chains. If need be, they must be cut. Nor will it do at all to say to the British people, as the Prime Minister said rather uncharacteristically on 23 October when invited to take appropriate action: The law of the United Kingdom is to observe the edicts of the European Court"—[Official Report, 23 October 1979; Vol. 972, c. 192.] I am inclined to say that she should tell that to President Giscard. But, on a more serious note, that statement is only correct subject to the will and the law of this House and Parliament as a whole.

Mr. Robert Maclennan (Caithness and Sutherland)

Earlier the right hon. Member for Down, South (Mr. Powell) asked the Chancellor whether he would advocate withdrawal from the EEC if satisfaction was not obtained in Dublin. Is my right hon. Friend, in saying that the chains should not just be rattled but broken, supporting that proposition?

Mr. Shore

If my hon. Friend will wait just a moment longer, he will hear what I have to say.

Of course the Prime Minister must seek to persuade at Dublin. She is right to operate, in the first instance, within the Community rules. But let there be no doubt at all—here, in Paris, Bonn, Rome and the other capitals—that there are other powerful and effective remedies available in this country.

A week ago the Government obtained within 48 hours the legislative and executive powers over the rebel territory of Rhodesia. It would need no longer period of time for this House to amend the European Communities Act and to take back those powers over our own resources and over our own tax revenues which were ceded to Brussels seven years ago. I do not wish to go further than that at present, but the right hon. Lady need have no fears that she will lack support in this House or in the country for action to end an intolerable injustice.

The Chancellor has asked for the support of the House as a prelude to the opening of the Dublin summit. He has that support in full measure. He will lose that support only if he or the Prime Minister were to retreat from the meaning and value of their own words.

5.27 pm

Sir Derek Walker-Smith (Hertfordshire, East)

It is a privilege and a pleasure to take part in this important debate. It is important because it gives us the opportunity to consider and criticise keenly and constructively the ways and workings of the Community finances, its budgetary mechanisms and the operation of its common agricultural policy. I said that it gives us an opportunity to criticise because there is not likely to be much praise for the EEC today. That is in marked contrast to the situation some years ago when the praise for the Common Market stopped only just this side of idolatry, and those few Cassandras were frowned upon as uninformed, uncouth persons—

Mr. Dennis Skinner (Bolsover)

The right hon. and learned Gentleman got on the gravy train.

Sir D. Walker-Smith

The hon. Member for Bolsover (Mr. Skinner) is as inaccurate in his observations as he is inelegant and inappropriate in his posture.

Mr. Skinner

I am attempting to remedy some of those defects by standing up. I ask the right hon. and learned Gentleman whether it is true that he got on the gravy train and went to Europe as one of the Tory representatives before the direct elections took place. If that is true, from my point of view if not from his, he sold out.

Sir D. Walker-Smith

The hon. Member is entitled to his point of view, but I am sure that he will not take it amiss if I say that I would feel more disconcerted by his praise than by his censure. I stand firmly on the record of why I accepted nomination by resolution of the House to become a member of the European Parliament and of my work there and as chairman of the legal committee. The hon. Member is the least informed and least perceptive of hon. Members in the House tonight. My position is on the record, and other hon. Members have given their verdict.

It is a fact that some of the keenest critics of the EEC today were the adulators of yesterday. There is no doubt that in politics, as in marriage, often those who are most ardent in courtship become most severe in their recriminations once the honeymoon is over and the problems of coexistence in the workaday world present themselves in an urgent and unwelcome guise.

On 16 September 1979 even The Observer said: Even keen Europeans agree that the EEC must tackle the scandal of its huge agricultural surpluses and the inequities of its budget. I make no criticism of that and I resist without difficulty any temptation to indulge in the melancholy satisfaction of "I told you so". The right hon. Member for Stepney and Poplar (Mr. Shore) did not resist that temptation and he did not find the satisfaction that he gained in any way melancholy. For myself I rejoice that we stand, those erstwhile enthusiasts and myself, on common ground. We see the need for criticism and improvement and we seek it according to the rule of law and within the framework of the Community where I think it can, and should, be found.

The problem is there for all to see. There is an uneconomic, inequitable and irrational budget structure and operation of the common agricultural policy which results in 25 per cent. of the expenditure taking place in Germany, 20 per cent. in France and only 8 per cent. in Britain. Those are the figures in the Commission's reference paper. When one speaks of the Community budget, one is speaking to a large extent about the common agricultural policy as expressed in the guarantee section of FEOGA. The guarantee section, as we can see from the analysis of expenditure in paragraph 12 of the Commission's reference paper, accounts for 70 per cent. of the total expenditure in the Community budget. That is to say, six times—or thereabouts—as much as the guidance section of FEOGA, the social fund and the regional fund put together; they total some 12 per cent.

The Commission explains the 70 per cent. as being due to what is called the relatively low degree of development of other policies". If the implication of that is that the cure for the budgetary and financial ills of the Community is to increase the social, regional and guidance funds until they narrow the gulf between them and the guarantee section's 70 per cent., that idea should be rejected and dismissed. It would be a recipe for aggravated inflation and ultimate economic collapse.

I am wholly in accord with the evidence given by the Financial Secretary to the Select Committee on European legislation. That evidence is contained in the seventh report, at pages 7 and 8. He said: The problem cannot be solved by increasing the size of the budget to meet the special interests of the United Kingdom, for example, in relation to the regional development fund. The solution lay in the Government's view, in reducing agricultural expenditure rather than increasing non-agricultural expenditure.

Mr. Ronald Bell

I wonder whether my right hon. and learned Friend looked at the evidence that the Financial Secretary gave. It is on page 4 of the report, in the top left-hand column. He was answering a question I put to him about this matter. He said that he would be satisfied if the expenditure rose to £2,250 million, saying: It all depends on the merits of the case, and I think it is certainly conceivable there might be £2,000 million of sensible expenditure to which this could be applied.

Sir D. Walker-Smith

Both my hon. and learned Friend and myself would treat that part of the Financial Secretary's evidence with more reserve. It is the general approach, as recorded and quoted by me just now, to which I would give my wholehearted support. In my view, it is necessary to grasp the nettle and restructure the workings of the common agricultural policy on more practical lines, to get rid of the stimulus of overproduction, to get rid of the lavish intervention for storage and the possible ultimate sale at knock-down prices to countries to which we owe no duty or charity, to melt the butter mountain and dry out the wine lakes.

These things require to be done in the interests of Britain, of course, as by far the largest net contributor—but by no means only in our interests and not even solely in the interests of equity. It is vital to the workings of the Community as a whole. The Commission seeks to defend the present position, but its arguments, as emerging from the Commission document, are thin, superficial and unconvincing. The Commission is evidently aware that the figures, as such, are indefensible and require support from less tangible considerations.

Thus, at paragraph 6 of the reference paper the Commission says: In this context the budget should not be judged in the light of the position of each Member State, but mainly of the effectiveness with which it ensures the conduct of common policies to the benefit of the entire Community. Paragraph 8 states: It follows that the budgetary incidences of the agricultural price and market policy are less significant than its wider economic consequences. The latter are necessarily difficult to quantify. The Commission does not identify what these, presumably beneficial, "economic consequences" are which are supposed to compensate for the manifest disadvantages of the present position. A little later, the Commission says: … they result in a transfer of income to the agricultural sector from other sectors of the Comunity economy, and therefore in favour of Member States in which agricultural production is relatively important. The Commission might have added—but does not add—"and relatively inefficient". The case for reforming and restructuring the operation—

Mr. Mark Hughes

Does the right hon. and learned Member accept that the real tragedy is not the transfer of resources to the inefficient farmer but the transfer of resources to the hyper-efficient farmer in France, Germany, Holland and Denmark? Resources are going not to the poor farmer but to the over-rich farmer. That is the real tragedy.

Sir D. Walker-Smith

I take the hon. Gentleman's point. The fact is that it is both—it is cause and effect. The cause of the policy is the small and inefficient farmer. The joint beneficiary is, as the hon. Member rightly said with his customary perspicacity, the rich and successful farmer as well. [Interruption.] The hon. Member for Bolsover really is an—

Mr. Skinner

Go on, find the words.

Sir D. Walker-Smith

I was going to say—

Mr. Skinner

The right hon. and learned Gentleman is too slow this time. It will not have the same effect when he eventually gets it out.

Sir D. Walker-Smith

I was going to say that the hon. Gentleman is an incurable case, but I have been a Member of this House so long that I take an optimistic view even of the hon. Gentleman. My only apprehension is that I may not live to see the results of that optimism.

Mr. Skinner

The right hon. and learned Gentleman does not kid me.

Sir D. Walker-Smith

May I resume my thesis? For the reasons that I have sought to summarise and which are well known to the House, the case for reforming and restructuring the work of the common agricultural policy is clear both on its merits and its urgency. It is what lawyers call an open and shut case. The diagnosis, after all, is clear to all. In administration and politics, as in medicine, diagnosis should be followed by prescription, prescription by treatment and treatment, hopefully, by cure.

There is no doubt about the diagnosis in this matter. The difficulty is that the patient is recalcitrant and unwilling to swallow what may at first be a bitter draught. We know, of course, whence the recalcitrance arises. This brings me back to the observation I made in answer to the intervention by the hon. Member for Bolsover. It has nothing to do with the merits of the case; it has to do with votes. Whereas in Britain only 3 per cent. of the population get their living in agriculture, in the other eight member States the range goes from 10 per cent. to 25 per cent., with Britain probably having the largest farms.

It is the smaller and less efficient farmers in the other member States who benefit—not exclusively, as I have already explained—by the present workings of the common agricultural policy. They all have votes, and a great many votes at that. That is the political reality underlying the matter. That is why the case that my right hon. Friends will present, although a good one, will not be an easy one. Nevertheless, the matter is not as difficult as some things in the EEC. The major difficulties arise when reforms involve and require an amendment of the Treaty. That is because under article 236 amendments require the assent of all member States according to their constitutional procedures. That is to say, they require the assent of every national Parliament in the Community. That is obviously a long, laborious and not always hopeful exercise.

But that is not the case here. The present irrational workings of the CAP are not enshrined in the Treaty of Rome. In its reference document, the Commission specifically relies on article 39 of the Treaty. But all that article 39 does is to specify the objectives of the CAP. There are five—increase of agricultural productivity; a fair standard of living for the agricultural community; stabilisation of markets; ensuring the availability of supplies; and ensuring that supplies reach consumers at reasonable prices. These are all praiseworthy if somewhat generalised objectives. Article 40 provides for a common organisation of agricultural markets to obtain the objectives specified in article 39, but that is as far as the Treaty goes.

The objectionable features of the operation of the Common Market policy as at present applied do not derive from, or have any fixed foundation in, the Treaty. They are grafted on to the statement of objectives in article 39 and can be altered at will by the Council of Ministers.

It is not, therefore, a matter of having to amend the Treaty, with its practical and constitutional difficulties. It is a matter of presenting and winning an outstandingly clear case in the Council of Ministers by persuasion and advocacy. I do not say that it will be easy, but reform is necessary and will in the long run benefit not only Britain—which it surely will and to which such improvement is vital—but also those who may be minded to oppose it now. I wish my right hon. Friends god-speed in the important task in which they are engaged.

5.42 pm

Mr. Julius Silverman (Birmingham, Erdington)

When the Select Committee on European legislation, of which I have the honour to be Chairman, heard the evidence of the Financial Secretary to the Treasury and considered these various documents, it had no doubt whatever in recommending these subjects for debate. In addition, it suggested that there should be a full day's debate in view of the importance of these matters. We are glad that the Government have acceded to that request.

I should like to mention the points in the evidence before us that struck not only me rather forcibly but also other members of the Committee. The dominance of the European budget by the agricultural aspect has been mentioned several times. Seventy per cent. of the budget is devoted to the agriculture, intervention and guidance funds, the vast majority to the intervention fund. Not only that, but I also noticed that the agricultural budget has now been increased by about 10 per cent., whereas the regional fund, of which we are net recipients, which was increased by the European Parliament, has been cut back by the Council of Ministers, in which France and Germany play a main part.

I agree entirely with what has been said several times. We shall not solve this problem simply by increasing the contribution that we get from the regional fund. At the most, it will add only a small addition to our funds. But it indicates the way in which the Community and the Council of Ministers are thinking at the present time. Our contribution to the funds is about 22 per cent.—that applies also to the agricultural fund—and we receive less than one-quarter of that. I think that the right hon. and learned Member for Hertfordshire, East (Sir D. Walker-Smith) mentioned a figure of 8 per cent. That is the main source of the budget deficiency as it affects us.

At present we have a Community dominated by the CAP and which revolves financially and economically around the CAP, and whose members adhere to the strengthening and increase of that policy. It seems to me that it will be extremely difficult to obtain a mechanism that will correct this budget deficit without tackling the CAP. As my right hon. Friend the Member for Stepney and Poplar (Mr. Shore) said, there are many powerful and vested agricultural interests which the Prime Minister will have to face when she gets to Dublin. We all wish her the best of luck, but she will have a formidable task because of the way that this is built into the CAP.

It may be that more can be done in regard to our contribution. I have examined our contribution and I should like to say a few words about it. I believe that what we pay in agricultural levies is the smaller part of our contribution. That accounts for £281 million. It is sometimes said by our partners that we could diminish that by buying more agricultural goods, presumably at higher prices, from the Community. But even that is not a satisfactory answer, because there are quite a number of commodities that we cannot buy from Europe, Bach as tropical goods, upon some of which we pay the levy which is transferred to the Community.

There is also the question of customs duty. That is a far larger item amounting to £925 million a year—almost as much as resources from VAT, which is just a few pounds more. I do not think for a moment that the average man in the street knows that the customs duties that he pays when he buys something from a non-Community country go not to the Treasury but to Community funds. All that we receive is 10 per cent. for the cost of collection. That is a matter which should be much more widely known than it is at the present time.

Sir Anthony Meyer (Flint, West)

Perhaps the hon. Gentleman will clear up a small point that might be generally misunderstood. When most people pay what they think is customs duty, they are often paying excise duty on bringing goods in from outside. Can the hon. Gentleman say whether the excise duty goes to the Community?

Mr. Silverman

I am referring only to customs duty on goods from third countries. Excise duty is not involved in this at all. There is also VAT, and there is supposed to be a ceiling of 1 per cent. It has now reached a level of about 0.768 per cent., and in that regard our contribution is £929,300,000. That is likely to reach the ceiling of 1 per cent. very soon, and, as Commissioner Gundelach has said, it may go well over the ceiling. God knows what our contribution will be then.

Those were the factors about which the Committee was concerned when we recommended the matter for debate. There must be an effort to alter radically—not just tinker about with—the common agricultural policy and, at the same time, as part of the mechanism, to alter the whole basis of contributions to the Community budget. In my view, that is essential to obtain what I regard as the modest mechanism that the right hon. Lady will seek in Dublin. In this respect I am sure that she has the support of the whole House. We can only hope that at the Dublin summit the Government will stick to their guns and insist, as a minimum, upon the broad balance that they are seeking to prevent a serious financial crisis in this country.

5.51 pm

Mr. Hugh Dykes (Harrow, East)

I do not think that anyone would quarrel with the view of the right hon. Member for Stepney and Poplar (Mr. Shore) that something must be done as quickly as possible about our excessive contribution to the budget. However, hon. Members on both sides of the House would quarrel with his fairly hysterical attitude both to the past history and the latest "crisis", as the hon. Gentleman and other Labour Members would call it, and to the absurd, absolutist and existential conclusions reached as a result. [Interruption.] The hon. Member for Newham, South (Mr. Spearing) and I are deeply attached to the House of Commons. We may think that there is a lot wrong with the Government and public affairs here, but we do not reach the same conclusion as the right hon. Gentleman—although he has not said it today—namely, that the House of Commons should be abolished. Some Labour Members would like the Community to be abolished—not only for Britain to withdraw from it—as a result of this one so-called crisis in the Community.

The right hon. Gentleman referred to the 1975 renegotiation, but not in the way in which we would accept it in terms of specific history. He did not say why the then Labour Government, in 1976, 1977 and 1978, when the financial mechanism began to work incorrectly in a way that had not been anticipated at the time of the renegotiation, did not loudly and adamantly press for the kind of round table discussion at the highest level—at the European summit—for which this Government are now pressing. This Government are insisting, quite rightly—and the whole House will support them—on a solution to this grave problem.

It was allowed to become a grave problem because of a mathematical accident. The figures worked out in a way that was not anticipated when the financial mechanism was constructed after the own resources system began. [Interruption.] It may have been anticipated by one or two who were anti-Community, but not in general by the Opposition. It was a result of the combination of a mathematical accident and the unwillingness of and the failure to act by the previous Government. Nothing was said by the Labour Government in the European Councils last year, but they made statements afterwards saying that the situation was grave and that it could not continue.

Mr. Silvermanrose—

Mr. Dykes

The hon. Member for Birmingham, Erdington (Mr. Silverman) is muttering. I pay tribute to his statements on the matter and to his concern, but not in respect of utterances at the highest level.

Mrs. Gwyneth Dunwoody (Crewe)

Does the hon. Gentleman accept that the Chief Secretary to the Treasury in the Labour Government spelt out more than once, in public and in private, exactly the objections that have been made strongly today? He also continued to ask for changes in the mechanism. I remind the hon. Gentleman that he and his hon. Friends in the European Assembly spent much time criticising hon. Members who raised those points as being non-communautaires.

Mr. Dykes

The hon. Lady has missed the point. The Conservative Government have raised the matter at the highest level of policy decision-making in the Community and are insisting, rightly, that it be resolved once and for all in the negotiations in Dublin. That is the difference between us. There has always been a tremendous anti-Community stance in the Labour Party, in contrast to the constructive position of the Conservative Party. We know that there is a grave difficulty facing this country and that it must be resolved in the spirit of member States working together. But we do not draw any other conclusions.

Mr. Douglas Jay (Battersea, North)rose—

Mr. Dykes

I should prefer not to give way now, because of a shortage of time. I do not want to take too long in completing my remarks.

I return briefly to the statement of the Chancellor that no blame, in the emotional and subjective sense used by the Opposition, attaches to the Community as a result of what has happened. It is therefore an objective but insupportable net excessive contribution problem, which the Government intend to resolve.

Referring to the remarks of the hon. Member for Erdington, those of the Chairman of the Select Committee and those of my right hon. and learned Friend the Member for Hertfordshire, East (Sir D. Walker-Smith), I feel that perhaps the package in the solution should be a package and that not just one element of the range of possibilities should be culled.

In the Select Committee discussion, to which the hon. Gentleman referred, the Financial Secretary, in answer to my question whether the regional fund and perhaps other resources could be expanded, replied: Certainly I would welcome an increase in the regional fund, say, provided it was clear this was enabling us to finance programmes that we would want to finance anyway, which is the case at the present time with the present regional fund. There is a strong argument for saying that if reductions in agricultural spending can be achieved—that, too, is now long overdue—there must be some leeway in the budget, even allowing for a total reduction if that is possible—and there are arguments each way—for increasing other funds which will be of direct benefit to the United Kingdom. It is a pity that hon. Members on both sides of the House seem to think that that is not a practical part of the total package, even though the extra contribution from the expansion of the regional fund would be very small.

Mr. Silverman

I do not think that I or my hon. Friends suggested that it was not a practical part. It can be only a very small contribution to the solution.

Mr. Dykes

I am grateful for the further elucidation. But even if a complicated package were to eventuate from Dublin, it would be no less valid than a clear-cut dramatic solution. That, too, would be difficult, arising from just one element in what might be used as a way of solving this problem.

In the context of the debate, I mention yet again one other matter at the risk of boring the House. If the United Kingdom had retained the old farm support system, which ended in 1972, assuming an allowance for the full rate of inflation since that time—which has been very sharp, as we know—and allowing for some increase in real farm incomes, the total cost of that system directly to the Exchequer would be in excess—

Mr. Austin Mitchell (Grimsby)

Will the hon. Gentleman give way?

Mr. Dykes

I should like to give way, but I shall not do so because of the passage of time. I am sure that the hon. Member will succeed in catching Mr. Deputy Speaker's eye and in making his own speech.

The total cost of that system directly to the Exchequer would be in excess of the total amount postulated for our contribution to the budget in 1980. That might mean lower food prices in the shops, because it would be a different way of financing, but it would still be a net additional amount immediately to be funded direct out of the Exchequer. One of the Government's logical points is that the contribution to the Community budget is another lump of public spending like anything else.

The Commission, in its latest documents—we should bear in mind that the Commission originally proposed that solutions should be found to these problems—put forward various possible solutions. The document is an important part of what I hope will be the beginning or perhaps the completion of a satisfactory outcome in Dublin next week. It may take some weeks to work out the proper solution, but that is understandable in view of the complexities.

It is not only from that source that a number of good suggestions have come. We know, as the Chairman of the Select Committee will agree, that the House of Lords Committee in its last report on the subject put forward five ways in which the United Kingdom burden could be lightened.

Their Lordships' report refers to various ways in which we could consider dealing with this problem. The first is a reduction of the proportion of contributions arising from duties and levies. The revenue depends upon the gap between prices in the Community and on world markets. The Commission, in its "Global Appraisal", estimates that customs duties will rise by 5,500 million EUA in 1982—an increase of only 15 per cent. compared with 1979. The level of agricultural levies depends partly on world prices and partly on decisions on common prices and green rates. Both are difficult to predict, but the Commission estimates that these revenues will fall from 2,173 million EUA in 1979 to 1,900 million EUA in 1982. Although the British share in duty contributions is likely to be held down by our relatively low rate of economic growth compared with other European countries, this could not be commended as an acceptable way of reducing our proportionate contribution to the budget.

Secondly, their Lordships suggested—this is also in the Commission document—a reduction in expenditure on agriculture by deliberate policy decisions. I suggest that that is likely to be a more relevant area on which decisions could be taken to try to help the United Kingdom. We know that the weakness of the common agricultural policy is that it combines two policies—normative support for farmers, be they rich or poor or in between, and a social policy affecting farmers on the lowest incomes. It attempts artificially to keep many marginal producers on their holdings with an agricultural policy designed to establish a common price for large and small producers.

This policy is increasingly out of date and anachronistic. Despite the onset of the German elections next autumn and the French President's problems with his presidential election in the spring of the following year, the other Community countries must accept the overwhelming case for a substantial reduction in total expenditure in this area. Even if the construction of this policy in future cannot be changed in any significant way, I submit that a reduction in the aggregate amount of resources devoted to this whole area is urgent. We now know that the farm price review is beginning again.

Going on to other parts of the report from the upper House, a third possibility is an increase in the expenditure devoted to other policies. I have already said that that will be a progressively important area. One starts with modest increases in, for example, the regional and social funds. They are too small for the urgent work of recovery and rehabilitation that is needed in the depressed parts of Community countries, including the United Kingdom. It is a gross tragedy that those funds have not been allowed to develop in the way that their earnest exponents quite rightly envisaged. That will be important in years to come, and a beginning could be made in Dublin.

Fourthly, their Lordships suggest the adoption of the Commission's proposals to introduce into the VAT contributions the idea of progressivity or the progressive key. We know that most member States, including the United Kingdom, want to avoid VAT increases. The ceiling is dangerously near. Commissioner Tugendhat has warned that the nearing of this limit presents the Community with urgent and serious decisions. In effect, the Community must solve all these problems, including our own excessive contribution. It would have had to do so sooner or later. I am glad that it is coming now.

The study group—Economic and Monetary Union 1980—decided that the most practical way in the foreseeable future was to go ahead with the existing VAT scheme beyond the 1 per cent. level. An additional source of financing was suggested, also based on VAT but of a progressive nature, starting with a VAT base as now constructed but being capable of adjustment in accordance with personal income tax capacity based roughly, as it should be, on the standard of living in the member States. The United Kingdom, under that kind of scheme, could pay 80 per cent. of what we would pay under the present scheme, whereas Germany would pay about 130 per cent.

I think that the progressive key could be applied in that way. I hope that the Minister of State, Treasury, in replying to the debate, will deal with this matter in more detail and try to enlighten the House.

I turn now to the last of that Committee's suggestions: an extension of the financial mechanism—the payback system—agreed as part of the renegotiation and now in need of drastic reconstruction. It requires such a fundamental change in its mechanistic aspects as to be entirely different from the original mechanism as a means of making this the only dominant and effective way of adjusting the final outcome of the budget.

That, again, was why it was disappointing to hear the right hon. Member for Stepney and Poplar, with an excess of hysteria so uncharacteristic of his normal speeches, saying that we must return to the original national payments system, before the own resources system, and that we cannot look at anything like this. I suggest that this is the most important part of any package likely to come out of the Dublin summit. I am overwhelmingly left with the conclusion that a combination of other elements should come into the total result but that this is the area on which the House, the United Kingdom Government and the Community should focus by having a proper self-adjusting corrective mechanism. We need a method of compensating the member States directly, immediately, tangibly and visibly for paying more than their fair share. Moreover, it should be available to be read by the public at the end of each 12-month budget period.

Our eventual aim must be that postulated with great force by the Prime Minister: to be neither a greater net contributor in per capita terms than the other three large partners—incidentally, I presume that next year Italy will move into surplus rather than deficit in budgetary terms—nor a greater net recipient. I think that that squares with the Community's proper and traditional aim of all the countries working together on all matters, including finance.

The differences between certain member States on the nature of the problem, let alone a solution to it, are still very great. Of course, I am not privy to the Government's discussions in preparing for the Dublin summit. I believe that the Community spirit is still present, even in this country. It may not be represented on the Opposition side of the House, but I believe that it is stronger in the country than many would imagine. I believe that there is a great will and determination to find a solution, and I hope that it will be reported as soon as possible to the House.

6.9 pm

Mr. Mark Hughes (Durham)

We are debating a curious hybrid between a budget, an expenditure White Paper and the Red Book presented in what we would call budget terms. We are asked to make comments on anticipated revenue and its sources and on expected expenditure and the way it is done. Clearly the central problem is where the money comes from, and the pattern of British trading relations provides an inexorable key which cannot be changed in the short term. We cannot change our trading pattern within 12 months to accommodate the own resources provisions of the Community. Despite the succession of negotiations, renegotiations and having another look, we are still wrong because we have not chosen to make that shift.

I turn to common customs tariff expenditure. If we choose to import maize from outside the Community to feed our farmers' animals, that represents a contribution to the Community. We signed up for that, although we may have been out of our tiny minds to do so. There are many Labour hon. Members who said that it was a rotten deal, a rotten, wrongheaded commercial deal, to provide own resources on that basis in perpetuity. We were lumbered with that. To think that after five years we can expect all eight of our Community friends, enemies or colleagues when every one of them has a veto to agree that we should change our trading patterns, or the common customs tariff, to suit our purposes, is to live in cloud-cuckoo-land.

If my hon. Friend the Member for Bolsover (Mr. Skinner) were in the Chamber, I should confess to having been a member of the gravy train for the past four years. As a Member of the European Assembly, I have no regrets in saying that during that time I have worked and voted against Britain's membership.

Luxembourg does not have a millimetre of sea frontage, yet when we come to devise a common fisheries policy it will have the same veto power as Britain. It is the same with any change, including the common customs tariff. Many who urged Britain to join the Community said "All our colleagues in Europe will welcome a minor change in the common customs tariff because they are all good Europeans and so are we." That is total unrealism, and it is unbelievable. Those same people claim that we can import American maize free of customs duty, even though it competes with French maize. They say "Never mind, the French will agree because they want to help Britain". That attitude is not realistic. That is not how the system works, although we would like it to work that way.

We cannot expect any diminution in the near future of the common customs tariff revenue transferred from Britain to the Community. In the long term price differentials may be reduced, but that cannot produce a change in that element of our gross contribution.

I have listened to many debates in the House and in the European Assembly, and there has been unanimity that the present level of support for excess sugar production in the Community is a sin, a wickedness, and that the more it is offloaded on to the Third world market the more it is disrupted. The moment that it is proposed to cut sugar production and the level of support for sugar production in Britain, over the parapet come the NFU and the British Sugar Corporation saying "Cut everybody else's production, but do not cut ours.".

When a co-responsibility levy for milk is introduced, the milk producers say "We are in deficit, so do not cut our production, cut everybody else's". All Community members have a veto and can stop a diminution in the A-quota of sugar. France, Germany and all other members can stop a coresponsibility levy if it is applied to the small as well as the large farmers. Britain can use the veto if it is applied to the large farmers and not to the small farmers. We delude ourselves if we believe that in the short term a change in the distribution of CAP support is politically available.

There is no political will among Agriculture Ministers to reduce the current level of Community expenditure on agricultural support. If any hon. Member believes that Hans Josef Ertle will cut the financial returns to the Bavarian farmers in advance of a German election next October, he must be living in a different political world from the one that I have inhabited during the four years that I have been in Europe. That world is not available.

Where do the Government start? They cannot achieve a £1,000 million reduction of our contribution next year, although that might be achieved in 10 years' time. They cannot achieve it by reducing agricultural expenditure. For most agricultural products, the contract is already signed until next September with the Community farmers for the price that they receive for their sugar beet. We cannot renege on that. It is a major part of next year's Community budget. The 1980 budget is already fixed. Surely the Prime Minister does not imagine that we can remove ourselves from it when we have contracted with the sugar beet producers and the milk producers the prices that they will receive for the rest of this crop-year. There is no way in which we can reduce the level of Community expenditure on agriculture.

Even if the present Commission proposals for increasing the co-responsibility levy or changing the sugar beet regime are acceptable—there is little political will to do so—they will affect the 1981 budget, not the 1980 budget. Financial budgets in agricultural years are so out of phase that it cannot happen that way.

What can be done? There is one clear solution, and that is to bankrupt the Community. We have not been far from that position in the last 10 days. It only required the European Assembly not to accede to the third supplementary budget, and the Community could not have paid the intervention money for the past six weeks of this year. That is one solution that I wish to consider carefully before rejecting it. It is a solution that the Government should consider.

What do we see emerging? Those of us who have been in the Assembly have seen the way in which cosmetics are created, built into political positions and offered as statesmanlike solutions. First, we have what is euphemistically called in the Community the 2-bis rule. Nobody understands that term, although I am sure that you, Mr. Deputy Speaker, understand precisely what the 2-bis rule involves. It makes an apparent difference if the monetary compensatory amount is paid in deutschemarks in Germany to the export producer of agricultural products, or in sterling in the United Kingdom. By performing a head-over-heels exercise, an apparent difference is achieved.

During the referendum campaign we were told that MCAs are payable in England in sterling to the importing country, and that we are a great beneficiary from them—to the tune of £700 million. For some reason, that was never explained in the House. There was a switch. That was partly because the Italians were so incompetent that they could not pay MCAs in lire in Italy. It was then said "Pay them in Germany or France in deutschemarks or francs." That type of reversal can take place at the stroke of a pen. If that is done, it seems that about £200 million is brought to benefit our balance of payments position. That is totally cosmetic. If any member of Her Majesty's Government returns from Dublin suggesting that there has been a big deal because £200 million has been obtained following a change in the 2-bis rule, I trust that no hon. Member will be taken in by that charade or cosmetic pretence.

It is possible to play around with the financial or monetary mechanism. If I were the French Minister of Agriculture, or the French Minister of Finance, it would be easy for me to say "Let us increase notional VAT from 1 per cent. to 1½ per cent., and let us now say that, out of the goodness of our heart, we shall give a discount to the British." What does that mean? It means that al the pressure for the reform of the CAP is removed. I hope that Her Majesty's Government will not allow that solution and will not permit the rate of VAT to be increased as the quid pro quo.

A discount for the British contribution today would be to sell tomorrow for today's gain. That is not available to us. Equally, to allow an attempt to give us a 20 per cent. discount for next year in return for some amorphous addition to our regional fund or our industrial investment, or a little extra out of the European Investment Bank, would be a charade. No doubt the Kidder water scheme would benefit. No doubt there would be benefits to my region, the North-East, if the European Investment Bank were told by the summit to give away a few hundred million pounds more to the North-East of England. It would not matter whether the money were given in the form of grants or loans.

The summit could instruct the European Investment Bank to shovel the money across quietly so that the Prime Minister might return to the House of Commons to explain that Britain had obtained another £300 million from Europe. There would be no definition. It would not matter if the money were provided in the form of loans or grants. If that is the way in which we pretend to get round the real problem, we shall be doing Britain a major disservice. I hope that there will be no attempt, in a fortnight's time, to delude the House with a charade and a cosmetic result.

There is no easy solution to the reform of the CAP. After four years in the Assembly, I am getting close to those who believe that there is no solution. There is, however, still a minuscule chance. I hope that Her Majesty's Government will support the efforts of Mr. Gundelach to move towards reform rather than snipe at him from a position of total lack of integrity. What they say to the farmers is one thing, and what they say in budgetary terms is another. They are saying to the farmers "We shall not allow the reform if it hurts United Kingdom farmers." At the same time they are saying "If it hurts the United Kingdom budget, we must support Mr. Gundelach."

That is political dishonesty that I cannot accept. There were moments when the previous Government were in office when my right hon. and hon. Friends came close to the position that I have described. We now see a move towards the most dishonest position of all. If we believe, as a House, that the price of Community sugar production is too high, we must sacrifice our own sugar production in favour of sugar beet and sugar cane production. We must withstand domestic pressure. There will be no solution to excess budgetary compensation for excess sugar production if we all revert to individual national positions.

If we are to remain in the Community, I hope that both sides of the House will refrain from reverting to a national position. If the decision is that Britain should get out of the Community, the decision taken today by the President of the NFU, Mr. Richard Butler, will be perfectly proper. However, is Mr. Butler prepared to move to the next stage and say "Because we do not contribute to the surplus, we should not take part in the reduction"? That attitude is not available. If we contribute to the surplus, we must contribute to the reduction of the surplus. When we consider the curious budget with which we shall be presented, I urge the House not to accept national, simple solutions. Those solutions are not available unless they are false and cosmetic.

6.29 pm

Mr. Anthony Beaumont-Dark (Birmingham, Selly Oak)

We all have within our constituencies charities, charitable functions, churches and covenants. The total income of organisations of that type is about £2,000 million. The money is given regularly—some people give extremely generously—and is received by a tremendous number of worthwhile voluntary organisations. People give to these organisations—from the largest such as Oxfam or Relief for Cambodia to a church donation—because they wish to help others. If fiscal harmonisation takes place, the charities will have to raise an additional £600 million to enable them to continue to work at their present level.

Our European colleagues, despite their many virtues, do not allow tax relief or covenant relief to churches or to charities. If the Common Market is to mean anything—I sometimes wonder—one needs fiscal harmonisation to weld it together. But if fiscal harmonisation takes place, does anyone believe that the £600 million will be forthcoming in further donations? People will simply not have the money to spare. When the weighty matters that have been mentioned today are considered, in Dublin or anywhere else, we should remember that most of the good done by so many churches, charities and covenants— certainly the larger ones—will be brought virtually to an end by fiscal harmonisation.

Many charities rightly commit their income for years ahead if it is to do any good. Their incomes would be cut by 30 per cent. at the end of fiscal harmonisation. I urge people not to forget the sum involved simply because small organisations are involved. About £600 million will be lost. When we talk of the benefits, or lack of benefits, of the Common Market, we should remember that benefits from charities, covenants and churches are important issues to many thousands of people who receive them. I hope that we shall fight hard and vigorously. If we do not stand up for these things, they will fall.

6.31 pm

Mr. Austin Mitchell (Grimsby)

There can seldom have been a more curious debate than this one on the European budget. It is a debate about a budget in a currency that does not exist, supported by documents that few understand fully and substantiating premises with which no one apparently agrees, not even the hon. Member for Harrow, East (Mr. Dykes)—at least, as far as I could understand his reservations. It is all apparently in "Eurogook", a language which must be of divine inspiration since it passeth all understanding.

It is a pleasure to see the Commission addressing itself to a problem that it has tried to sweep under the carpet for too long—the problem of national gains and losses through the budgetary procedure. I see, however, that the Commission still clings to the ludicrous convention that the MCAs—the monetary compensatory amounts—should be counted as a gain to us and not to the countries that receive them. It is as though the pig smugglers who take their perambulating pigs across the Northern Ireland border at £7 a time and then send them south again by homing instinct to come back across the border into Northern Ireland are providing a service and a benefit to Northern Ireland rather than to themselves.

It cannot be repeated too often that the monetary compensatory amount is a benefit to the exporting country, allowing it to sell its overpriced food, much of which would otherwise be unmarketable. It is no gain to this country. If the MCA did not exist, we would be able to buy most of the food that it covers from our traditional suppliers in the world market at cheaper prices than we are paying, even with the MCAs.

The Cambridge economic policy group has calculated that we would save £300 million a year if our food was bought in the cheaper markets outside. There is no justification for the Commission's attitude on the MCAs. Its attitude is a sleight of hand designed to obscure the truth. It indicates an unhealthy attitude on the part of the Commission that it should want to indulge in this sleight of hand. Because of our net contribution to the budget, we are carrying a disproportionate burden. It is a net contribution of £1,100 million, possibly more next year.

For five years, the bulk of the Tory Party attacked the Labour Government, particularly the Minister of Agriculture, Fisheries and Food, for being disruptive and for not being communautaire, whatever that means. The then Conservative Opposition undermined the efforts of the Labour Government and made Europe think that the Conservative Government would be an easy touch. It is, therefore, refreshing to see the Tory dog now barking from the Labour manger after only four months of being charming and communautaire. It seems that the road to Brussels produces more conversions than the road to Damascus and on much less promising material.

It is crucial that the right hon. Lady the Prime Minister pursues her objective of a fair balance. It is welcome that she attaches herself to that slogan. That is the least that will satisfy Opposition Members. We want the kind of financial gain from the budgetary process that richer countries like Belgium, Holland and Denmark make. I hope that that objective will be pursued with all the courage that the right hon. Lady so often tells us, now that she has to do her own public relations as Saatchi and Saatchi is no longer with the firm, is one of her main characteristics. It is crucial for the British economy that the right hon. Lady should get the fair balance and benefit that the Opposition want to see.

The Cambridge economic policy group has calculated on its economic model that our net contribution now, let alone next year, is increasing unemployment by about 100,000 lost jobs. It is cutting our gross domestic product by 1.4 per cent. It is reducing real consumption by 3.3 per cent. It is imposing a burden on the balance of payments and on an economy which has always been shackled and unable to grow in the way that it should because of the tight balance of payments constraints under which it has laboured since the war. Now, added to that constraint there is the extra burden of the budget.

Without that burden, we would be able to stimulate domestic demand by three to four times the size of the burden we have taken on. In other words, we would be able to grow instead of experiencing the miserable economic decline that the Government are planning. It is possible that the Government do not want the economy to grow. From their economic documents, it seems that economic decline is their form of incomes policy. If the backs of employers are put to a precipice, then they are forced to fight the unions. For the Government, that is an incomes policy.

The British people want growth. They do not want the bitterness, division, antagonism and hatred between groups which come from not growing. They do not want the negative growth that the next year will produce. One of the barriers stopping growth is the burden that the European Community imposes on us. This burden does more. It works against one of the central aims of the Community—the convergence and growing together of economies. The preamble to the Treaty of Rome states that those subscribing to the Treaty are anxious to strengthen the unity of their economies and to ensure their harmonious development by reducing the differences existing between the various regions and the backwardness of the less favoured rcgions. How is that objective compatible with a budgetary burden that promotes divergence and pulls the economies apart because it works on the principle that the rich get rich and the poor, or at least this particular section of the poor, Britain, gets poorer due to the burden imposed on it? The Commission document says that we should not be obsessed with the doctrine of juste retour. We get the advantages, we are told, from being in the Common Market. But the answer to that is simple. Every other member of the Market gets those advantages, such as they are. They are not paying for that advantage through the kind of burden of contributions to the budget that we make.

More important for this country, so many of those so-called advantages have crumbled to dust in the light of experience. One example is the larger market, the dynamic effects of Common Market membership, which predictably have worked against this country and not in its favour. They have led to the loss of jobs and industry because our smaller, less competitive, perhaps less dynamic industries have never had the advantage over the years of the kind of steady growth that the industries within the Community have had. Now those industries have effectively been swamped by Common Market competition since our entry seven years ago.

It is all very well for the Chancellor of the Exchequer to say that some of the ills are of our own making. Many of the ills are of the making of the Common Market and are the consequences of the kind of competition into which we have been thrown since we entered. Gunnar Myrdal calls it, in a catchy, with-it phrase, the "cumulative causation hypothesis", which means simply that growth coalesces on the growing points—a vicious circle. The weak get weaker because they are locked into a cycle of decline. That is the consequence that we have had to suffer instead of the dynamic effects of growth for our economy.

The weak go to the wall. That is why this year—1979—we shall be running a deficit in manufacturing trade which I estimate will work out at about £4,200 million for the whole year. That is from a surplus in manufacturing trade in 1970. That is the kind of turnaround that these so-called dynamic effects of Common Market membership have produced in our economy.

Most of that deficit, be it noted, is with one country—West Germany. So we are paying heavily in net budgetary contributions to have our industry ruined and to have jobs lost, to be swamped by West German competition and to buy overpriced food that we could get more cheaply on markets outside the Community. Those are the blessings of membership for which we have to pay in our budgetary contribution.

Therefore, it is not only right to fight as the right hon. Lady proposes—

Mr. Russell Johnston

Is the hon. Gentleman suggesting that the dynamic effects of non-entry, which appears to be what he is advocating, would lead to Britain being more competitive with, for example, West Germany in world markets?

Mr. Mitchell

My suggestion is that the experience of open competition has been that we have suffered. There may therefore be a lesson to learn—that we have to protect ourselves and build up our industry until we get competitive and can open the doors. But, to do that, we must have a far more vigorous, dynamic and powerful industrial force than we have and than we will be reduced to by the Common Market.

Mr. Stuart Holland (Vauxhall)

Would not my hon. Friend not agree that when an argument is made about the relative competitiveness of the United Kingdom and Germany, for example, it is of some relevance that we have an economy whose export structure is completely different from that of Germany? Our economy is five times more multinational than the West German economy; we have five times as much investment outside this country relative to exports as the Germans do. When we had devaluation of nearly 60 per cent. vis-a-vis the deutschemark between 1971 and 1976, effectively, our business did not take up that challenge, partly because we were so multinational. Specific factors have to be taken into account when comparing West Germany and the United Kingdom, and one should avoid oversimplifying.

Mr. Mitchell

I certainly agree. I hope that my hon. Friend will enlarge on that point later.

It is certainly true that, because of the way those economies have grown more steadily than ours, they can now—particularly with motor cars—achieve the economies of scale which our car industry, because it has not grown, cannot now achieve. It is a vicious circle from which we shall find it impossible to break out while we are in the Community. Therefore, it is not only right for the Prime Minister to fight as she proposes to do: it is a positive duty.

I hope that there will be no question of accepting any of the trivial escape clauses that the Commission has put together in these documents, because none of them—not even all of them together—could be anything more than a small and partial step along the road on which the right hon. Lady has announced that she intends to march to the end.

I also hope that the right hon. Lady and her Government will not be tempted to do what all Europe is apparently expected them to do—to make concessions on other fronts to get themselves out of the trap into which the right hon. Lady has rushed by her impetuosity in saying what is right and in demanding this balance in the budget.

The Prime Minister is now in a dilemma. If she means what she says, the logical conclusion is that she must push this argument to the point of coming out. If she does not mean what she says, then to get a public relations victory, to get the trimmings which can be trumpeted in the press as some advantage to Britain and Britain's case, she will be tempted to make concessions in other areas of vital importance to this country. That is what I am afraid of—particularly concessions in respect of the common fisheries policy. If Britain's legitimate demands—not demands, but rights—in fishing are sacrificed in any way for a public relations victory on this budget argument, it will be disastrous for this country.

It will be equally disastrous if concessions which were argued about in The Guardian this week over British oil are made to secure the kind of public relations victory which the Prime Minister may have to get because of the impetuosity with which she has rushed into a fight in which she is right.

Mr. Christopher Price (Lewisham, West)

Does not my hon. Friend think that there is a further and rather more hidden area which is meant to be nothing to do with the EEC, in which concessions may also be granted under the counter—our contribution to NATO and all the defence changes which are to come about in the next few years?

Mr. Mitchell

My hon. Friend is absolutely right. The important point is that the battle is on the budget, that we get a balance of contributions and benefits from the budget. Concessions cannot and must not be made in any other field at all, because the iniquity of the budget itself is so great. This is a negotiation which this party will watch with great interest.

My own fear, as one who was never exactly brimming with confidence in the Common Market, is that there is no way of attaining the objectives that the Government have set themselves, let alone those that they should have set themselves—which are to get the kind of return from the Common Market that Belgium, the Netherlands and Denmark have got. We bear these budgetary burdens because of the essential nature of the Market itself, because we import food from our traditional suppliers such as New Zealand and because we pay a levy on that food. We bear burdens because we are a net agricultural importer and because we decided impetuously, and I think wrongly, to join an organisation which is essentially an agricultural protection club. Its nature is shown by the fact that it spends 74 per cent.—three-quarters—of its budget on agriculture alone.

For analogy, our attempt to get justice is like an amputee, a legless man on crutches, who is persuaded to join a squash club because he thinks that the cold showers will be good for his health. When he finds that all they give him is pneumonia and that he cannot play squash, he is left with the burden of membership of the club and is driven into bankruptcy. That is the situation in which this country is placed—and not because of the Common Market. The EEC did not disguise its nature. The committee of the squash club is entitled to say, "You knew what you were joining." The man joined because he was misled by those who should have known better what he was joining.

What we are asking for is a fundamental change in the nature of the beast, one that goes against all the vested interests—vested interests are paramount in the Common Market—of all the other members to such an extent that we are unlikely to achieve it. That is why the Prime Minister must be aware in Dublin that coming out of the Common Market is an option, that it is a logical conclusion of the position that she has taken.

It may be—I think it probably will be—that there is no other way of attaining the objective that the right hon. Lady has set herself. If the varicose ardour of the nymph of 50 gets us nowhere, coming out will not be an option but a necessity. Coming out is popular. Public opinion now wants out of the Common Market. Five years' experience of its benefits has turned public opinion from a two-thirds majority in favour of membership to a majority in favour of coming out.

To a Government who will need every shred of popularity that they can muster in the coming months and years, I offer that advice free of charge—that coming out is popular with public opinion. Not only that, but it is necessary, because those groups which so impetuously rushed into the Common Market now find that it works against them: the woollen industry, the fishing industry—Lord save us, the fishing industry wanted Britain to enter the Common Market—and the motor car industry. Even the City has found that trade in invisibles has grown no faster with the Common Market than with the rest of the world. Where are the benefits to the City?

What are the risks of coming out? Should we be worried about losing the Common Market's overpriced food? Should we be worried about having to buy cheaper food on a world market? Should that prospect terrify us? Should we be worried about geting rid of the budgetary burden and leaving the Common Market to find some other sucker to pay the bills? Should we be worried about losing the huge deficit in manufacturing trade with West Germany? Should we be afraid of acknowledging the effects of the Common Market—its damage to ourselves—and of building up our own industrial base independently? In order to do that, we could use the benefits of North Sea oil, which will be with us for only a short time. That would cushion the effect on the balance of payments. North Sea oil is not something to be frittered away in paying for membership of the Common Market which is destroying large chunks of British industry.

It is curious that we should enter negotiations with any trepidation, since all the cards are in our hands. We hold all the sanctions, provided that we have the nerve and will to use them. We have the option of coming out of the Market. That card should be played. If we do not suceed in the negotiations, if our burdens remain undiminished and there is a public relations settlement that effects nothing substantialy and gives the Government only the trimmings of victory, we shall continue to suffer as we have for the past seven years. If the Prime Minister does not achieve her aim, coming out will cease to be an option. If the burdens of membership are prolonged, coming out will be not an option but a necessity.

6.52 pm

Mr. Ronald Bell (Beaconsfield)

The Prime Minister deserves, and I think has, the support of the House in the difficult task ahead. It is right that the whole House should support the Prime Minister, because few are blameless. I shall not name those who are blameless because that would be immodest. I am sorry to say that it was a Conservative Government who put us into this disastrous association. The previous Labour Government renegotiated the terms, and I always regarded that as somewhat fanciful. The Labour Government commended the country to vote in a referendum in favour of staying in the Common Market. Therefore, the guilt is widely spread.

The Prime Minister has the unenviable task of finding a way out of this dilemma. The speech of the hon. Member for Durham (Mr. Hughes) was both interesting and persuasive. Naturally, I stand aside from the slightly partisan vehemence of the right hon. Member for Stepney and Poplar (Mr. Shore), but his speech also was persuasive. We face a difficult situation, and whichever way we run we come up against an apparent bar.

Not much can be done about the agricultural budget because that is already settled. There is ample scope in the VAT provisions and the customs provisions for saving a large amount of gross contribution—the £1,000 million that we would like to save. It is, however, true that the general budget of the Community also is set for some time ahead. Therefore, if we achieved that reduction in the British contribution it would bankrupt the Community. That would not worry me, but it might worry others.

The Prime Minister is faced with a difficult proposition. If she tries to get a substantial cut in Britain's gross contribution, the other nations will have to increase their contributions by about £1,100 million a year. Unless that happens, the Community will become bankrupt. However, they will not do that. I should be astonished if they did.

It is possible that half the distance, or more, might be covered by increasing the Community expenditure in a manner beneficial to Britain. That is why I intervened when my right hon. and learned Friend the Member for Hertfordshire, East (Sir D. Walker-Smith) was speaking. I wished to draw his attention to the answer given to me by the Financial Secretary to the Treasury in the Select Committee last week. He said that we could find £2,000 million worth of laudable expenditure in Britain.

It is fair to say that several questions were put to the Financial Secretary on that point and it is understandable that, as he had no prior notice, he gave slightly different answers to each question. He gave his first answer to me but probably thought a little better of it and modified and diminished the figure in later answers. It is only fair to take the total number of answers and divide it by the number of questions in order to discover what was really in his mind.

I am not suggesting that the Government are willing simply to solve the problem through increased Community expenditure. It is, however inevitable that part of the negotiations will touch on that area. I am apprehensive about that.

The hon. Member for Durham pointed out that if Community expenditure is increased it will virtually unlock the barrier on our present contribution of 1 per cent. of VAT. If the Community is asked to spend another £500 million or £700 million, it will be difficult to use our veto to stop an increase above that 1 per cent. There would be damaging consequences. No one, whatever his views of the Common Market, wants to see a continuing expansion of its functions. Any expansion of those functions would be at the cost and to the detriment of the powers exercised by the British Government and Parliament.

If the Community's budget is increased by £1,000 million, Britain's money will still be spent because we shall still be contributing £2,250 million. As the hon. Member for Grimsby (Mr. Mitchell) has pointed out, money spent in that way cannot be spent in Britain or controlled by us. Of course, the Commission or the Council of Ministers may decide to spend money in Britain, but is that the best way to run a country? Is it right that taxes should be so high, or that the burden upon resources should be so great, that people outside the country can decide how it is to be spent inside the country?

Our membership of the Community during the past seven years has been a lamentable experience. My hon. Friend the Member for Harrow, East (Mr. Dykes) said that the surpluses that had been built up were caused by a mathematical accident in the corrective mechanism negotiated by the previous Government. But mathematics is the one area in life where accidents do not happen. There is no such thing as a mathematical accident. The consequences were predictable and predicted. In a way, they were admitted and we were told that the dynamic factor would swamp all the problems. We know that the dynamic factor has taken the form of a £2,300 million deficit in manufactured goods. It would not be fair to take the gross deficit.

The hon. Member for Grimsby was challenged about how we could be competitive with West Germany. He did not give quite the right answer. Our main competitive advantage was our cheap food. We had disadvantages, but that was our great advantage. When we entered the Common Market, we threw away that significant competitive advantage. We also dismantled customs duties that were much higher in relation to industrial goods on our side than on the European side. The motor industry is a classic example of the danger of dismantling high protective tariffs in exchange for the dismantling of low protective tariffs.

My right hon. Friend will be in a difficult position when she goes to Dublin. I do not see what extra-budgetary concessions she could make. We are already paying nearly double for many of our foods. For example, the levy that we pay on wheat is almost 100 per cent.—it is virtually the same as the price we pay. We are already in deficit on our manufactured trade and the fisheries policy is a scandal.

The right hon. Member for Stepney and Poplar said that my right hon. Friend had committed herself and was up against it. I believe that my right hon. Friend was wise to have committed herself in that way. We should not judge too harshly anything that she comes back with, because I cannot see any hopeful avenue. It is my right hon. Friend's resolution and willingness to chance her arm which are her best hopes of success. I do not think that anything less abrupt and abrasive, if I may apply those words to my right hon. Friend in a purely political sense, would have the slightest chance of success. It is no good going to these people and arguing sweetly and reasonably. There is not a hope that they will give in. We were the mutts to lock ourselves inside this "bargain".

My right hon. and learned Friend the Member for Hertfordshire, East rightly said that the Luxembourg agreement is not part of the Treaty of Rome and does not have to go through all the constitutional procedures of Parliaments. However, it is a Community treaty and it can be changed only by unanimity. Anyone can veto it. We locked ourselves in and now we are trying to find a way out. I am inclined to believe that there is no way out except through the front door—out of the whole show.

We missed the only opportunity that really mattered. That was in 1950 and 1951 when negotiations started on the Schumann plan. We could have gone in then and shaped the treaties to make it possible for the biggest food importer in the world to be a member of the Economic Community when that was founded. We decided against that by a narrow majority, and I make no party point in that respect. Going in when the Treaty was fixed, shaped, locked up and totally unsuitable for the biggest food importing country in the world was an act of self-immolation. I see no alternative but to reverse that, and to do so as quickly as possible.

7.4 pm

Mr. Russell Johnston (Inverness)

I hope that the hon. and learned Member for Beaconsfield (Mr. Bell) will forgive me if I do not immediately follow on from his remarks. It will become clear during my speech that I profoundly disagree with his approach.

I wish to make a number of contentions about the situation in which we find ourselves, how we are reacting to it and what Liberals believe we should do about it. I shall, as far as possible, take my arguments in sequence.

As the debate has shown, the present position is seen by the critics of British membership, including the hon. and learned Member for Beaconsfield and the right hon. Member for Stepney and Poplar (Mr. Shore), as a vindication of their view that we should not have joined in the first place. It has become a regrettable characteristic of our debates on European matters that we have a big attendance of critics and a poor attendance of those, such as myself, who still believe that we were right to join.

Mr. Ronald Bell

Would that be due to declining morale?

Mr. Johnston

That may be the reason, but my morale has not declined. I wish to state firmly that it is our view that while mistakes were certainly made in the negotiations of 1971–72, the so-called renegotiation of 1973–74 and in broad attitudes since we joined, the basic mistake, as even the hon. and learned Member for Beaconsfield admits, was not that we joined but that we joined late. While that presented us with a range of difficulties with which we have still to come to terms, it was unquestionably the right thing to do.

The right hon. Member for Stepney and Poplar has a long record of opposition to the EEC and I do not claim that he has ever been inconsistent. He referred to the vital vote at the end of 1972. The Liberal Bench was decisive in that vote and I am proud that it was and not at all ashamed of what we did. I put that firmly on the record. The only intellectually defensible option to a free enterprise-based community in Europe is the development of an East European style, State-dominated society with strong import intervention.

While one can objectively point to the German Democratic Republic and claim that it has made considerable economic progress, I find no evidence that the sort of economic climate engendered there can ever be as innovative or progressive as is possible in mixed economies in the West. In addition, the political consequences are unacceptable, certainly to Liberals.

Mr. Straw

As the hon. Gentleman is proud of his achievement in forcing Britain into the Community in 1972, would he care to explain what he believes to be the benefits that have flowed from that membership?

Mr. Johnston

I shall come to those matters. I would make the point that in no way was Britain forced into the European Community. As has already been pointed out, in the referendum there was a clear and decisive majority in favour of our being in the Community.

Mr. Stuart Holland

The hon. Gentleman made reference to the DDR, in other words to East Germany, in contrasting the economic climate in the European Community. Would it not be more relevant to point out to the House, especially as the hon. Gentleman referred to West Germany before, that the rate of growth in the West German economy, whether in terms of overall product or investment, has declined since the opening of the Common Market? The real growth in the West German economy was the reconstruction growth which occurred in the 1950s.

Mr. Johnston

The original growth in the West German economy was a reconstruction growth, and the hon. Gentleman is right in saying so. With respect to the hon. Gentleman, I nevertheless suspect that if he talked with his Social Democratic partners in the present German Government he would not find a keenness to leave the Community. I deeply regret the threat of withdrawal from the Community contained in the speech of the right hon. Member for Stepney and Poplar. It is most unfortunate that the official position of the Labour Party—which, as I understand it, was not so in the past—should now be moving towards the view outlined by the right hon. Gentleman.

Mr. Shore

I am sure that the hon. Gentleman wishes to be accurate, and I would point out that the debate has been about the budget and our contribution to it. My comments on what might flow from the failure to reach agreement are related to provisions in the budget, as was the vote that the hon. Gentleman failed accurately to recall in the summer of 1972. On that occasion he and his fellow Liberals voted precisely for the budgetary and financial arrangements that are the subject of the debate. At another time, on another occasion, no doubt the House will wish to turn to the broader question of the total implications of Britain's membership. However, that is not issue before us today.

Mr. Johnston

I am in no way suggesting that the right hon. Gentleman has been anything other than consistent in his views on these matters. However, with great respect, he appeared to be indicating that, if on this matter certain assurances and changes were not obtained, that would inevitably lead us in the direction of withdrawing from the Community. Perhaps the matter can be picked up by the Opposition spokesman in reply.

My second point is that the profound and persistent psychological effect of late entry has been that, from the point of entry onwards, successive Governments and large sections of the public have continued to conceive Community affairs in terms of the relationship between Britain and the rest of the Community. The speeches from the Front Benches reflected that. When problems exist or arise, they are not seen as shared Community difficulties to be resolved collectively to further collective interests. They are seen as conflicts between British interests and the Community interest, as if those were clearly separate and inevitably opposed positions.

To give an example, Mrs. Winifred Ewing, who was a Member of this House and is now a Member of the European Parliament for the Highlands region, having narrowly defeated my good self, made a statement which was reported in the Inverness Courier, a journal which I am sure that hon. Members study closely. It is certainly available in the Library. She commented on a Commission proposal to establish a permanent forestry committee: This Committee would be a first step towards a Common Forestry policy. Scotland has had her farming and fishing interests plundered by EEC 'common' policies. She pointed out that our thousands of acres of forest could now be in jeopardy, and went on to say: My message will be hands off Scotland's trees. It is not enough simply to say that that is negative nonsense. If we are members of a Community pledged by Treaty to the common betterment of its members, statements that attack bluntly, blindly and indiscriminately any attempt at common policies are profoundly damaging to the real British interest. They undermine any co-operative approaches from which we, among others, might in turn benefit. That leads me to my third point.

Because of our unwillingness to see ourselves as part of the Community, we have failed to play a leading role in suggesting solutions to problems which go beyond Britain—and I draw that point to the attention of the right hon. Member for Stepney and Poplar. At the same time, we have shied away from constructive package proposals, from the supranational Community institutions such as the Parliament or the Commission, even if the proposals were in any way to our advantage. We appear to believe that to accept such proposals will increase the Community's integration and potentially put at risk the bilateral deals with individual Community members. Various Governments have so far operated in that way.

As an example, to put it crudely and shortly, the current Community crisis is about the management of the CAP. It is suggested that it was not properly forecast—and it is reasonable to admit that—how price reviews would push up the cost of the budget and fuel overproduction, particularly in the dairy sector, to the point where the books will not balance by mid-1981 at the latest. The crisis is about the failure to realise that the CAP would increasingly squeeze out the non-compulsory redistributive regional and social elements in the budget. It is at root about a failure to conceive a budget. The hon. Member for Grimsby (Mr. Mitchell) pointed out that it was not a budget in the proper sense, and I agree that it is no more than an aggregation of expenditures. It is not seen as any more than that and certainly not as the positive instrument for wealth distribution and the counter to regional wealth concentration, which it should be. That is not just a British point.

Let me put the first of three direct questions to the Government. Are they making any attempt to produce concerted proposals for the reform of the common agricultural policy? The previous Government spoke a great deal about that but at no stage produced proposals. There is no point in posturing and complaining. The only constructive attitude is to produce alternative schemes, and that would have been much easier during the time of the previous Government when general elections in France and Germany were not imminent. I hope that the Government are proposing positive schemes. If so, have they taken on board the position of Portugal, Greece and Spain? Unless there is budgetary reform, Portugal and Greece will quickly find themselves in the same position as Britain.

Mr. Maclennan

Dealing with the record of the previous Government over reform of the CAP, does the hon. Gentleman remember a Liberal Member opposing the Government's policies on the green pound and joining with those who believed that further expenditure was necessary for the farming interests? Does he not remember that the reduction of common price levels was substantially achieved by the outgoing Labour Government, who did not always enjoy the full support of the Liberal Party?

Mr. Johnston

Frankly, the Liberal Party did pretty well by the last Labour Government. I agree that the green pound is a problem, but that in no way detracts from the basic point that I have made. There was no overall proposal emanating from the previous Government on the form of the CAP.

Why do not the Government ally themselves to the European Parliament in its proposals to reduce CAP expenditure? By failing to do that, they are adopting the same attitude as was adopted by the previous Labour Administration when they refused to support the European Parliament argument for increasing the regional fund. The Labour Government did that because they thought that it would strengthen the Parliament's authority. I should like an assurance from the Minister who will reply that the Prime Minister, in pursuit of the sort of bilateral approach that I referred to, has not promised to President Giscard d'Estaing on his recent visit that Britain will not back the European Parliament because of the French hesitation about increasing the Parliament's powers.

The Government have an ideological opposition to increased public expenditure. That is generally accepted on both sides of the House. However, does that mean that they will oppose increased regional and social fund expenditure in the European Community? As presently operated, that would mean matching national public expenditure. It is also an inextricable part of Community resource redistribution. The Conservative Party cannot go around saying that it is more in favour of the European Community than anybody else but that it does not want the Community to start spending more on regional and social policies because of its concern with domestic policies. That is a contradictory position.

What is the Labour Party's view of the matter? It favours public expenditure but criticises the Community budget and Community integration. It has been clearly indicated that the Labour Party is not in favour of increasing the size of the budget. More funds from the Community for public expenditure means more integration within the Community. How does the Labour Party square that particular circle? I do not agree with the view that was expressed by several hon. Members that it is not possible to expand considerably the regional and social funds and that they do not have an essential role to play in the future of the Community. If the Community is to have a constructive future, they will play an important role.

Liberals accept the unsatisfactory nature of the present position.

Mr. Ron Leighton (Newham, North-East)

What will they do about it?

Mr. Johnston

If the hon. Gentleman will contain his impatience, I shall tell him. It can be said that our budgetary contribution is not major. It represents about 0.5 per cent. of our GNP. [Interruption.] The hon. Gentleman is too impatient. I am in favour of impatience in good causes but not otherwise. But our contribution is between £1,000 million and £1,500 million, and that is equivalent to large chunks of public expenditure that the Government pro- pose to cut out. It is also equivalent to demolishing considerable amounts of the balance of payments gained from North Sea oil. Equally, as a defender of the Community, I believe that it is wrong that the budget operates in such a way that those who are already doing well benefit from it.

The clear message that I wish to leave with the Government and the Prime Minister from the Liberal Party is that we have no doubt that the only reforms which will have a sustained impact on the problems that we and others face are the reforms which suggest a stronger, more integrated and more supranationally directed Community. There is no getting away from the logic of that. [Interruption.] The hon. and learned Member for Beaconsfield was about to interrupt me. I shall give way to him in a moment. He made that point earlier and I was thinking of intervening when he said it. He asked whether we wanted to become more involved. My answer is "Yes."

Mr. Ronald Bell

I wonder whether the hon. Gentleman is not merely avoiding, in a different form of words, supporting increased Community expenditure. Does he advocate that?

Mr. Johnston

Let me state that I disagreed with the Chancellor of the Exchequer when he expressed what appeared to be a doctrinal opposition to an increase in the Community budget. If we are serious members of the Community, we cannot have a doctrinal opposition to an increase in the size of the budget. There can be great argument about the way in which the budget is distributed but one cannot argue about size.

It is by no accident that propositions emanating from the European Parliament—from which, incidentally, British Liberals are so unfairly excluded—and the Commission are helpful to Britain. [Interruption.] It is extraordinary that Left-wing Labour Members who prate about their pride in democracy should laugh at that. It is a scandal and a shame. The helpful suggestions that have come from the Parliament and the Commission work towards the ideal of common standards and opportunities into which Britain will fit.

When the Prime Minister goes to Dublin, I hope that she will make clear that she believes in the Community and is not threatening to leave it. It has become characteristic of British demands to say "If we do not get this, we shall come out". That is not the right way to proceed. I believe that she should admit bluntly that we joined too late and have suffered from that. She should say that we negotiated and renegotiated—to the extent that the other members are pretty sick of us—and that we accept that our poor industrial performance is our responsibility. She should point out that we are in a difficult position and that it is not unreasonable to suggest that there should be a direct payment across the exchanges to the United Kingdom budget.

The right hon. Lady should also recognise that the French and German elections are due. She should indicate that the aims of the British Government are, first, a genuine fiscal reform of the Community budget similar to the position within the Federal Republic of Germany, where there is an attempt at equalisation and sums of money are set aside for that purpose. Secondly, she should tell them that we aim for a reform of the CAP and, thirdly, that we seek recognition of the fact that all the problems have to be seen not only in terms of the Nine but in terms of the 12 that are to be.

7.28 pm

Mr. Selwyn Gummer (Eye)

It is sad that we cannot discuss the European Community budget, to which we are full contributors, without once again discussing our membership. So many of today's speeches are similar to those which many of us heard—some with enforced absence between times—in the original debate and thereafter.

We must try to discuss the budget and what we are to do to improve the performance of the Community without easy and continuous threats such as those which were made by the right hon. Member for Stepney and Poplar (Mr. Shore). He has been consistent in his opposition to the European Community and he referred to his predictions having now come about. However, the right hon. Gentleman himself was one of the major causes for our present position. Labour Members should listen carefully to the comments that I shall make. [Interruption.] The hon. Member for Crewe (Mrs. Dunwoody) has not been present throughout the debate. She has not heard the one or two tough speeches that came from her colleagues. I hope to make an equally tough speech, and I hope that she will listen to me.

Mrs. Dunwoody

I have been out of the Chamber for only half an hour since the debate started.

Mr. Gummer

I do not think that the hon. Lady should be so touchy about it, for in that time there were two speeches which I hope she will read in the Official Report and then she will understand.

Mr. Roger Moate (Faversham)

If I may comment on the first point made by my hon. Friend, whilst I am sure that he is right in saying that we have again lapsed into a debate not on the budget but on Community membership itself, am I right in thinking that he is about to launch into a speech about the principle of membership, just as other hon. Members have done, for or against membership?

Mr. Gummer

My hon. Friend is a very active and able Member of this House, but he is not perhaps a mind reader. I have no intention of launching into that at all. I intend to look at the reason why we find this budget difficult and what we ought to do about it. The first thing we ought to do is not to argue constantly that either people do what we want them to do or we will use the ultimate deterrent: whatever the argument, whatever the issue, on every occasion we shall threaten to leave. If we go on doing that, we will not solve the problems either for Britain or for the rest of the Community.

The hon. Member for Grimsby (Mr. Mitchell) made a very important point in saying, in the course of remarks which in no way supported my side of this argument, that it is part of Common Market proposals and policy to reach towards convergence of the economies of the European Economic Community. Therefore, it is in the interests of all members of the EEC that the standards of living and the gross national product of the countries should be seen to be much closer together instead of the large gaps which have opened up. Therefore, we are seeking within the Community to achieve something which the Community itself wishes to achieve. We are trying to work with the Community towards a Community end and we should therefore not start by demanding of the Community, as if the Community is opposed in principle to the whole policy which we are putting forward.

That is why there is a fundamental distinction between what the right hon. Member for Stepney and Poplar, the spokesman for the Opposition, put forward and that which my right hon. and learned Friend the Chancellor of the Exchequer put forward. He started from the position in which he wished to improve and change, and enable to grow, the Community of which we are and remain a member, whereas the right hon. Gentleman started from a position of wishing the self-fulfilment of the doubts and miseries which he has talked of for seven and a half years. What a sad nation we have become!

I am sorry that my hon. and learned Friend the Member for Beaconsfield (Mr. Bell) has now left the Chamber, but he ended his speech by saying there is nothing we can do, that life is terribly difficult that we ought to come out. This has been the trouble with Britain for so many years. We constantly cease to believe that we can achieve our ends. We are frightened of the attempts to solve our problems by actually aiming for the best answer. Instead, we give up before we start.

The hon. Member for Inverness (Mr. Johnston) made an important contribution. He asked the House to try to solve our problems within the Community, to which we are committed and contracted, and do so with a will, and find a way.

Mr. Norman Buchan (Renfrewshire, West)

The hon. Gentleman has made two very interesting points, one right at the beginning of his speech and one a moment ago, in which he seemed to blame my right hon. Friend the Member for Stepney and Poplar (Mr. Shore) for having brought this about. He referred to it as self-fulfilling. Earlier he referred to things my right hon. Friend had forecast and said that he was responsible for bringing them about. Will he try to explain that mystery?

Mr. Gummer

I am trying to carry out a self-denying ordinance and not to argue again the case for entry. I am encouraged in that by my hon. Friend the Member for Faversham (Mr. Moate).

The point I was making was that during these past four years all the opportunities which are available for changing the nature of the Community to bring about the ends which so many of us wish to bring about, and will continue to work to bring about, were totally frustrated because those who were in charge of the very Departments most concerned with the Common Market were committed to its destruction and wanted us to come out. They were the people whose purpose supposedly was to improve the situation. Of those the right hon. Gentleman himself is the architect, and he is the one whom I blame—and not only I but, I believe, history will blame him.

Mr. Buchanrose—

Mr. Gummer

I will leave that point, which it would be pleasant and amusing to extend, or the hon. Gentleman will be unable to make his contribution.

If there is to be a collision course, as the right hon. Member for Stepney and Poplar suggested, it will be only if we start with the assumption that the way to change is actually to overturn, that the only way to improve is to kick over the whole structure and to say, as the hon. Member for Grimsby suggested, that the only answer is to take the option of coming out. I suggest to the right hon. Member for Stepney and Poplar that he must look again at a phrase he used: that the result of these discussions will be the litmus test of the Community's intention towards Britain. If only he would occasionally seek to present the Community with some proof of his own and of his right hon. and hon. Friends' desire to make the Community work, they would do a great deal more towards the very convergence mentioned by the hon. Member for Grimsby.

I believe that we start with a great advantage when my right hon. Friend goes to Dublin, because she goes as the leader of a Government and of a party committed to Britain's growing involvement in the European Community and not to the destruction of that Community, as so many hon. Members in key positions in the previous Government were.

In going there, what are the changes which my right hon. Friend must seek? First, we talk very generally about reform of the CAP. It is very easy to talk about reform of the CAP as a kind of talisman, a phrase to be thrown about without any very definite content; but I believe she would agree about an important problem, which is that the CAP attempts to do two totally opposite things. It attempts to provide a kind of general agricultural support and to provide some particular social help in particular areas to those in particular difficulties.

As a result, we find that, in order to help just a little a number of people who need help, we are helping far too great a number of large, successful and economically viable farmers; and I speak as a Member for an agricultural constituency. I accept the challenge which was put forward by the hon. Member for Durham (Mr. Hughes) that we who represent constituencies where agriculture plays a large part in our economy must be willing to say that the changes in the CAP are necessary, not just for the rest of Europe but for us. We, too, have to accept those changes.

Mr. Tim Sainsbury (Hove)

Does my hon. Friend agree that those who make easy criticisms of the CAP seem to overlook the fact that without the CAP one would still need a system of agricultural support to achieve just those two objectives to which he has referred, and that before we were participating in the Community's agricultural policy we were spending very nearly as much as our contribution to the Community in supporting our agriculture?

Mr. Gummer

Yes. If we were to go into the figures, we would see that on many projections we would be spending more on agricultural support under the old system than we are now in our Community contribution—and we ought not to forget that. My hon. Friend was right in pointing it out.

The second thing about which we ought to be concerned is that there are many things which many would like to see—

Mr. Leightonrose—

Mr. Gummer

I ought to draw my remarks to a close. I know that they hurt some of those who do not like the facts being put instead of ancient prejudices.

We ought to be working within the Community, too, to enhance the role of the institutions which are on our side. It is very sad to have seen the long history of the previous Government's refusal to support the proposals which came from the European Parliament and from the Commission. They were proposals which the previous Government, according to their own theories, ought to have supported but which they would not support because they enhanced the democratic power of the Community and enhanced its effectiveness.

I am sorry that the Labour Government were not prepared to support the extension of the regional and social funds in the way that many Conservative Members would like to see them extended. I am sorry that Labour Members believe in high public expenditure by everyone except the European Community. I hope that Labour Members will see that, with many of my hon. Friends, I shall press my Government to support a number of these things, and I hope that Labour Members will join me in late support of them.

The third thing that we ought to do and must do, when it comes to the Dublin summit and thereafter, is to realise that it is most important that we should show to our neighbours in Europe that our desire it to build the kind of Community which can meet the needs of the whole of Europe because we actually believe in achieving the objects with which we started out when we argued the case for entry.

We did not join our neighbours in Europe in order to have a neat mathematical balance between what we put in and what we took out. We joined them because we believed that economically and politically the growing unity of Europe could be a bastion for those things in which most hon. Members, although not all, believe. It is to strengthen Europe that we must be extremely strong in the defence of a sensible share-out of the payments for Europe.

When I say "god-speed" to my right hon. Friend the Prime Minister, I do so in the sense that I wish her to have all the strength that is possible with a Government committed to the principle of the European Community. No one would believe in a programme for reforming this House put forward by someone who was not himself a democrat. If I suggested a marvellous programme for reform but I was known actually to support a totalitarian Government, no one would look at my reforming programme.

No one ought to look at the proposals of those who are committed to the destruction of the European Community. People should look at the proposals of those of us who wish to change the Community for the benefit of the whole of Europe instead of constantly harping on, fighting old battles and showing again the narrow, insular nationalism which is as deafeatist as it has been defeated. It is the narrow, insular nationalism which has made us for so long a sad nation in Europe instead of a nation prepared to take the opportunities and to fight for the changes which could make us part of the most important growing united community in the world.

7.43 pm

Mr. Eric Deakins (Waltham Forest)

It is a great pleasure to be able to address the House after the hon. Member for Eye (Mr. Gummer) at this stage in the debate. His present optimism is unbounded, and it reflects the unbounded optimism that he showed in the House during the great six-day debate in 1971. The House might like to know that on just one issue, the subject of investment, he said then: I cannot see how one can argue that firms will take their investment to the Common Market because we remove the tariff between Britain and the rest of the Ten … If that tariff barrier is removed, we are much more likely to get the investment we need in this country."—[Official Report, 27 October 1971; Vol. 823, c. 2025.] Anyone who can say that and believe it needs his brain tested, because all the figures show that that has not happened. Therefore, the hon. Gentleman's optimism then was completely unjustified and those of us who have been sceptical about this matter will regard his present optimism with the same degree of scepticism.

Mr. Gummer

The hon. Gentleman is quite right. My optimism was unbounded. I did not believe that the people of Britain would elect a Labour Government, and that shows exactly where I was wrong.

Mr. Deakins

The hon. Gentleman is entitled to his view.

The Chancellor of the Exchequer has told us something today about the Government's objectives. I think that there is a general feeling in the House that the broad balance is something that we should certainly go for. I have heard no one speak against that. However, just for the record, it should be noted that if we are to achieve an equitable settlement of our budget contributions we should be aiming not for a broad balance but for a net receipt for this country, since we are seventh or eighth in the league table of prosperity and national wealth.

The Government have been a little less than fully explicit in telling us how they propose to achieve this objective. I had hoped, as had some of my hon. Friends, that that objective could be achieved by decreasing our gross contribution to the EEC budget, but we heard from the Chancellor today that although that is the primary objective there is some hope of getting increased receipts.

I make three points to the Chancellor's representative, the Minister of State, Treasury, on the subject of increased receipts. They are points that ought to appeal to the present Conservative Government, who are committed to cutting public expenditure.

First, increased receipts from the Community, whether regional or social, would mean no reduction in public expenditure in Britain—unless, of course, the receipts from the EEC resulted in compensating reductions in our own regional grants and aid to developing areas, which would be very unpopular. Secondly, increased receipts must mean, in the nature of things, an increase in the size of the total EEC budget, which is something that we do not wish to see. Thirdly, increased receipts are merely a short-term remedy. The Chancellor told us earlier today that we are seeking long-term stable solutions.

The reason why increased receipts will not be a remedy in the long term is simply that the admission of three new members in the next few years will mean, among other things, much greater pressure on the regional and social funds, since those countries have far more need of those funds even than some of the depressed regions of the United Kingdom. Therefore, our share of those funds is bound to be reduced when new members come in.

There are four matters which ought to concern us when talking about the budget for next year. First, there is the trend of payments, to which the Chancellor and my right hon. Friend the Member Stepney and Poplar (Mr. Shore) alluded. Anyone who looks at the figures will be appalled at the way in which they have "taken off" since 1975, when, taking receipts and contributions together, we had a net receipt of £56 million. The figure jumped the other way in very quick stages to a £795 million net contribution in 1978, and we have heard that it will be over £1 billion next year.

My right hon. Friend the Member for Leeds, East (Mr. Healey), speaking about the budget in the great debate in 1971, said that we would have to carry a foreign exchange burden of £100 million in 1973, £500 million in 1977—and it —that is, our contribution— would go through the roof between 1977 and 1980."—[Official Report, 21 October 1971; Vol. 823, c. 931.] Apart from the fact that the figure was £400 million and not £500 million, it was certainly a very good forecast, considering that eight years have elapsed since that time. My right hon. Friend the Member for Leeds, East is to be congratulated on it. Those were partly Government figures, as well.

The fact is that the trend of our payments, as all hon. Members agree, whatever their views about the Common Market, is bound to continue rising unless we get some equitable solution. The total size of the Community budget—which is not an issue in this debate—is bound to go on growing because, as a number of my hon. Friends have said, the CAP, in the nature of things, will take an increased burden to support it. It will need more resources from all the member countries, even if the EEC stays at its present size of nine members. In an EEC of 12, as the three new members have large agricultural sectors that will surely strengthen the resistance to any fundamental reform of the CAP. If we have any hopes—I think that they are very faint hopes—in the present set-up, we can forget them in an EEC of 12. The CAP will be sacrosanct.

The second point that I should like to make with respect to the size of the budget next year is that the total cost of the CAP will rise for another reason. In the past 18 months the EEC members—we just tagged along because we were not concerned—have made a new agricultural agreement on Mediterranean products. These arrangements were made to suit the convenience of French and Italian producers of Mediterranean agricultural products, because they knew at that time that three new members were to come in who were rather more competitive, purely because of climatic conditions, in Mediterranean products than they were.

We know what kind of deal the French and Italians would have obtained. There was no real opposition within the Community to the proposals. They obviously fixed prices high enough to satisfy themselves. When the three new entrants come in, with much lower living standards, and with obviously lower costs of production because of the weather, these new arrangements will be extremely favourable for them and will therefore lead to an extraordinary increase in that section of the agricultural budget devoted to Mediterranean products. At the moment it is a fairly small part of the total budget, but I should think that by 1985 or thereabouts—on the assumption that three new members will be in by that time, although it may take a few years longer—the cost of Mediterranean products alone will be about half the total cost of a very much enlarged EEC budget, as a result of the arrangements made to suit the interests of Italian and French producers.

My third point is one on which no one has commented. I am surprised that no one from either Front Bench has mentioned it. I refer to the extraordinary procedure for deciding the budget in the EEC. It is a procedure whereby policies are determined without respect to the ability of the member nations or the Community to finance them. Once those policies have been determined and fixed and—as my hon. Friend the Member for Durham (Mr. Hughes) pointed out in a good speech—contracts entered into, at a later stage in the year the Finance Ministers of the Community are called upon to provide the appropriate finance for them.

Indeed, that seems to be accepted by the Government. In answer to a question by my hon. Friend the Member for Newham, North-West (Mr. Lewis) on 13 November, the Financial Secretary said: Member States, including the United Kingdom, considered that supplementary provision would be necessary"— here are the words I stress— to enable the Community to meet its obligations arising out of agreed policy."—[Official Report, 13 November 1979; Vol. 973, c. 535.] That means that the Government accept the present system of arriving at the budget. Surely, to obtain proper financial control in the EEC, as long as we remain members, that process should be reversed. We should start with the Finance Ministers determining the total size of the budget and then other Ministers, sitting in the appropriate Council of Ministers, should so regulate the policies as to come within the overall financial control of the budget. That is not such an extraordinary proposition, because I believe that most democratic countries, and certainly industrial States, regulate their affairs in this way.

Mr. Frank Hooley (Sheffield, Heeley)

Does my hon. Friend agree that when the own resources system hits the ceiling that process will have to be reversed?

Mr. Deakins

Yes. I shall come to that in a moment.

My fourth point is the fact that our budget costs must be seen—there have already been allusions to this in the debate—against the so-called dynamic effects of entry. To do justice to everyone who spoke in 1971 and 1972, whether for or against entry into the EEC, everyone recognised that there would be a budget cost. The pro-Marketeers at that time-I think that some of them still hold these views, although they are a diminishing minority—felt that those costs were acceptable because of the dynamism that EEC entry would bring to the British economy. I could quote from speeches made by the right hon. and learned Member for Hexham (Mr. Rippon) and present Ministers. However, I do not want to delay the House, although I have all the facts here. It has been an enlightening experience to read the reports of that six-day debate and realise the unbounded optimism that stemmed from a number of hon. Members on both sides of the House. I make no party political point here.

What has actually happened? This is very important. Our trade with the EEC, and particularly with the EEC Six—we already had free trade with the two members, Denmark and Ireland, who came in with us—was in a small deficit in 1970—minus £65 million. In 1978 it was minus £2,799 million. In the current year, for the first nine months—I have the figures only for the first nine months—it is running at an annual deficit of £3,500 million. Yet our entry was supposed to bring us economic dynamism and we were supposed to receive benefits.

Forgetting what is happening on trade, there were other hidden costs which were only partially mentioned in the debate in 1971. One was the cost of higher food prices to the economy of this country. Another was the imbalance in investment, to which I have referred. If we add those sums into the equation, we see that we need to obtain enormous gain from trading with the Community to offset the costs that we must bear.

The fact is that the EEC Six are benefiting in trade now that Britain is in the EEC. Instead of the United Kingdom paying in terms of contributions to the Community budget but receiving offsetting benefits, the United Kingdom is paying and other member countries are receiving the offsetting trade benefits. That is a bad bargain by any standards. A proper bargain would be to let others pay the budget costs of the Community, with Britain paying nothing at all, net, because the others are receiving most of the trade benefits. That is using the argument employed by pro-Marketeers throughout the great debate in 1971.

In conclusion, we should all agree that the CAP cannot be fundamentally reformed. This point was made very well by my hon. Friend the Member for Durham. There is no hope for us there in the future.

This is our penultimate opportunity for change. If we fail to take it this time, we shall have one more chance: that is, when the own resources system comes up once more, as the own resources will not have grown to the extent that Community expenditure will have grown. That will be our last chance to oppose policies such as the CAP and either get rid of them completely or reform them fundamentally in our own interests.

If we do not do that, I am afraid that we shall have missed our opportunity. The situation will then arise that the next Government of this county—which I hope will be Labour, but I do not want to make party political points about that—must use the opportunity after the next election to get new policies, by one means or another, even if it means taking a very tough line. We have seen what the French can do with a tough line. They usually succeed. I believe that the next Labour Government will have no alternative but to take such a tough stand, if we do not obtain reforms this time or within a couple of years, that it could well lead to our withdrawal from the EEC.

7.58 pm

Mr. James Hill (Southampton, Test)

I have not taken part in a European debate for some years, but the time capsule has stood completely still. Exactly the same stances are being taken. Most hon. Members seem to forget that the EEC has a saying that it moves forward from crisis to crisis. Obviously tonight the crisis is the amount that the United Kingdom is paying towards the budget.

We all remember when President de Gaulle had similar problems in the past with the Six. He took what seemed to be a most dictatorial attitude when he instructed all his delegates to leave empty chairs at the table. That is what it was called in the Community. Nothing moved in the Community for six months. Whatever one says about President de Gaulle, he did seem to be able to pick France up by its bootstraps. He turned it into one of the finest industrial countries in the world.

Perhaps the crisis we are going through is part of a seven-year itch. Perhaps it is like all marriages, where things sometimes begin to irritate and certain persons have to give way. For the past three to four years, an outsider may have thought that we were losing most of the battle in the Council of Ministers. We have now reached the point—this is where it is dangerous—where the Dublin summit must produce something for the United Kingdom. This is the supreme test, and I hope that the Community will face it.

When we first joined the Community there was always a great deal of good will towards the British delegation. Now, at long last, we are reaching a point where that good will has to be made apparent, otherwise, as is perfectly obvious from the debate, the Nine will not be able to move ahead. The mechanism was set up five years ago and is now due for overhaul.

Like most right hon, and hon. Members who have spoken, I do not think that it will be at all easy to try to understand the mechanism or the papers accompanying this debate tonight. It will be very difficult. We do not need Ministers over there. We need chartered accountants. The probable weakness of the Community is that its institutions are now so complex that mere Members of Parliament such as ourselves are almost unable, in our busy lives, to spend the time required to understand the mechanism of the budgetary controls.

If the Prime Minister brings back a settlement from the Dublin talks, even if it is not as much as has been forecast by every pundit in the United Kingdom, I shall watch the faces of Opposition Members, who will be hard put to raise a smile, because the impression I get is that the anti-Marketeers of many years' standing are using our present fiscal crisis as a lever to bring the United Kingdom out of the Community.

We all know that this will be a testing point for our other eight partners. Naturally, no one can defend the present situation. By 1980 the United Kingdom will be far and away the largest net contributor to the Community budget. If the monetary compensatory amounts paid on United Kingdom agricultural imports are treated as benefits to the exporter, it will mean that the United Kingdom's net contribution—how ridiculous this is—will be twice that of Germany. Poor little Britain will have to pay twice as much as mighty, industrial Germany.

I shall not enter into the argument of how we have become poor little Britain. We are told that day after day by the Government Front Bench. Nevertheless, it seems to me that the United Kingdom will be among the three member States with a gross domestic product per head below the Community average. In this we are partnered with Italy and Ireland. I do not think that that is a state of affairs that the Prime Minister can allow to continue.

It is apparent that, as in every bureaucratic assembly—because that is what it is—there is waste and high ambition. As has been pointed out, a budget is fixed before the nine Finance Ministers are told how they are to raise the money. When I look at some of the figures involved, I see that to run the European Parliament, of which I had the honour to be a Member, costs 167,880 million European units of account. Here we are, trying to make our way on much less than that and at the same time the Commission—I think it would be well advised to look at its public image—is spending nearly 16,000 million EUA.

If I thought that the Prime Minister needed any other encouragement, I would pose the question: how is it possible for the United Kingdom to find 29.33 per cent, of the budget total that is required? The argument has been put forward today about whose fault it was in 1975. Were the right hon. Gentlemen not quite as cute as their European counterparts? Were they sold a pup? Or perhaps they did not really want to improve the mechanism because they thought they had it right. Probably they did not think ahead to the customs duty, to the increased totals in VAT or to the day when Germany and France would, slowly but surely, put pressure on the social and regional development funds, which is precisely what they have done.

When the regional development fund was first set up the nine members were talking of 3,000 MEUA. I see now that it is only a miserable 650 MEUA. Not only that, but do France and Germany know that, using the yardstick of the regional fund, the United Kingdom and Italy are the highest beneficiaries? We get 28 per cent, of the regional development fund. Would I be suspicious if I were to think that that percentage was too rich for our other main Community partners to accept? Therefore, there are problems about the extent to which we can go further into the common agricultural policy.

One small point that came out in the seventh report of the Select Committee was that storage costs for beef and veal are 184 MEUA. That is absolutely ridiculous. Everyone—pro-European and anti-European—knows that it is ridiculous. Surely the guaranteed section of the FEOGA can be adjusted so that we do not waste colossal amounts on hiring refrigerated ships to store beef that we cannot sell to anyone.

There are these dreadful problems for my right hon. Friend when she goes to Dublin. There is no easy solution to them. I have a depressing feeling that the formula will be rejigged which, as the right hon. Member for Down, South (Mr. Powell) said, would be purely cosmetic. The sort of thing that might be said at the Dublin summit is "We shall increase the regional policy fund. Do not worry about that. We shall increase the social fund but, of course, we shall have to re-jig the VAT. We are getting closer to the 1 per cent. VAT now. Perhaps we could agree to 1.2 per cent." That sort of negotiation will not benefit the United Kingdom. We must be treated fairly by our Community partners this time.

If we are not treated fairly, I do not know what we can do. We are in a position where whatever we do we will be thought of as mean and grasping. We have made little progress in the Council of Ministers and have probably lost a great number of friends over the past few years. We desperately need friends at this time and if the German Prime Minister is one of these friends, so be it. Unless we get a generous concession on this mechanism at the Dublin summit, even the pro-Marketeers like myself will have to turn the other way.

8.10 pm

Mr. Jack Straw (Blackburn)

I thought it would be many years before I found myself complimenting a Conservative Chancellor of the Exchequer. However, I must compliment the Chancellor on his speech this afternoon and on his newfound scepticism about the benefits of Common Market membership. I also compliment him on the resolution that he said the Government would show when tackling this problem in Dublin.

I welcome the Chancellor's clear commitment to the Government's target of securing a broad balance between our contributions and the benefits we receive from the budget, and that can only mean a reduction of £1,000 million in our contribution in the next year. I also welcome his recognition that in the terms of the Commission's declaration of October 1970 an unacceptable situation has arisen which threatens the very survival of the Community.

I am not as sanguine as the Chancellor appeared to be about the prospects in Dublin. I have two reasons for my scepticism. First, there have been reports of the reactions of other member countries within the EEC, each of which has the perfect right to veto any proposals arising out of the Dublin summit. Both France and Denmark are reported to be implacably opposed to any concessions which go beyond a reduction in our contribution of £130 million. Even Germany, which is by far our most important ally, is reported as being committed at most to a reduction of 40 per cent, in our budget contribution. Even that appears to be an exaggeration of what the Germans are really likely to agree to. Therefore, we face a situation in which none of our partners except Italy—and it has its own reasons—is in any sense behind what the Government are trying to achieve.

Secondly, we must face the fact that the Commission itself is hostile and insensitive to Britain's problems. Any member State seeking reasons to oppose what Britain is trying to achieve needs only to look at the reference papers which were produced by the Commission in order to find such reasons. On page after page of those reference papers there is self-justification of the Community's policies and references to the inviolability of the central principles of the EEC. Here I part company from the Chancellor, who suggested that those papers were helpful. I have read them all, and I do not think that they are.

These papers claim that it is a fundamental principle that in considering the budgetary problems neither the legal framework of the Commission nor the Community's policies should be called into question. But, unless we can call into question the Community's policies, it is impossible for us to secure any proper transformation of the budgetary problems which lie ahead. Yet here we have the Commission saying that it is implacably opposed to any solution which affects the Community's policies.

Mr. Deakins

Is it possible that the Community will be hoist on its own petard when it says that there should be no interference with the legal framework? It will be in the Commission's own interest in the next year or two to put forward proposals on own resources which would require an amendment to the basic treaties.

Mr. Straw

My hon. Friend is quite right. I shall come later to the point about the legal possibilities for our blocking decision in the Community if we fail to achieve a reasonable solution.

The Commission's reference papers try to dismiss the problems that Britain faces on its budgetary contribution and to minimise the extent by saying the Community comprises a number of policies which cannot readily be quantified in financial terms including the advantages of belonging to a single market and the benefits conferred by a common commercial policy. The papers then say: Budgetary incidence of the common agricultural policy"— and this is causing us the most difficulty— is of less significance than its wider economic consequences. Those quotations are bad enough, but there are three more assertions which are breathtaking in their arrogance and ignorance of the fact that Britain is now the paymaster of Europe.

We are told quite categorically that, in the Commission's view, customs duties and agricultural levies cannot be said to belong in any sense to any particular member State. Therefore, it is on sufferance that the Commission is allowing us to say that the £1,000 million that we will be contributing next year is our money. In the Commission's view, backed up no doubt by the French and the Germans, this money does not in any sense belong to the United Kingdom. The Commission also says—and this takes the biscuit for audacity and a failure to recognise our problems: it is certain that the United Kingdom has broadly benefited from membership of the EEC. Then, most audacious of all, the Commission turns to the question of the juste retour. It says that the Community has always been resolutely opposed to the concept of fair returns in assessing the benefits of membership and that, in its judgment, Community policies would be gravely hampered if the notion of juste reteur were to become the accepted way for member States to judge policies.

Mr. Robin Maxwell-Hyslop (Tiverton)

I took on board the point that the hon. Member made about the Commission's attitude to taxation from Britain. Therefore, does the hon. Member agree that it is absolute nonsense for the Labour Party to claim that when we reduce the rate of taxation of the British people we are giving away something that belongs to the State when we are only letting people retain more of their own money?

Mr. Straw

I had not expected that a debate on the Common Market would turn into a philosophical argument on whether taxation is theft. I have never considered that reductions in taxation can be regarded as a gift to people. However, no doubt the hon. Member for Tiverton (Mr. Maxwell-Hyslop) and I would disagree about the benefits that taxation can bring to the community as a whole.

I return to the point about the Community's concern about a juste retour. In the past, this concept would have gravely hampered the operation of the Community's policies because the principle which has inspired the EEC for these last 10 years has been that of an "injuste retour", or unfair shares as my predecessor, Mrs. Barbara Castle, pointed out so eloquently in a speech in the European Parliament two weeks ago. It was unfair shares given to French farmers and German industrialists which motivated the Community in the past. The Community now seeks to continue taking away unfair shares from this country.

If we accept that there is clear hostility from the majority of the other member States in the Community to any significant change in Britain's contribution, and if we also accept that pervading the approach of the Commission to this problem there is also hostility and a failure to understand the gravity of Britain's position, it becomes clear that we are on a collision course with the Common Market. That was pointed out earlier by my right hon. Friend the Member for Stepney and Poplar (Mr. Shore). In that collision course our membership of the Community must be brought into question and made negotiable.

I agree what the Prime Minister and the Chancellor said earlier since the Government now appear to have ruled out the possibility that our membership of the Common Market should be brought into negotiation. In ruling that out, I believe that the Prime Minister has made a fundamental misjudgment. In my view, she has failed to recognise that the approach of the Commission—as portrayed in the reference documents—amounts in itself to a declaration that Britain's budgetary problems are insoluble within the framework of the Community's present principles and policies. The Commission's attitude is that on no account will it countenance any change in those policies. In other words, the Commission has challenged the United Kingdom to put its membership on the table if we regard the budget as being a matter of prime importance.

Instead of fighting on that basis, the Prime Minister appears ready to walk away from that challenge. It is not a question, as some newspapers have suggested, of the Prime Minister overplaying her hand, but of her giving away the only trump card she ever had, namely, our continued membership of the Common Market. There is every justification for using that card without coming into conflict with the rule of law to which the Prime Minister so often declares her adherence.

First, to use that card would be fully consistent with the declaration made by the Commission in October 1970 as part of its formal response to our request for negotiations and entry. What was said at that time by the Commission was: If, in the present Community, or the enlarged Community, unacceptable situations were to appear the very survival of the Community would require that the institutions find acceptable solutions to them. We have already had confirmation from the Chancellor that, in his judgment, unacceptable situations have appeared. We may well find after the Dublin summit that acceptable solutions have not been found. In those circumstances, let us be in no doubt that the Government should say that the very survival of the Community has been threatened.

Secondly, we have the precedent of France when faced with a similar threat to its national interest. Let not the French lecture us about the way that we should behave inside the Community. Did not de Gaulle, in June 1965, hold up the operations of the Common Market for six months until he got what he thought was a solution acceptable to the national interest of France?

Thirdly, we should make our membership of the Community negotiable now because the truth is that Germany, France and Italy—but particularly Germany and France—have a great deal more to lose, and we have a great deal more to gain, from our withdrawal from the EEC. The Commission was quite wrong to say that it is certain that Britain has benefited from our membership of the EEC. What is certain is that other countries have benefited.

Many hon. Members have pointed out the benefits to the rest of the Community as a result of our payments into the common agricultural policy fund and of our being a captive market for the farmers of the Continent. My hon. Friend the Member for Waltham Forest (Mr. Deakins) drew our attention to the deteriorating trade balance, above all in manufactured goods, which has occurred since we went into the Community. If anybody doubts that France, Germany and Italy have more to lose than we do by the withdrawal of Britain from the Common Market, let them look at the figures.

In 1970 we were in surplus in manufactured goods to the tune of £161 million. By 1975 that had changed to a deficit of £913 million. Last year the deficit had risen to more than £2,500 million. Hundreds of thousands of jobs in France, Germany, Italy and the Benelux countries now depend on the sale of their manufactured goods to this country. It is difficult to quantify exactly the number of jobs which so depend on that trade, but I have made some effort to quantify the number of jobs which depend on trade in vehicles. That is a much easier exercise. The figures in that context are quite staggering.

In 1978 Germany, France and Italy imported 40,000 motor vehicles from Britain. But they exported to Britain more than 10 times that number—461,000 vehicles. If one uses the output per man figures, which are the least favourable to this country, it means that Britain's sales of cars to those three countries support about 8,000 workers, while sales of cars by Germany, France and Italy support well over 60,000 people. Therefore, if there were to be a threat to trade in vehicles between Britain and France, Italy and Germany, while only 8,000 jobs would be threatened in this country more than 60,000 jobs would be threatened in those other three countries.

Mr. Maclennan

Is my hon. Friend suggesting that non-membership of the EEC would lead to the erection of tariff barriers? Does he not think it more likely that these countries would continue to penetrate our markets in the way that the Japanese—who are non-members of the EEC—do?

Mr. Straw

The truth is that the penetration of cars by Japan has been nothing like as great as that from Common Market countries. The great difference is that with Japan we have been able to enter into arrangements for an orderly market, whereas with the Common Market we have not done so. The damage that has been wrought on the British motor industry from imports has primarily come not from Japan but from Germany, France and Italy.

I was about to come to the question of tariffs. If we were to leave the Common Market, we should at least have the option of whether to impose tariffs. What one can say is that the worst possible situation in terms of trade with the Common Market would be no worse than the situation that exists today. However, we would have the option of imposing tariffs if we felt that our interests were gravely threatened. The ironic truth is that our weakness in industrial performance is our strength in these negotiations, because I have said that if we were to leave, and were the EEC to impose tariffs, we would stand to gain much more than the Community.

If we left, we would also benefit enormously in terms of food prices. There is no question but that the CAP has been a major locomotive of inflation in this country and throughout the world. I agree entirely with the remarks made yesterday by the president of the Inter-American Development Bank, who said that the Common Market's agriculture policy has seriously distorted world trade flows and has strongly fuelled inflation in industrialised countries.

The holy grail of all politicians—to cut prices at a stroke—would for once be achieved if we were to come out of the Common Market and were once again to secure food at the lowest prices on world markets.

I hope, as I imagine does every hon. Member, that when the Prime Minister goes to Dublin she achieves what she has set out to achieve, which is a reduction in our £1,000 million contribution. If she succeeds, Labour Members will be the first, not the last, to congratulate her. But if she fails she must accept the condemnation of the whole House and the whole country. She may well fail because already in negotiation—

Mr. Hillrose—

Mr. Straw

I am sorry, I shall not give way, because I have nearly finished—she will have given away in negotiation our major trump card, that of our future membership of the Common Market. She will have failed to stand up for the national interests of Britain and will have failed to recognise that, far from being an institution for European co-operation, the EEC, by the policies that it is pursuing, is creating tensions in Western Europe and with the rest of the world.

The policies that the Common Market is today following, of transferring resources from the poor regions of the Community to the rich regions, are policies that will lead not to political stability but rather to political instability. The policy of the Community in refusing access to food products of third countries is leading not to greater worldwide stability but to less stability and less influence for the West.

That is the profound mistake of Common Market policies. Many pro-Marketeers believe that people who think that British membership should be brought into negotiation are Little Englanders and anti-European. We are nothing of the kind. Those who believe that Britain's membership should be brought into negotiation at Dublin, and subsequently, do so not because of any jingoistic views but because the Common Market is damaging Britain's national interests. We also believe that the construction of the Common Market today does nothing to help political stability in Western Europe and the rest of the world.

8.31 pm

Mr. Roger Moate (Faversham)

My hon. Friend the Member for Southampton, Test (Mr. Hill) suggested that, following his absence from the House, time had stood still and that we were re-fighting old battles. I suggest to him and to other hon. Members that there is one fundamental difference between today's debate and those of the past.

At the beginning of the debate my right hon, and learned Friend the Chancellor of the Exchequer clearly reiterated the objective of the Government to secure a balance in our contributions and receipts in 1980; in other words, to secure a reduction in our contribution by £1 billion-plus next year. That objective has the united support of all parties. That is significantly different from past debates about Common Market membership. My right hon. Friends deserve every commendation for the determination and resolve with which they have put that objective on the table.

One sad and tragic feature is that this unity apparently derives from the strength of our case being the weakness of our economy. In other words, we are putting forward a plea of poverty, not an argument of principle. In the past, if there had been such a meeting of minds about the unreasonable expenditure of £1 billion or more by this country the House of Commons would have taken the normal step open to it of refusing Supply. That would have been achieved with great ease, but we cannot do that today. That would be the argument of principle. I am not attracted by the basis of the arguments that we are putting forth. I am worried that some of the arguments that are being deployed now could tell against us in the years to come.

Earlier, my right hon, and learned Friend the Member for Hertfordshire, East (Sir D. Walker-Smith) drew a beguiling analogy of Britain's accession to the Community being comparable to a rather unhappy marriage. My hon. Friend the Member for Southampton, Test talked about the seven-year itch. In a marriage contract we are taught that the contract is for richer, for poorer, for better, for worse.

It is in that sense that I have some sympathy with President Giscard d'Estaing, who, I understand, holds the view that Britain expects France to accept the rules with regard to lamb and cannot see why Britain should argue that the rules should be changed completely to suit its own purposes now. We agreed to those rules. We allowed ourselves to become involved in a contract. We are now seeking to change those rules. I should like the rules to be changed, but I sympathise with those who say that we are now trying to remedy the unfortunate mistakes that we made earlier and that we should soldier on with the contract into which we entered.

Here, the analogy with the marriage contract breaks down considerably. Some would say that the marriage contract was sacred. One of the features of our debates over the past years has been the way in which all Governments have treated the Treaty of Rome and the Treaty of Accession as sacred. Indeed, the European Communities Act was regarded as so sacred that we were not allowed to amend it during its passage. There has never been any question of amending the Treaty of Rome in any significant way. Any measure that came before the House as a pre-accession obligation had to be accepted as a matter that could not be altered or amended. No other Act of this Parliament is treated in that way. If our Acts are disliked or considered unfortunate, they are amended or repealed. But not so the Treaty of Rome, the Treaty of Brussels or the Treaty of Accession. It is because of this that I am so pleased by the actions and attitudes adopted by my right hon. Friends. They are adopting a posture that could lead to a significant amendment of that Treaty. I am not necessarily talking about the exercise of the option of leaving.

The hon. Member for Durham (Mr. Hughes) put forward a powerful argument on the difficulty of changing the attitude of the Community on the common agricultural policy. The hon. Gentleman carried a great deal of conviction when he emphasised that there was no political will to reform the CAP amongst those member States to which basically the Common Market is the CAP and vice versa.

My right hon. Friend the Prime Minister is not renowned for backing down easily. The only way in which we can achieve the massive reduction in budget- ary contribution that we are seeking of over £1 billion is by reform of the CAP. Basically it all flows from the CAP. If, on the one hand, we have the determination of my right hon. Friend and, on the other, a reluctance on the part of the Community to engage in fundamental and rapid reform of the CAP, we shall have an irresistible force meeting an immovable object.

What then will happen? My right hon. Friend will not engage in an easy compromise. She could come back and say "We have achieved a saving of only £400 million or £500 million, but that is distinctly better than anything achieved by the Labour Government." Indeed, it would be.

Any temporary resolution of these difficulties by a feeble compromise, by a tinkering with the system, by a subsidy from Germany or by some such device would not meet what my right hon. Friends have spelt out as their objective. They want a permanent solution to this situation and to the basic injustice that is clearly apparent in the system. That injustice arises not from a mathematical accident, as was suggested by my hon. Friend the Member for Harrow, East (Mr. Dykes), but from the fact that the Community's revenues basically come from import levies and duties.

The United Kingdom is the largest food importer and one of the largest importing nations in the Community. It was always foreseen that after the transitional period we would be one of the major contributors, as was indicated in many of the speeches made at that time. I have no wish to engage in the "I told you so" debate. I think that many of us are to be commended for our restraint in not having indulged in that kind of statement in recent years.

In the document described as the reference paper there is this staggering statement: The accession to the Community of Denmark, Ireland and the United Kingdom coincided with the crisis of 1973. It is therefore difficult to draw clear lessons from the ensuing brief and troubled period. It is however certain that those three member States broadly benefited from their membership of the Common Market. I should think that the vast majority of people, whatever their long-term views on the political merits of being in or out of the Community, would not find many examples of benefits that have accrued to this country from membership of the Community in the last six years. Indeed, there is hardly any area of economic activity in which Britain would not have been better off in recent years outside the Community—the CAP, food prices, exports of surpluses to the Soviet Union, fisheries policy, the import of apples, to the detriment of Kent, or our massive budgetary contribution. Many of us argued on the basis of long-term political and economic principles rather than on the basis of short-term loss or gain. Nevertheless, those arguments were deployed strongly by the protagonists of entry, and it is evident that Britain has not benefited in these years. Indeed, we are at a time of crisis because of the massive nature of our budgetary contributions.

My right hon. Friends are resolved on their objectives, but I urge upon them a number of considerations if they need so urging. One is that there should be no compromise. I should rather that my right hon. Friend the Prime Minister failed to achieve her objective at Dublin, and returned to the House and candidly said so, than that she should present a compromise for the sake of a modest saving in 1980. The statements of my right hon. Friend the Prime Minister and my right hon, and learned Friend the Chancellor of the Exchequer make it clear that she is aiming at long-term reform of the CAP. If we have to devise a new Community that allows Britain to opt out of all the costs and consequences of the CAP, that might be for the long-term benefit of Britain and of European unity.

I emphasise that we know that the Community has virtually hit the ceiling of expenditure that it may legitimately spend from its own resources. There is talk of new systems of taxation. It would worry me greatly if new systems were to be devised to produce a solution for Britain and if we used that as a bargaining counter. Britain voted in the referendum to remain a member of the Community on the basis of the present own resources system. The tax system was clearly spelt out and there was no question of new VAT levies being introduced. Once we started doing that, we should give immense scope to the Community to spend, and spend without limit. We should not bargain away the existing limits on Community resources, and I hope that my right hon. Friends are not tempted to pursue that course.

The right hon. Member for Stepney and Poplar (Mr. Shore) put forward a proposition which worried me. He suggested that a fairer system of taxation in the Community would be one based on ability to pay. A progressive tax system for the whole Community opens up the opportunity for the Community of the future to levy considerable taxation upon member States and thereby enlarge its spending power. I hope that my right hon. Friends will reject that solution.

I commend the actions of the Government. In a few months they have achieved more than any previous Government by driving at the very fundamental failings of the Common Market. They have stated their objectives and made it clear that they will not be brushed aside. They can achieve great results by maintaining that determination. My right hon. Friend the Prime Minister is known as a person who sticks to her guns. Her guns are aimed in the right direction. I hope that she will achieve her objective in Dublin, but if she does not she should continue to strive for that same objective.

8.44 pm

Mr. Robert Maclennan (Caithness and Sutherland)

The hon. Member for Faversham (Mr. Moate) brings home to the House the stability of opinion on this issue. If hon. Members reflect the views of Britain generally, that is encouraging for those who believe that our future destiny should remain in Europe. It proves that opinion has not changed as much as my hon. Friend the Member for Grimsby (Mr. Mitchell) suggested earlier.

The line of argument advanced by the hon. Member for Faversham was consistent with his history but ultimately unsatisfactory. He seemed to be suggesting that the Government are right to adopt a tougher attitude in the negotiations but that they should eschew any possibility of proceeding towards a resolution of this difficulty which might work. It seemed that he, like a number of other hon. Members who have spoken in the debate, including my hon. Friend the Member for Blackburn (Mr. Straw), would almost welcome failure. That would be consistent with the views that they have expressed for many years. That is not a view that I share. I hope that it is not the view that the Treasury Bench takes.

This is one of the periodical occasions when the Government ask the House to participate in a debate of importance and to give its imprimatur to the negotiating posture that the Government have adopted. It is right that the House should have that opportunity, especially when it is a matter of importance, but it is regrettable that the Government have shown us so little of their negotiating position.

We did not need to be told by the Chancellor of the Exchequer of the inequity of the budget. The House has long been persuaded of that. We did not need the answers that he gave to various questions that we are led to believe have been given by other members of the Community—for example, about the importance of Britain's oil to our balance of payments. We did not need to be told that even if we were to buy European that would not resolve the budgetary problem. We did not need to be told that there are those in the Community who look with some scepticism upon the spectacle of Britain attempting to renegotiate the renegotiations on the budgetary mechanism. Those are Aunt Sallies that the right hon, and learned Gentleman erected for us to strike down.

We needed to be told how the Government propose to get our case across to the Community. Regrettably, the Chancellor failed to do that. He did not address himself in more than the broadest terms to the possible solutions to the budgetary problem. He outlined, again in the broadest terms, the criteria by which he would judge the outcome of the discussions in Dublin. He said that the changes had to be permanent and that they had to involve both payments and receipts. How little down the road does that take us towards any understanding of what is in the Government's mind.

On many matters raised by the Commission in papers that I think are relevant and helpful, the Chancellor was significantly silent. In his jest at the beginning of his speech he said that the European Parliament seemed to be more anxious to spend money than to save taxpayers' money. He seemed to be rejecting the Commission's central argument on how the problem should be tackled, which is expressed in summary form at the end of its document entitled "Convergence and Budgetary Questions" that appeared on 31 October. The document states: a significant movement in the direction of more balanced Community expenditure can only take place if there is a decision to increase the resources available for financing the budget. I do not think that the Chancellor accepts that view. Unless he comes to terms with that argument—I think that he may be forced to do so in due course—there is little prospect of his doing more than tinkering at the edges of the problem.

As the budget is now balanced, it benefits the common agricultural policy to an extent that we all recognise to be predominant. What was lacking in the Chancellor's speech, and in almost all the speeches that we have heard in support, is the recognition that for many countries the CAP is of vital national interest. It will not be a simple matter to dismantle it, or clip it, in such a way as to redress the balance between ourselves and other member countries. If the Chancellor of the Exchequer and the Prime Minister are going into the Dublin talks with that in mind, they are doomed to failure before they start.

I must dissent from the argument adopted by a number of contributors to the debate, including my hon. Friends the Members for Blackburn and Grimsby, that by putting our membership of the European Community at issue we would increase our negotiating position. I intervened in the speech of my right hon. Friend the Member for Stepney and Poplar (Mr. Shore) because I was anxious to know his view on that issue. He helpfully clarified his position. His view appeared not to be that espoused by those who have argued for that negotiating position.

The notion that this country, by suggesting the possibility of withdrawal, can increase the probability of flexibility on the part of our fellow members of the European Community is strangely Victorian and out of tune with the realities of our economic position. It seems to me that as a country with a per capita income 75 per cent, of the Community average, we are not in a position to go sabrerattling about the possibility of our withdrawal to the other eight members of the Community. It would not be entirely surprising if they were to laugh in our face and tell us to do our worst. Such an approach would invite that sort of response.

I do not dissent from the view that the Prime Minister has expressed that it makes no sense to bring this argument into the discussion at this time. Besides, we do not need that instrument to focus the attention of our fellow partners upon the budgetary problem. That is why my right hon. Friend the Member for Stepney and Poplar is right to focus on the instrument that lies to hand, namely, the future size of the budget and the own resources debate. That is clearly the key.

Whatever comes out of the Dublin summit, that larger issue lies ahead. Our co-operation will be required if this basic problem of the Community is to be resolved. That must certainly be in the mind of the Commission at this time and probably also in the minds of a number of other members of the Community. It will help to concentrate their minds on the equitable case we are advancing in Dublin, which the whole House clearly feels has to be made.

This debate may not have done much to strengthen the Government's hand at Dublin. I fear that this is not the audience that has to be addressed. There is virtual unanimity about the unacceptable consequences of the budget. I, for one, do not propose to traverse the historical ground that other hon. Members felt it right to follow. I am conscious of my own part in the past and my equally consistent views on this matter and how we reached this stage.

At the heart of the Government's case at Dublin is not only a question mark about how to present their case and which of the options to go for—the corrective mechanism, some modification of it, or a fundamental change in the common agricultural policy, which seems highly unlikely in the context of the Dublin conference, although the possibility of change, I believe, has been considerably underrated in the longer term. It has also to be remembered that, to get agreement on common price increases, there is a requirement for unanimity. Britain has not so far chosen to exercise that particular instrument to focus the minds of other members of the Community.

At the heart of the Government's position there is this question: how do they propose to go about justifying their just demands? Do they accept the need for increased Community expenditure in order to bring about a more balanced distribution of the Community's resources? Since this Government are so heavily committed to the reduction of public expenditure, I would look upon the prospect of increased Community expenditure as at least potentially offsetting some of the disastrous policies that the Government are pursuing. I hope that they will swallow their doctrinal opposition to public expenditure in their approach to these negotiations and recognise that they must come to terms with that possibility—the increase of Community expenditure as a way out of their budgetary dilemma.

8.56 pm

Sir Anthony Meyer (Flint, West)

The hon. Member for Caithness and Sutherland (Mr. Maclennan) must find it as depressing as I do to hear one speaker after another from the party of international co-operation and brotherhood not merely doing everything that he possibly can to sabotage international co-operation in one of the few organisations where it has a real future but deploring the very principles on which that co-operation must be based.

I do, however, make one exception, and that is the hon. Member for Durham (Mr. Hughes). He alone, as an avowed opponent of British membership of the European Community, had useful and constructive suggestions to make about how we might make an effective reality of that Community.

I, who will be the first to mount the scaffold when the anti-European dictatorship takes over—a fanatical and self-confessed European—believe that the British contribution to the budget is unacceptably high and give my total support to the Prime Minister's efforts to secure a more equitable contribution.

The Labour Party considers that the best way to bring this about is to threaten, and if necessary to carry out, a departture from the Community. I was saddened to hear the right hon. Member for Stepney and Poplar (Mr. Shore), for whose abilities and judgment many of us on this side have a mounting opinion, leaning so far away from responsibility as he did today.

It is as well to recall, perhaps, when we talk about leaving the Community, why we joined it in the first place. I am not at this point saying anything about the idealistic concept of the Community. I am talking crude national advantage. We joined because we considered it too dangerous to stay out.

The Conservative Government at the time made what I consider to be an illjudged—certainly unsuccesful—attempt to destroy the Community by erecting a rival free trade area. That attempt failed and, it having failed, it was the judgment of the Government of the day that the risks of staying outside the Community, of having that Common Market as an industrial competitor on our doorstep, would be fatal for the future of British world trading capacity. That was a rival against which we could not stand: we had therefore to join it.

Although I freely admit that in joining the Community we have not derived the advantages that many of us hoped to derive from it, the danger of staying outside is every bit as great today as it was when we took the decision to go in. To say that we can somehow solve our problems by coming out is to ignore the fact that our lack of competitiveness is to some extent—a small extent, but some extent—mitigated, protected, by the policies which the Community itself can follow because of its strength against competition from the outside world. One has only to think of the multi-fibre arrangement to secure that argument. There is no choice, but to stay in the Common Market.

How can we get the reduction in our contribution which all hon. Members, whether in favour of the European Community or not, accept as necessary? As the hon. Member for Waltham Forest (Mr. Deakins) and, in a remarkable and rather saddening speech, the hon. Member for Blackburn (Mr. Straw) have pointed out, we have a strong card. The fact that we contribute so massively to the budget and that we are such a good market for the other members of the Community gives us that strong card, but it is also our very weakness. I am sorry that the hon. Member for Durham is not here, as I would have liked to discuss several points with him.

The argument about the effects on the Community if Britain leaves is intellectually convincing, but it will not work. The impact of the British departure on each other member Government would be weak. In addition, they can envisage compensatory advantages. Any British departure would be shattering, not for the individual Governments but for the Community as a whole. That is why the British Government, more than any other in the EEC, have an interest in making the Community institutions effective. That is why the British Government have an interest in ensuring that the European Parliament exercises real influence over the budget.

We have already seen how helpful the influence of the European Parliament can be in that sphere. We should bitterly regret the actions taken, particularly by the previous Government, to diminish the capacity of the European Parliament. The influence of the Commission is, in general, beneficial towards us. That is no accident. The Commission, more than any other member Government, has an interest in making the Community homogeneous, united and effective.

Like all democratic Governments, the member Governments of the EEC have their own unhappy and worried producers to look after. I represent a community in which many are sheep farmers. They would very much like to export lamb to France, but I warn them to be careful and not to demand too loudly that the injunctions of the European Court should be obeyed at all cost. I have a nasty feeling that before long that Court will tell us that we have no right to keep out French milk.

The French Government must look after the interests of some of their sheep farmers, particularly in South-West France, who are scratching a miserable living from very stony soil. As a democratic Government, the French Government do not want to see the price of their lamb brought down by a flood of British or—as the French would say—New Zealand lamb imports. They dare not make any concessions to Britain.

The Germans, for familiar reasons, are keenly aware of the importance of keeping life going in the countryside of Bavaria. They are anxious that people should go out into the countryside and cultivate it. They are anxious to have subsidies for that purpose. I believe that they are right to do it, but they ought to do it with their own money and not with Common Market money. However, as long as there is a common agricultural policy member Governments are bound to try to use it for such socially desirable purposes as protecting the interests of the poor sheep farmers of South-West France and the fairly prosperous—I have to say that—stockbrokers and weekend farmers in Southern Bavaria.

The chances of getting a satisfactory long-term and stable settlement from the other member Governments are not good. I am sure that my right hon. Friend, with her indomitable resolution, will bring back a goodish package from Dublin, but if we wish the Community to develop in ways that will favour our interests in the end we would do well to strengthen, rather than weaken, the institutions of the Community.

While keeping as tight a hold as possible on Community expenditure, and trying to secure a drastic reduction in the agriculture budget, we would do well to consider other ways in which we can co-operate on a true community basis with other EEC countries, particularly on energy, where there is scope for extensive co-operation, given the French developments in nuclear energy and our vast resources of fossil fuel and North Sea oil. A common policy would be for the benefit of Europe as a whole and to the direct profit of this country.

I conclude by wishing god-speed to my right hon. Friend the Prime Minister when she goes to Dublin. If anything can be achieved there, she will achieve it, but the long-term outlook is not good unless we are prepared to make a success of the Community as a community.

9.7 pm

Mr. Ron Leighton (Newham, North-East)

I do not wish to comment in detail on the speech of the hon. Member for Flint, West (Sir A. Meyer), but I notice that he seems to be fearful about being outside the womb of the Common Market. Those fears do not afflict the Norwegians, the Swedes, the Austrians or the Swiss, all of whom seem to have survived outside the EEC.

The hon. Member for Eye (Mr. Gummer) said that if we were not paying huge sums into the Common Market budget we would be making deficiency payments to our own farmers. There is a difference. Deficiency payments are net transfers internally to our own farmers to keep food cheap. The payments into the Common Market budget are across the exchanges, to the detriment of our balance of payments, and are paid to foreign farmers to keep the price of food high. I hope that even the hon. Member for Eye appreciates the difference.

Like my hon. Friend the Member for Blackburn (Mr. Straw), I never expected to see the day when I would agree with virtually every word in a speech by a Conservative Chancellor of the Exchequer. But that happened today. The right hon. and learned Gentleman's remarks were slightly different from what he was saying some years ago, but there is joy in Heaven over a repentant sinner. We were pleased to hear what the Chancellor said. No doubt he has been converted after listening to my right hon. Friend the Member for Stepney and Poplar (Mr. Shore).

Of course, the budget causes only part of the damage being done to Britain by our membership of the Common Market and it is not even the most important part. I received yesterday a written answer showing that, in trade in manufactures last year, we piled up a deficit of more than £3 billion with the original six members of the Common Market. Fortunately, we had a surplus on manufactures with the rest of the world of more than £4 billion. This country is being swamped—to use a favourite word of the Prime Minister—by imports from the Common Market, and that is damaging our economy and pushing up unemployment. We are becoming almost an economic colony of West Germany.

However, we are discussing the budget. Confusion arises because it is not a budget. In most budgets, to use jargon, there is "progressivity" and they are redistributive. Areas and people pay in according to their means. The poorer areas pay in least, receive the same level of services and thereby benefit.

The preamble to the Treaty of Rome talks of harmonious developments by reducing the differences between various regions. If the Community was working towards convergence and the budget was a normal one, we should be gaining and not paying in. There would be a transfer of resources from the rich areas in Britain. The exact opposite is happening. Poorer countries such as Britain are paying in to subsidise the rich, and that is regressive. Instead of convergence, the disparities are growing and are exacerbated by the budget.

The budget is different, first because of the bizarre, nonsensical and unfair methods of raising revenue. Secondly, it is different because of the lunatic usage of its expenditure to prop up the CAP. I believe that the Chancellor said that he was astonished when he first looked at the figures to see how high they were. I am astonished that he was astonished. He referred back to 1970–71, and, with the indulgence of the House, I shall refer to documents issued at that time.

I have here a document from 1971 when the right hon. and learned Gentleman was taking a rather different view. Britain originally offered to pay 3 per cent. of the Community budget in the first year. On 12 January 1971, Sir Con O'Neill, Britain's chief deputy negotiator, said that that was 'fair and even generous' and 'a reasonable position on which to conclude the negotiations.' He asked his EEC colleagues to consider the significant transfer of resources across the exchanges from the United Kingdom to the Six that British entry would mean. That transfer included Britain's contribution to the Community budget, as well as the large cost of importing a much greater volume of food from the Six at much higher prices. Sir Con said that any unreasonable contributions across the exchanges would force the Government to adopt economic policies that would prevent the United Kingdom deriving any benefit from EEC entry. I notice that the right hon. and learned Member for Hexham (Mr. Rippon) is not here. It is noticeable that those responsible do not come along and boast of the wonderful things that have come to the country through their efforts in those years. The right hon. and learned Gentleman settled for 9 per cent. in the first year.

The documents goes on to say that During the transition we should at least know the worst because our contribution would be in percentage terms. After that we should be subjected to what is called 'automatic financing' and would pay over to the EEC the whole of our food levies, customs duties on goods imported from outside the EEC and a percentage of value added tax. As we are the largest importer of food and as we do more of our manufactured trade with the rest of the world than with the EEC, it is certain that the budget payment would fall disproportionately heavily and unfairly on Britain. We should pay in most and draw out least. It would be a glaringly unjust system and one can only marvel at the political nerve of a Government that can ask Britain to find hundreds and millions to bolster up the biggest lame duck in history—the continent's agriculture. At the risk of boring the House, I shall read a passage from the 1972 pamphlet: But what would load an intolerable burden on us and lead to a constant drain of our wealth and resources to the Continent is the method of financing the Community budget. This system is monstrously unfair and penal to Britain. Those were the three taxes to which I referred. The document continued: Britain would be expected to pay in roughly as much as the others put together. After the transition period, Britain would be paying in some £500 to £600 billions per annum, rising thereafter, from which we should get nothing in return. One can search the annals of history without finding an example of a nation agreeing to pay this sort of ransom every year. I suppose that modesty should forbid me from saying who wrote that. Nevertheless, it was myself. I left school at the age of 14. The Chancellor of the Exchequer, with his legally-trained razor-sharp mind, was astonished. Why was it not obvious to him when it was obvious to everybody else?

Why were people so misled at the time? I can only assume that, particularly in the Conservative Party, policy goes by fashion and fad. Whatever the leader of the party thinks at the time becomes fashionable. The Government were then led by a person whom some of my hon. Friends have referred to unkindly as a "Euro-fanatic". We do not see a great deal of the right hon. Member for Sidcup (Mr. Heath) these days when such matters are discussed. He negotiated with President Pompidou. President Pompidou adamantly laid down the finance regulations, saying "You sign on the dotted line or you do not come in". The right hon. Member for Sidcup appeased President Pompidou almost like Chamberlain at Munich. He completely surrendered the British position and we are now suffering the results. His successors have to pick up the pieces. Perhaps it was felt at the time that the trade benefits would outweigh other disadvantages.

What is the present position? Again, I compliment the Government Front Bench, especially the Treasury team. I compliment the Financial Secretary on his evidence to the Select Committee. He presented that with the utmost clarity, and I admired his candour. He said that The United Kingdom alone among the three poorest of the nine EEC members would be a net contributor". He explained that it is the net contributions that are more important and that we should forget the gross contributions because they do not matter. He explained that the United Kingdom presently pays two-thirds of the gross contributions to the budget. The Germans, with a standard of living that is twice ours, pay one-third of the net contribution, France breaks even and every other member is a beneficiary.

I can do no better than to read the Financial Secretary's words: To the Government, this imposes a quite intolerable burden. If the United Kingdom economy and the Community budget both continue to grow at the rates experienced between 1974 and 1979, our steadily increasing net contribution will each year pre-empt half the total increases in our national resources. It has been a major factor in eliminating the invisible surplus we have enjoyed for 30 years. No British Government could accept such a drain on our national resources, least of all at a time when the British people are being asked to forgo improvements in public services at home". I agree with every word. The Financial Secretary put it much better than I could have done. What are we to do about it? Someone says that we should reform the CAP. How often have we heard people say "Reform the CAP"? For how many years have we been inside? Where are the reforms? We all know that the CAP is getting worse. We all know that it is getting more expensive. The CAP is the cornerstone of the Common Market. The CAP is kept going by British membership because we are the second "stomach" to absorb the food surpluses. Were it not for our contribution, the CAP would have broken down before this.

How are we to reform the CAP? I could do it if I were the single arbiter and had the power. I would do four things. First, I would lower all prices. Then, I would abolish intervention. Then, I would open our ports to food from the outside world and say to those countries which are worried about the sheep farmers on the hills or the Bavarian dairy farmers "If you want to subsidise your people, that is fine, but do it out of your own subsidies." Sitting in the Chamber is an hon. Member who once explained the CAP by saying that it was a method by which the ruling parties on the Continent bribed sections of the agriculture community to vote for them. He said "I have no objection to that. I object only to them using British taxpayers' money to do it." I do not know whether the hon. Member will remember having explained that to me, among others.

The reform of the CAP that I have mentioned will not be done, because the others will not agree to it. There is absolutely no chance of that. Certainly, we shall not reform the CAP next week in Dublin, so that the option which everyone keeps bringing out—"Let us reform the CAP"—will not happen. The CAP will not be reformed and there is no chance of that being done next week. Were it to be done, it would be a very long-term job.

What else can we do? Someone says we should increase what we get out and have a massive increase in the regional and social funds. At present what we get out is derisory, but this, again, is a myth. It is completely unrealistic and there is no chance of ever doing that, and certainly no chance of doing it next week. We do not want a larger budget, do we? We cannot spend our way out of this problem, and the benefit we get from the regional fund is the difference between what we contribute to it and what we get out of it. That is extremely marginal. With the three new member States that are coming along, it is very doubtful whether we shall get anything out of it. There would have to be the most massive increase in the budget and the regional fund for us to do so.

I come to the end of my remarks and say that in the long term we could alter the revenue taxes. We could alter the expenditure, and that means dismantling the CAP. It is running out of money. We shall soon have that opportunity, but I say that we cannot wait. We have to do something, as the Chancellor of the Exchequer said, this year. It has to be done this year and it has to be done next week. The right hon. Lady the Prime Minister has put her reputation on the line. She has built up expectations. She has our best wishes. If she cannot do it that way, how can she do it? There will have to be a new corrective mechanism which will reimburse Britain for the inequality of our payments. The chances of doing this are rather slim. There are elections coming in France and Germany.

The Treasury Bench has said that our payments are unacceptable. What does that mean? If something is unacceptable, one does not accept it.

I have just read out what was said by the Financial Secretary—that the position is intolerable. If something is intolerable, what does that mean? It means that we do not tolerate it. If the right hon. Lady really wants to wear Sir Winston's trousers, she has to go there next week and say very clearly that this is something up with which we shall not put.

The EEC moves by crises. Those of us who have studied its development have found that the major developments have come as a result of crises. I think that the Treasury Bench has been intimating that we have come to a crisis point, and I think that we have.

I am an admirer of the Prime Minister in very many ways. No one doubts her courage. She must take her courage in both hands and take unilateral action. She must say that our contribution is unacceptable and that she will put a cash limit on what we pay in. She must say that unless the other EEC member States come to their senses, she just will not sign the cheques and she will refuse to hand over taxes in excess of our receipts.

I urge the right hon. Lady not to be frightened by those edicts about which she talked which come from the Community court. Some of us do not like that court at all. We see it as an instrument of federalism. We do not want judicial decision in political affairs. We believe that this Parliament should be the highest court in this land. But if, in a few months' time, the Community court sends us an edict, we shall get it through the post and look at it, and we shall see what view we take of it. Perhaps we shall consult the French on how to deal with such edicts. However, I ask the right hon. Lady not to be frightened of getting any edicts.

If the right hon. Lady succeeds, she will have the full support of the nation. If, however, like the Duke of York, she marches us up the hill and marches us down again, if she gets just a few hundred million pounds or some such cosmetic and then says "That is the best that I can do. We must wait for years until the CAP is reformed", and so on, inevitably a growing number of people will say "This cap does not fit us" and we shall have to come out and exempt ourselves from it.

9.27 pm

Mr. Stuart Holland (Vauxhall)

In the previous debate attention was drawn to the size of the agriculture budget in the total spending of the Community, but it is not clear to me that attention has also been drawn to the minuscule size of spending in other areas, such as the regional and social funds. For example, in this case, not only do they account for less than 6 per cent. and 5 per cent., respectively, of total spending but they are actually equivalent only to what the Community spends on administration.

The problem of the agricultural fund has been well highlighted and analysed by several previous speakers and I do not intend to repeat several of the forceful arguments that have been made. However, I wish to stress the point that we were told in the 1960s that the Mansholt programme would go ahead and would take some 5 million or 6 million hectares out of production through incentives to small farmers, and that thereby we would get a crucial reform of the CAP, reducing the number of farmers in work in the Community. In practice, over the 10 years since that so-called reform, which was never effectively introduced, the number of farmers has reduced in line with what the so-called reform indicated would follow from its action, but prices and price support have not reduced.

The problem of the hill farmers, in this country or particularly farmers in other Community countries, is serious. It is especially a problem for the Governments of those other countries. But one thing that has not even been seriously considered in the reform of the EEC's budget is changing the overall general price level for food products. In other words, even the much-lauded Mansholt reform did not consider bringing down prices and dealing specifically with problems of, for example, the small peasant or tenant farmer in the Community, who, allegedly, is the great drag on resources and prevents the reduction of prices.

Agricultural employment in 1950, expressed as a proportion of the total employment in the EEC Six, was way over one in four workers. It is now down to less than one in 10 workers. There has been a profound switch from a substantial rural vote, with its influence on elections in those countries, towards a situation where now the vote in those countries is predominantly urban. It is not simply our consumers in this country, with an even more urbanised population, who are suffering from the CAP. The consumers in the EEC countries are also affected. For well over a decade in which the CAP has been in effect for the main range of community products, no proposal has been put forward for reform which admits the case for bringing the price level down to the average costs of the efficient farmers in the Community and using the social or regional fund to make a direct income transfer to the lower-income, small-scale peasant farmers.

Frankly, I share the view of many Members who reckon that the agricultural policy will not be reformed. I am forwarding this argument precisely to show that if there had been a serious will to reform the CAP this kind of policy could have been introduced in the intervening 10 years. Recognising that backward farming in many Community countries is as great a problem as the backward industrial regions in our country, there has been no admission of the feasibility of bringing down general price levels, saving a vast proportion of the total spending that goes on the agricultural budget, by specific income transfers to marginal farmers.

I give one fact that shows the feasibility of a policy that has been ignored. Some years ago the average age of farmers in the Community was already over 55 years. There was strong ground for saying that farmers over 55 should benefit from something within the category of a social security transfer, a pre-retirement payment, or a retirement payment 10 years before retirement. It would have been possible to administer that.

We were told—it is arguable enough—that originally in the Community, when it had a higher proportion of the working population in agriculture than ourselves, our deficiency payments system would not have been operable. A deficiency payments system which entails specific limits to the production subsidised by the income transfer needs to evaluate each production unit on some kind of rolling basis. Whereas that argument may have made sense in the Community when it was running its own policy in the late 1950s or the early 1960s, it does not now make sense now when less than one in 10 of the working population of the Community are employed in agriculture.

We must face the fact that the overall record of failure to reform the Community in these respects—despite many of these proposals having been made over the past 10 to 15 years—is an indication of what we may expect in the near and medium-term future in the Community.

First, it is extremely difficult to forecast that the Community will implement directly sensible policies of this kind. Secondly, it is difficult to see how it can cope with the increasing problems of regional imbalance in the Community. That is not simply because the regional fund is only 6 per cent. of the total fund. I refer to the expected 1980 figures on the distribution of the budget. Some hon. Members—and some members of the public—have argued that if only there were an effective regional policy in the Community, it would bring funds back to us in Britain with which to regenerate our inner cities and industrial structure. But it is not a matter of what fund alone, or what scale of fund, but whether that fund actually works.

The irony here, as with so many other aspects of Community policy, is that we have found from our own evidence that simply giving incentives to enterprise to move into less-developed or derelict areas does not bite on those enterprises most needed in those areas. The evidence given by some of the largest companies in the Community to the Trade and Industry Sub-Committee of this House on regional development incentives clearly showed that.

Further, the regional fund does not bite on these companies, because they are not "European". We hear a great deal of argument about how we have to be in Europe because otherwise we are nowhere. But the plain fact is that the companies that dominate the employment and output structure in the Community—we now have, quite dramatically, about 100 firms that represent about 10 per cent. of the output and employment in the EEC—not only have access to labour in Scotland, South Wales or Southern Italy but, over the past 10 years, have invested in South-East Asia or Latin America, where the cost of labour is one-quarter to one-tenth of the cost of labour in Western Europe.

Here I cite the evidence of the financial director of the Burroughs Company in his evidence to the Expenditure Committee, when he said that, faced with such labour costs in those countries, they discount regional development incentives in their overall global locations.

There are two lessons to be drawn from this. One is that the regional policy arm of the Community is presently fractured. Doubling its muscle power will not actually pull jobs into the regions. Doubling the spending on the regions in the budget will not actually do the job. The second, and the very central weakness of the Community's present policy, is the fact that capital, as a whole, is already global and multinational in its range and scope and is not simply bound or influenced by what happens at a Community level.

This is a major problem that is not adequately faced by those who argue, on past historical evidence, that West Germany, France or other countries did well out of the EEC while we did not. It is an argument that is central to the case against harmonisation of EEC policies on the assumption that if we equalise, for example, tax rates on VAT in an expanded EEC budget, and then have a large internal market in the EEC for the competitive process, we shall thereby regenerate British industry.

In an earlier intervention I commented that West German industry is quite differently structured from ours. The West Germans and the French are mainly exporters of goods, whereas, unfortunately, in this country, we have been mainly exporters of enterprise. In this structural sense, we are five times more multinational than West Germany, and the value of that investment is more than double our total visible export trade.

These kinds of structural factors, which are not in any sense aided by harmonisation, conditions of tax rates or budgets within the EEC, are central to our economic problem. Our economic problem is not due to the fact that we are or are not in the EEC. The average industrial tariff for the EEC, following the Kennedy round, is only 4 to 6 per cent., and big business in this multinational league admits that it can cope with any tariff of 40 per cent., or even 400 per cent, if it wishes to, by getting behind it, going round it or going underneath it, through techniques such as transfer pricing. The competitive model of the EEC is not mid-nineteenth century in its approach to realities but eighteenth century. It is based, as Walter Hallstein, its founding father has stressed, on the economic philosophy of Adam Smith, which he claims has not changed much in its relevance for over 200 years.

The structure of European and British capital has been transformed in the past 20 to 30 years, and this poses the question whether we can achieve a degree of effective accountability and control over that capital. The problem of whether we can plan at a European level has not been answered by the EEC terms of reference or by incentives in the Community budget.

The key issue in budgetary policy today should not only be whether we support an EEC budget as such but what we do with our budget. We are in the lamentable situation where the EEC, having escaped the "beggar my neighbour" protection of the 1930s model, has substituted a type of "beggar my neighbour" depression or deflation. Faced with the challenge of the economic crisis of the mid-1970s, which has been the central economic challenge to every Western European Government, the EEC has totally failed to respond effectively by using its budget or by co-ordinating or encouraging joint reflation or expansion of public spending by the member countries of the Community.

If we are seriously interested in increasing world trade in order to increase employment, income and welfare, we should be concerned about the level of trade and not just the level of tariffs. We have low tariffs and a trend towards harmonisation of budget structures, but we are not actively using our budget in general economic policies. Once again the Community's approach is effectively pre-Keynesian. This approach is similar to the Mansholt proposals of the 1960s, which clearly failed.

Ironically, when recommendations are made to the EEC, whether by the Marjolin committee, in the fourth medium-term policy report of the Community or in the specific inflation report to the Community by the study group on structural factors of inflation, and when the case is made that the way out of this slump is for Europe to spend its way out, how does the Commission react? Obviously there is an international dimension. We can avoid the situation in which we beggar each other by the depression of internal demand. But, when told this, what is the Commission's reaction? The Commission was actually so appalled by the apparent radicalism of the study group in arguing joint reflation at the European level that it failed to give a press release on the report, locked it in the cupboard and would not even distribute it to members of the European Assembly.

What kind of European Assembly is it which cannot get the right to discuss or debate what is in a Commission document? Karl Liebknecht put it rather well when he spoke of the Bismarck Reichstag as the "fig-leaf of absolutism". What we have in the European Assembly is a fig-leaf for bureaucracy, technocracy and the centralisation of capital.

In this context I must take issue with the remarks of the hon. Member for Flint, West (Sir A. Meyer), which were totally unacceptable, even allowing for the hon. Member's personal use of hyperbole. He argued that he would be the first to mount the scaffold when the anti-European dictatorship took over. I restrained myself from intervening during his speech to ask him what he meant by "dictatorship". If, by implication, he means that being out of the Community is bound to give rise to dictatorship, I would disagree with him. I draw his attention to the views expressed by many people in countries such as Greece, Spain and Portugal who are very concerned about the economic costs that will be imposed on them by joninig the Common Market. They believe that these could well undermine the political base of democratically committed Governments and thrust them back once more into political instability—which some have suffered for a long time—and even directly into Fascism.

To give simply a reference to the question of the budget, and the enlargement of the budget, to a Community of 12, at a recent conference which I attended in Lisbon, organised by the Gulbenkian Foundation, a wide range of international specialists were asked to comment on the impact of Portugal's entry into the EEC. Not a single member of that conference—including the governor of the Bank of Portugal, or Pierre Uri, one of the three authors of the Spaak report, which was the draft document for the Rome Treaty—was prepared to argue that in economic terms Portugal would gain from entrance into the Common Market.

The fear expressed by a political commentator from this country on Portugal's prospects was that if she went into the Common Market, even with an expanded budget, the small and medium farmers from the north of Portugal whose productivity is a third or a quarter below that of even French farmers would lose so badly on entry that there was a considerable prospect not only of a Poujadiste backlash among those farmers but of support for Fascist and isolationist policies. These are the elements—in countries which have recently known dictatorship—which are ignored by too many hon. Members in their approach to the Community.

I reject the argument that the Labour Party talks internationalism and yet is anti-internationalist because some of us are opposed to the Community. The terrible feature of the Community is that it is international simply for one—

Mr. Deputy Speaker (Mr. Bryant Godman Irvine)

Order. The hon. Gentleman should not overlook the fact that we are discussing the budget of the Community.

Mr. Holland

I am grateful to you, Mr. Deputy Speaker, for pointing that out. However, I must stress that the budget of the Community and what happens to it, along with enlargement, are directly relevant. For example it is debatable whether, on enlargement, those who, it is sometimes claimed, will be beneficiaries of budgetary policy, and, therefore, a cost to use, would actually be beneficiaries from enlargement. I do not elaborate on the case. I stress that those who are interested in a range of views on the impact of entry on a country such as Portugal will find that the internationalists in Portugal are concerned because they feel that entry may destabilise rather than strengthen their democracy.

What are the alternatives to the EEC? There is cheaper food. There also is the question of the loss of industrial tariffs, but they give us an advantage of only 5 or 6 per cent. The cheaper food argument has been well put, as has the Scandinavian point, and I will not elaborate on them. The fact remains that one of the wider-reaching and potentially most effective organisations in the world where we should be thinking of joint budgetary policy is OECD. By including countries such as Japan and the United States, OECD includes the main actors in world trade and world employment.

There is no hope of the EEC—even if it were to transform its budgetary policy at Dublin, or thereafter, into a more active public expenditure policy—singlehandedly resolving the crisis in the world capitalist system. Several Opposition Members would argue that even an active budgetary policy in itself could not do more than recover that system in the short to medium term without more fundamental structural changes. The argument, voiced by several hon. Members, that there is no alternative for us but to stay in the EEC or face the alternative political cost is weakly based.

I maintain, in particular, that the common agricultural policy on which three-quarters of current and projected resources are to be spent is nominally irreversible, in practice inflexible and in principle indefensible.

If we do not cope with the common agricultural policy, I think that the Prime Minister, in Dublin, will not achieve a very significant change in the distribution, incidence and cost to us of the common agricultural policy. I suggest, following the remarks of my hon. Friend the Member for Newham, North-East (Mr. Leighton), who made an excellent intervention, that the Prime Minister should take a note of the policy pursued by the French Government between June 1965 and January 1966—the policy, in effect, of the empty chair, of withdrawing from the Council of Ministers and of ensuring that no Community business can go ahead in other respects until the unacceptable and intolerable burden on this country, with its negative effects on others in an enlarged Community of possibly 12, is remedied immediately.

9.50 pm

Mr. Frank Hooley (Sheffield, Heeley)

We have been told that this debate is supposed to be about the budget. I shall therefore try to stick fairly firmly to the budget in the few minutes that I want to use to contribute to the debate.

The House is virtually unanimous that the British contribution of £2,181 million gross—21.33 per cent. of the contributions in 1980—is grotesquely high and totally unacceptable, and, equally, that our net contribution of about £1,200 million in 1980 is unacceptable. There is no difference between the Front Benches or, happily, the Back Benches on this issue.

It is perhaps worth looking at the grotesqueness of the structure of the budget itself, quite apart from the overall figures concerned. This is rather neatly set out in the table on page 5 of the Treasury memorandum dated 22 October. That shows fairly succinctly the main levels of expenditure under different heads, which are not too difficult to convert into sterling, because one just needs to multiply by two-thirds. Obviously the figures are not exact, because we have this unfortunate merry-go-round between the Council, the Commission and the Parliament and back to the Council and round to the Commission and so on—round and round the houses ad nauseam. However, the general pattern is clear enough from that table, and it is worth quoting.

The cost of the bureaucracy—the administration—will be about £388 million. The cost of the social fund will be about £232 million. The cost of the regional fund will be about £352 million. The cost of agriculture will be £7,466 million. The contribution to what is called "industry and energy", which one might have thought in these days was a matter of some importance, is £50 million—about two-thirds of 1 per cent. of agriculture expenditure. What is classified as "research and investment" comes out at £184 million, which again, I suppose, is about 1½ per cent. or 2 per cent. of agriculture expenditure.

It is worth while rehearsing those figures even though they are not exact—plus or minus £20 million here or there—because of the various adjustments to addenda 1, 2 and 3 of the preliminary and the draft of the pre-preliminary budgets that go through this curious merry-go-round. However, that is broadly the structure of the budget, and it deserves a bit of comment in its own right.

The CAP, which costs £7½ billion, is not only chaotic, damaging and indefensible internally within the Common Market, but some aspects are causing grave annoyance and alarm internationally. The cost of dumping sugar in the international market costs our taxpayers £300 million or £400 million a year. The dumping of that sugar is having alarming repercussions on some Third world countries which depend very much on sugar exports for the strength of their own economies and whose attempts to construct an international sugar agreement are being destroyed by the selfishness, short-sightedness and stupidity of the sugar beet growers within the Community who are massively financed by us to grow sugar that is unnecessary, and then massively financed again, to the ruination of peasant farmers in the Third world whose standard of living is about one-tenth of ours. That is one aspect of the CAP and the budget that needs to be stretched more and more. It is a classic example of the international as well as the internal stupidy of the agricultural structure.

The amount available for expenditure on industry and energy is £50 million. One would have thought that, if the Common Market budget meant anything, there should be some reasonable level of expenditure in a great industrial complex of nine countries. I suppose that £50 million would just about buy a couple of modern aeroplanes. That is all that the Community can apparently spare in its budget for the vast areas of industry and energy with which it is concerned.

Then follows the section on research and investment. I am afraid that I have not had time to study all the 300 or 400 pages which have been presented to us on this subject, but I should have thought that, out of a gross budget of between £10 billion and £11 billion, a little more than £184 million could have been found for research and investment. But that is all that is provided.

It has been suggested in various quarters that if the United Kingdom is doing badly out of the agricultural and other arrangements, perhaps the regional fund could balance that out. Considering that the regional fund amounts to only £352 million—4 per cent. of the expenditure on agriculture—there does not seem to be much prospect of getting much of our money back.

There have been proposals—I understand that they originated in the European Parliament—for substantial expansion of the regional fund. The Governments of France and Germany have made it clear that they will not tolerate any expansion of the regional fund. The proposals for expansion have been firmly turned down by the Council. The most vigorous protagonists for turning down an expansion in the regional fund have been the representatives of the Governments of France and Germany. It is clear that one can expect no amendment or rationality in the budget in that direction because the two most powerful political members of the Community have not the slightest intention of permitting it.

The social fund stands at a miserable £232 million—roughly two-thirds of the cost of the bureaucracy. How seriously can one take a budget in which the social provisions and all the complexities of social difficulties, restructuring and so on of nine countries with 280 million people are to be provided out of the miserable sum of £232 million, and when there is a 2:1 ratio in favour of the bureaucracy as against expenditure on social ends?

It is abundantly clear from even the crudest analysis of the budget that it is not in any sense a Community budget as one would understand it. It is simply a device for financing an agricultural policy which takes up about 70 per cent. of the funds available—in other words, two and a half times the amount of expenditure on every other item in the budget.

The Commission has produced a document "Convergence and Budgetary Questions" in response to a request from the Council of Ministers for something to be on the table in Dublin. One of my hon. Friends complained that these documents were in Community gobbledegook. He could not understand them and found them heavy going. That is true of some of the documents, but not of this one. This document is lucid and candid. In page 1, paragraph 4, it states: From the outset the Commission wishes to stress the fundamental principle that in considering approaches to these problems neither the legal framework of the Community nor the Community's policies should be called into question. That is categoric: neither the legal framework which presumably means the apparatus of considering the budget and the rules for its income and so forth— nor the Community's policies should be called into question. There is only one Community policy in the real sense—the agricultural policy. The Commission makes it abundantly clear in that sentence, and goes on to explain throughout the document, that it has no intention of allowing the Community's policies—the agricultural policy is the core of all this—to be called into question. Clearly, from the Commission's point of view, it is not prepared to do anything practical about the budget.

Mr. Maclennan

Has my hon. Friend noted paragraph 43(1), which goes into greater detail on the Commission's attitude to the common agricultural policy? It states: The Commission considers that the Community must take drastic measures to reestablish a structural balance in the dairy market". It then refers to the Commission's attitude to sugar. I do not think that the summation at the beginning is fulfilled in the later part of the document. It seems that the Commission is seized of the point being made by my hon. Friend.

Mr. Hooley

The Commission is not querying the structure of the CAP. It may be prepared to fiddle about with milk subsidies and to make the sugar subsidies a little less obscene than they are, but the main CAP is not called into question. Any reading of that document makes that crystal clear.

The document suggests various methods of tinkering about with income and expenditure, but it is clear that the Commission does not propose to change the main structure of the budget. If that is so, there will be no solution to the United Kingdom's problem. The Commission makes clear in the document that it is worried that the Community will run out of what is called its own resources. It will hit the ceiling of agricultural levies, customs duties and VAT and the agricultural policy, which is rapidly getting out of hand, possibly in 1980—certainly in 1981. That is the factor worrying the Commission, not the imbalance in the contributions of individual member States. Indeed, it goes out of its way to point out that it is wrong to consider any calculation of balance between individual member States. There is some splendid, glorious Community aspect involved and individual member States' contributions in and out are not matters with which the Commission considers it should be bothered.

Another suggestion emerging from the document that is worth close study is that the problems are only temporary. Provided we enforce the European monetary system and push on ruthlessly with Community policies: apparently the thing will iron itself out. The suggestion appears to be that there is no reason to get too upset about this perpetual whining and complaining by Britain; just push on with Community policies, stick to the CAP, develop the EMS and so on, and all will turn out well. That is the tenor of the document which has been prepared specifically for the Dublin summit. The problem is not a matter of tinkering—or, as we say in Sheffield, teeming and ladling.

The fundamental problem is that the nature of our economy does not fit into this system. We have developed an economy based on world trading, on buying our food in the world markets and, incidentally, buying our industrial raw materials in the world market. We could not obtain the materials from the Six even if we wished to do so.

The Commission goes out of its way to say that there has been a 10 per cent. increase in trade between Britain and the Six. That is correct. The figures over the past few years have risen from about 32 per cent. to 38 per cent. Those who quote the figures seem to be indifferent to the fact that that means that 62 per cent. of our trade is with the rest of the world. Because of the structure of our budget system, which is based on food levies and customs duties, the bulk of our trade is with the rest of the world, and we must be automatically the largest contributor to the Community budget. There is no way round that.

Two speakers from the Government Benches have suggested that those who are critical of the Community in its financial arrangements are in some way desirous of destroying the EEC. That is nonsense. I have been hostile to the idea of British membership of the Common Market for as long as I have been involved in the argument, but it has never entered my mind that there is anything wrong with a free association between Germany, France, Italy and the Netherlands if that is what they wish and if they feel that that is to their advantage. If we were to withdraw and they wished to continue, so be it. Sweden, Norway, Switzerland and other countries have existed perfectly happily, and with a higher standard of living than Britain, on the periphery of the Common Market.

Mr. Russell Johnston

How is it possible to compare a country such as Norway that has a population of 3 million with a heavily industrialised country such as Britain, with a population of almost 60 million?

Mr. Hooley

I think that that it is perfectly possible. We should devote our minds rather more to our fundamental problems, which lie with industrial investment and the need to achieve better industrial relations and modernisation of our industries, instead of destroying organisations such as the National Enterprise Board, indulging in economic policies which involve a 17 per cent. bank rate and other such lunacies. Those are more important considerations than Britain's membership of the Common Market.

We cannot make a success of our economy while we are carrying the burden across the exchanges of a £1,200 million contribution to the EEC, with another £1,000 million overseas expenditure on military purposes, such as the British Army of the Rhine and garrisons abroad. We are carrying a burden on the balance of payments which completely wipes out the advantage that we derive from North Sea oil and gas. If that is allowed to continue, we shall have no chance of restructuring our industry and modernising our economy to enable Britain to compete successfully in the markets of the world.

10.10 pm

Mr. Denzil Davies (Llanelli)

We have had a somewhat unusual debate as regards EEC debates generally. There seems to be almost complete unanimity on both sides of the House and in all parties about the iniquity of Britain's contribution to the EEC budget.

The Chancellor of the Exchequer spoke positively and assertively. I thought that he made the right statements. They were statements with which we could all agree. I found the right hon. and learned Gentleman to be rather too positive and too assertive. I began to wonder why such a good advocate was putting his case so strongly. Apart from positive statement, we did not get much by way of content. We did not hear very much about how the Government propose to proceed. I accept entirely, as my hon. Friend the Member for Caithness and Sutherland (Mr. Maclennan) said, that the Government are negotiating and cannot declare their hand. However, I had the impression that there was not much of a hand.

The financial mechanism can be rejigged to provide another £350 million because of the present balance of payments constraint. I accept that that is fairly easy. However, it seems that the Government are saying "We shall accept anything. All we want is more than £350 million." There seem to be no positive ideas about how that is to be achieved, apart from a reference to some of the ideas that have been put forward by the Commission. I do not know what the Government are proposing. I suspect that at the end of the day they may accept anything to get themselves out of a difficult corner late at night during the meetings at Dublin.

The problem that we are debating is set out fairly clearly in the Treasurer's explanatory memorandum COM (79) Final. In the bottom part of the table that appears at the end of the document, it is calculated, rightly, that MCAs are of benefit to the exporter. That is probably generally agreed. There was a time when it was not agreed. However, even among the other member States, and certainly in the Commission, there is a general feeling that MCAs are of benefit to the exporter and cannot be computed as a benefit to us. The table makes it clear that in 1980 Britain will be the largest single net contributor to the Common Market.

I find the table interesting. If we ignore the French contribution, there are only two net contributors to the Common Market. Of the eight member States apart from Britain, there are only two countries that make a positive contribution. When we were debating these issues during the passage of the European Communities Bill, Conservative Members, and especially Ministers, tried to liken membership of the Common Market to that of a club. I found it not a good analogy, but, bearing in mind the transfer of sovereignty that was taking place, the idea of a club was a good one, certainly from the point of view of Tory Members.

The Common Market is a funny club. There are two members who pay all the subscriptions while the other members are paid for being members. That is the reality that we are facing in the EEC. We rightly claim that West Germany is a wealthy country. No doubt, it will be remembered at Dublin that the West Germans are the second largest contributors and that apart from Britain no one else is contributing anything.

If the documents before us show the position clearly, the position was shown more brutally and starkly by the public expenditure White Paper that the Government published some time ago. The White Paper sets out a figure of £1 billion. I believe that the contribution is greater, but there must be an overlap of different years. I am not sure about that. The hon. Member for Inverness (Mr. Johnston) seemed to think that £1 billion was not much money. I remind the hon. Gentleman that it is four times the amount that the Government are seeking to obtain by reducing provision for transport for schoolchildren and reducing provision for school milk and school meals. Next year, that provision will be cut by £250 million. We have a figure of public expenditure across the exchanges of £1 billion, four times the amount of the essential cuts, and I suggest that that is not a small amount. Surely the hon. Gentleman recognises that, bearing in mind the constituency that he represents. His constituents, especially, will be suffering from the public expenditure cuts.

To add insult to injury, that money goes to other countries. It enables them, no doubt to maintain a higher level of public spending, or they can do whatever they please with the money. The money goes to our competitors. The Treasury is very precise in the public expenditure White Paper. I notice that the £1 billion is put under the heading of overseas aid. The Treasury could not find anywhere else to put it. It was rightly put under overseas aid. The Chancellor of the Exchequer shakes his head. I have checked several times. The matter appears under overseas aid in the public expenditure White Paper. There is an indentation and a kind of sub-heading to the overseas aid heading. It is a correct description. The money is overseas aid to our major competitors.

The motion that the Government have put before us today seeks the support of the House for the Prime Minister in her determination to secure the objectives approved by the House on 16 July. Hon. Members who were present at that debate will remember that more than objectives were approved. The debate endorsed an amendment that the Opposition put down. I should like to place that amendment clearly on record. It urged Her Majesty's Government, in view of the United Kingdom's massive and ever increasing net contribution to the Community Budget"— these are the vital words— 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. That amendment called for two things, both linked. It called for a fundamental reform of budgetary arrangements, thereby producing at least a balance and, hopefully, more than a balance in terms of our contributions. I notice that the Treasury cleverly did not seek to endorse the amendment. By a clever piece of drafting it sough to endorse the objectives approved. But this House does not approve objectives. It approves amendments. It approved that amendment. I do not want to make too much of that point. There is some difference between us in relation to the terms of that amendment.

The difference is this. The Government have accepted the principle, at least, of broad balance. We have heard a lot in the debate about juste retour. It seems to me that broad balance is a fair translation of juste retour. I cannot see that it is very different. I am glad to see that the Government have now accepted that there must be some kind of equality and justice of return and that this is what they are pressing for. During his visit to see the Prime Minister, the French President said that we should not press for juste retour. As the debate has shown, however, the French have got it to the tune of £12 million to £15 million. Every year, probably, the French manage to keep a balance between their budetary contributions and receipts. I do not think that President Giscard should come to Britain and say that we should not aim for the same principle.

Sir Anthony Meyer

I do not think that the concept of juste retour is at all the same as broad balance. When the Commission says that it deplores juste retour, it means the doctrine that everyone must get back exactly what he put in. When my right hon. Friend talks about a broad balance, she means, roughly speaking, that we must get advantages commensurate with the disadvantages. That is a very different concept.

Mr. Davies

It is late at night. One does not want to get involved in metaphyhical, semantic arguments about what these French phrases mean. But broad balance is broad balance; one gets out what one puts in. That, I understand, is fairly close to the concept of juste retour. If the French are objecting, I can only say that they are doing quite well. I do not see why we should not ask for the same. The Chancellor of the Exchequer obviously agrees with me.

Mr. Russell Johnston

Would the hon. Gentleman apply the same rule to Germany?

Mr. Davies

I would apply the same rule in terms of the Common Market, provided that one was operating the present mechanism. If there was a genuine desires to create a redistribution, we should look at the matter again. At the moment, however, the bugetary mechanism is so unfair that we cannot argue for anything else. It is fair and right for us to argue for a broad balance in the present budgetary system.

Where the Government's approach differs from ours, I am sorry to say, is that the Government have decided—I can well understand this—to argue purely and simply for some kind of financial mechanism. The Government feel that this matter can be solved by financial mechanism. The Chancellor is surprised I can quote what the Financial Secretary to the Treasury said on 16 July. I know that events have moved slightly since then. The Financial Secretary used the words We shall fight to achieve we hope through an improved corrective mechanism".—[Official Report 16 July 1979; Vol. 970 c. 1095.] I take that to mean some financial mechanism, not necessarily the existing one but that one plus another or a modification of the two. The amendment that we put down on 16 July was meant to show that we did not think that that in the end would achieve the kind of result that the Government wanted. That is why we would wish to press for a restructuring of the whole budgetary mechanism.

Sir Geoffrey Howe

I think I made it clear in my speech that we regard an improved or developed monetary mechanism as one of the most likely ways of achieving what we want, but we do not exclude any option. The point is that we need to secure a change commensurate with the scale of the problem, one that acts quickly and is robust and effective and lasts as long as the problem lasts. Those are the objectives. We are flexible in our methods of achieving them.

Mr. Davies

We accept that, but it is only right that I should make the point that a durable and effective solution must involve some radical change in the budgetary mechanism. I shall try to show that in a moment.

It is clear from the debate—it has been mentioned before—that the heart of the problem is the budgetary mechanism. It is not a budget at all, in fact, because the Ministers of Finance have nothing to do with it; the Ministers of Agriculture decide on the budget, and then Finance Ministers go along to argue about their part in it. Today, the Financial Secretary to the Treasury, the hon. Member for Blaby (Mr. Lawson), is no doubt rushing to Brussels to argue about 15 per cent. of the budget—or even less than that, because 75 per cent. has been decided by Ministers of Agriculture. So it is not a budget at all, but let us call it that because everybody does.

The budget is faulty, both on the income side and on the expenditure side. It is ludicrous that anyone should try to raise money by means of customs duties and agricultural levies. There may be a case for import duties or controls on economic grounds, but there is no case for using them to raise money. Therein lies one of the real problems involved in this budgetary mechanism.

On top of that is VAT, which is slightly better, because it has some bearing on a country's ability to pay—not very much, as it is structured, but at least it is better than raising money by levies.

The income side of the budget is hopelessly out of kilter and it makes no sense. Nor does the expenditure side. It was devised, as my right hon. Friend the Member for Stepney and Poplar (Mr. Shore) said, just before our entry; it was devised with our entry in mind. It does not suit an island economy. It is a budgetary system that may suit a Continental system but is completely unjust to us as an island economy importing so much of our food, raw materials and other goods. Therein lies the real problem. I hope that the Government will not forget that when pursuing their corrective financial mechanism.

I turn now to the reasons why I am wary of an improved financial mechanism. When we tried to negotiate a financial mechanism, it did not work very well because it was not possible to foresee all the different eventualities. The balance of payments was calculated wrongly; it went a different way from what people thought when the mechanism was drawn up. That is why I am saying to the Chancellor that one must be careful, because in the end a financial mechanism will be a complex legal document, drawn up by all the parties in the Commission and hedged around with conditions and premises. Things change over the years, so if the Government are looking for a permanent solution they should be careful about thinking in terms merely of a financial mechanism.

Such a mechanism can be dangerous. Paragraph 31 of Commission document 620 on convergence states: Any solution which involves a payment from the Community budget to the United Kingdom under one or more of the mechanisms described above would increase budgetary expenditure. The United Kingdom's share of that increase is put at 17 per cent.

The Chancellor again said that he did not favour an increase in the budget to solve this problem, but there is the real danger, if we go down the road of a financial mechanism, that we shall have an increased budget. Why should we pay contributions into an increased budget to try to resolve the present imbalance and iniquity? But, of course, the Commission has a vested interest in an increased budget.

My hon. Friend the Member for Durham (Mr. Hughes) raised two interesting points in relation to the way in which this might be judged. One way in which it might be judged would be by increasing the VAT ceiling to 1.5 per cent. whilst maintaining our own contribution at 0.75 per cent. That would be beneficial in the first year, because we would save 0.75 per cent. of the VAT contribution, but as the years went by and the budget increased towards the 1.5 per cent ceiling we would be paying the same percentage of an increased budget. Therefore, the benefit would taper off over the years and in three or four years' time we would be back in the same position. We would once again be arguing for a different mechanism and a different solution.

The Opposition will look closely at any solution based on a financial mechanism. Apart from the money that the Government get, if it is only a temporary solution, involving an increase in the budget and an increase in our contributions but not providing a radical restructuring of the budget mechanism, it may not be acceptable to the Opposition. I make that absolutely clear to the Lord Privy Seal because we do not want to come back to this problem again and again. There must be a permanent solution.

The debate is partly about the budget but it also involves the wider context of our application and our entry into the EEC. The problem results from the European Communities Act 1972. In paragraph 4(1) of document 620 Final the Commission says: The Community budget is only one aspect of Community membership. Other factors such as the advantages of a single market … and of the common commercial policy are harder to quantify". That is very true. It continues: Moreover it should be recognised that not all policies are of equal benefit to all Member States and the advantages or disadvantages of Community membership must necessarily be seen as a whole". When the Prime Minister goes to Dublin with the Foreign Secretary, she should point out that none of the advantages promised by the previous Conservative Government has materialised. We remember those debates and what the advantages were supposed to be. It was claimed that trade would improve because of the larger market, that there would be a higher level of investment in the United Kingdom from countries such as Germany and that there would be a higher standard of living in Britain. In reality, our trading deficit has been at least £2,000 million a year since then. The common agricultural policy has probably cost us £600 million a year in expensive food. There has been very little direct European investment in Britain, and there has been little movement of money from countries such as Germany into Britain.

Mr. Dykes

Labour inflation.

Mr. Davies

I am not saying that that is the fault of the EEC. I am saying that the claims were made but have not materialised. Many of us said that that would be the case. The record by the hon. Member for Harrow, East (Mr. Dykes) is not very good. I suggest that he keeps quiet. He has been consistently wrong. Perhaps he thinks that there is virtue in that. Membership of the EEC has destroyed our invisible balance on the balance of payments because of the contributions that we have made across the exchanges. The Commission says that we must look at the advantages and disadvantages as a whole but I cannot see any advantages of our membership.

It is rather pathetic and sad to see a British Prime Minister and Foreign Secretary visiting the presidents and prime ministers of Europe, and asking if they will give us back some of our own money. We knew that that would happen when we debated the European Communities Act.

The Lord Privy Seal (Sir Ian Gilmour)

If the right hon. Gentleman knew that it was going to happen, why did he not correct it properly in 1975?

Mr. Davies

I have been very candid about that and have told the right hon. Gentleman that it is difficult to achieve that through a corrective financial mechanism. I hope that the right hon. Gentleman will learn that lesson if he is going to Dublin, and I hope that the same mistake will not be made again.

In a splendid piece of Treasury prose, the then Chief Secretary to the Treasury, who is now Secretary of State for Social Services, said: In relation to the large aggregates which make up our balance of payments, the costs arising from EEC entry are not out of line with the kind of random and cylical swings which we expect to be able to handle without much difficulty in the ordinary course of events."—[Official Report, 8 June 1972; Vol. 838, c. 800.] That was the purple passage from the Treasury trying to justify our entry into the EEC. [HON. MEMBERS: "Cheap."] Conservative Members should not shout "Cheap". Let me tell them what the right hon. and learned Member for Hexham (Mr. Rippon) told my right hon. Friend the Member for Stepney and Poplar during the debate on the budgetary mechanism, which is enshrined in sections 2 and 3 of the European Communities Act. The debate lasted only one and a half hours because the right hon. and learned Member for Surrey, East (Sir G. Howe) had moved a motion to guillotine discussion of the Bill. The right hon. and learned Member for Hexham, who negotiated our entry, said: It distorts the position to say, as the right hon. Gentleman does—he does it to try to strike terror into the hearts of the British people—that there will be a burden of about £3,000 million on the balance of payments over a 10-year period. My right hon. Friend was being rather modest, as always. The figure is probably higher than £3,300 million.

The right hon. and learned Gentleman continued: That is not true, because what the right hon. Gentleman always does is to take some hypothetical figure far into the future"— here we are in the future— and aggregate it on the basis of the largest amount of the net contribution for one year. He takes no account of the other side of the picture. He looks only at the contribution to the Community budget."—[Official Report, 20 June 1972; Vol. 839, c. 314.] The other side of the picture has not helped us. We have not been getting anything back from that side.

We welcome the conversion of the Government, the Prime Minister and the Chancellor of the Exchequer, who played a large part in the 1972 debates, and their firmness, and we hope that they will succeed. It is in none of our interests that we should continue paying this money from the public purse across the exchanges to Europe.

However, we are not entirely optimistic. It is a difficult matter and any Government would have difficulty in negotiations, but the present Government's record in Europe is not good. The Minister of Agriculture, Fisheries and Food failed to press for a price freeze at the first meeting he attended in Luxembourg. That increased the budget. Instead of saying that the budgetary contribution was the Government's top priority and going for a price freeze, he let through a price increase. It totalled only about £50 million or £60 million, but the principle was there. If he had gone for a freeze, the other EEC countries would have seen that we were in earnest.

As my hon. Friend the Member for Grimsby (Mr. Mitchell) said, there are problems over the fisheries policy. I do not know the Foreign Office's views on the fisheries policy, but there is a danger of a sell-out there. Shipbuilding has seen a cut in the intervention fund and we have been unable to do anything about lamb exports, despite the support of the Commission and the Court. The Government's record is not good, and that is why we are not optimistic about their chances of bringing home the £1 billion.

The corrective mechanism and the pressures that will be put on the Prime Minister also concern me. It may be possible to get £350 million quite easily, but after that there will have to be a trade-off. I do not believe that these meetings will be conducted on the basis of one side getting everything and the other side getting nothing.

Late at night after the first financial mechanism has been corrected and the £350 million has been achieved, there will be tremendous pressure to bring back a little more money, and that will mean a trade-off. Will it be North Sea oil? That possibility has been reported in some newspapers, including the Financial Times.

When the Chancellor of the Exchequer was in Brussels this week, he was criticised because the British National Oil Corporation had put up its prices. That was reckoned to be anti-European. Will that be the trade-off? Will it be fish or lamb? There has to be a trade-off at that point. That is my fear. Having got themselves out on a limb, the Government will be forced to give something. The case is a good one and stands on its own two feet. We should press that case and not give anything in other areas of Community policy.

I hope that the Government succeed. I am not optimistic. If they succeed, the whole House will applaud the Prime Minister. The past record of the Tory Party in Europe is not good. Maybe, for a change, the Tories will stand up for British interests.

10.35 pm

The Minister of State, Treasury (Mr. Peter Rees)

It has been a full and, I like to think, a useful and valuable debate. Right hon. and hon. Members have raised matters of high technicality and general principal, and I shall attempt briefly to address myself to both. I doubt whether I shall match the technical expertise and assiduity of, for example, my right hon. and learned Friend the Member for Hertfordsthire, East (Sir D. Walker-Smith).

It will be helpful for Her Majesty's Government and for my right hon. Friend the Prime Minister, before she sets out for Dublin, to have the views of the House on this important matter. The hon. Member for Caithness and Sutherland (Mr. Maclennan) made an outstandingly thoughtful contribution to the debate, but I do not go as far as the hon. Gentleman in his view of the imprimatur for my right hon. Friend's negotiating tactics. He will appreciate that it is not possible in that situation to deploy the kind of cards that a negotiator wishes to play. None the less, it will be important for her to know the temper of the House on this most important issue. Perhaps I may even make my small contribution to distilling some kind of consensus from our contributions.

Various right hon. and hon. Gentlemen have reminded us that this is not the first time that we have been round this course. The Community is a developing institution, and it is inevitable that we shall continue to debate the machinery by which it operates, and even its structure, as we did recently when we debated Greek accession.

I had hoped that it would not be necessary to go too far back in time, but the right hon. Member for Stepney and Poplar (Mr. Shore) and the right hon. Member for Llanelli (Mr. Davies), both with considerable fire and eloquence, felt it necessary to set the present negotiations in their true context. Their memories were a little selective of events and contributions in previous debates, and I hope that the House will forgive me if, even at this late hour, I go a little bit into the past.

The right hon. Member for Stepney and Poplar was giving his well-known caricature of John Bull. I am bound to tell him that it is not his most attractive. If he will allow me to say so, he is capable of making a more thoughtful, perceptive and sensitive speech, but we know his position. After all, we have had occasion to listen to him on this subject since about 1971. I had hoped that with the advancing years, and with the added experience and wisdom that he has no doubt garnered, and will garner, in opposition, he would have changed his tone a little.

Mr. Spearing

The case is the same.

Mr. Rees

The face or the pace? I had hoped that the pace had accelerated a tiny bit. The burden of the right hon. Gentleman's case was that we knew, they knew and everybody knew back in 1971–72 that there was some fatal defect in the Treaty of Accession.

Mr. Hooley

I said so at the time.

Mr. Rees

If he will allow me to say so, the hon. Member for Sheffield, Heeley (Mr. Hooley) spoke with a certaintly that I admired. I am not sure whether it will quite match events when he is faced with more considerable responsibilities than those that he has just assumed. I am bound to say that it is the first time that I have heard him, and I look forward to his contributions. I hope that they will mellow a little bit, and I hope, too, that he will recognise that there are certain difficulties that even his assurance cannot conquer, at least in a speech of 15 minutes.

The right hon. Member for Stepney and Poplar spoke in ringing terms about the judgment of history. Let us, therefore, get history in perspective. First, his right hon. Friend the Member for Huyton (Sir H. Wilson) recognised back in 1967, when first considering the terms of entry in Strasbourg, that there would be important matters to be settled on a continuing basis within the Community. As I understood the then Government's position in 1975, they were taking up that theme. If we have to go back to that theme, we are entitled to remind the House not only how they appraised the situation in 1971 and 1972 but also how they reappraised it in 1975. At that time, with a firm and binding manifesto commitment—as are all commitments in the Labour Party's manifesto—they went to renegotiate matters of fundamental importance.

I recognise that the right hon. Member for Stepney and Poplar has been firm and consistent in his opposition to our adherence to the European commitment on practically any terms. I am not sure how he reconciled that with his membership of the Administration between 1974 and 1979. We know that the doctrine of collective responsibility was lifted for the referendum, but not, I understood, for the preceding and succeeding deliberations. However, it is not for me to probe the right hon. Gentleman's position.

I remind the House or what was said by the right hon. Member for Leeds, East (Mr. Healey). He has considerable expertise in financial matters which my right hon. and learned Friend the Chancellor and I have had cause to recognise. On 21 January 1971 he said: I believe that the proposals made by the Chancellor of the Duchy"— that was my right hon and learned Friend the Member for Hexham (Mr. Rippon)— as to the phasing, the size and the net cost falling onto Britain as a result of the common budget make sense for Britain now and, as Sir Con O'Neill explained clearly in his presentation of these proposals to the Community, the Community should find them wholly reasonable. But if the economy deteriorated and if its prospects looked much worse, then the question whether we should accept these terms would be in doubt."— I recognise that. None of us who favour entry believes that all our troubles will be over once we join the Common Market. None of us believes that the Common Market in its present form is perfeet"—[Official Report, 21 January 1971; Vol. 809, c. 1394–95.] That was a fair and balanced assessment, but not one that could be reconciled with the ringing apocalyptic terms of the right hon. Member for Stepney and Poplar.

Mr. Shore

I never said that it was.

Mr. Rees

The right hon. Gentleman sat for five years in Cabinet with his right hon. Friend the Member for Leeds, East. He asks us to believe that we should have recognised that the terms of entry negotiated in 1971 were fatally flawed from the beginning. The right hon. Gentleman sat happily—we wait for a latter-day Crossman to prove or disprove that assertion—in Cabinet alongside his right hon. Friend the Member for Leeds, East. As far as we know, he never felt that the fatal flaw debarred him from participating in a Cabinet that was prepared to lead us into the Common Market. I am trying to set the record a little straighter than the right hon. Gentleman and his right hon. Friend the Member for Llanelli did this evening.

No doubt the right hon. Member for Stepney and Poplar would point to matters in 1975. The Labour Party manifesto in 1974 said that there was a need for: new and fairer methods of financing the community budget. There is nothing there about a "superficial, corrective financial mechanism" with which the right hon. Member for Llanelli accused us of toying in our negotiations in Dublin. The manifesto envisages fundamental radical reform. So be it.

The right hon. Member for Cardiff, South-East (Mr. Callaghan) went off with a flourish of trumpets to Luxembourg. We had an interesting debate later in the summer of 1975. It is fascinating to see how many Labour Members over the years make the same points with greater or less eloquence and perception.

I regret that the right hon. Member for Battersea, North (Mr. Jay) did not make his contribution. He has been consistent in his view. He was not a member of the Cabinet between 1974 and 1979. He felt that the Treaty of Accession was flawed, and he was not prepared to accept the corrective mechanism negotiated in 1975.

As I have said, the right hon. Member for Huyton and the right hon. Member for Cardiff, South-East both said that what they had brought back in 1975 measured up to the commitment which they assumed in their manifesto. Indeed, the right hon. Member for Huyton, with his well-known turn of phrase, said: My right hon. Friend and I can claim that the renegotiation process has been not only a catalyst of change—and basically change in the right direction—but also an initiator, a creator of a process of fundamental change. The past year's negotiations have involved, and not only for us in these islands, an occasion for fundamental reassessment of Britain's position in relation to the Community."—[Official Report, 7 April 1975; Vol. 889, c. 823.] Could be; could be not. It did not, evidently, involve a fundamental reappraisal by his right hon. Friend the Member for Stepney and Poplar.

Mr. Shore

But whereas every hon. Member in this Chamber on the Labour Benches did not accept that assessment, and therefore urged the country to vote "No" in 1975, there is not one Conservative Member here who took the opposite view.

Mr. Rees

That is absolutely right. I recognise that, and I recognise the consistency of the right hon. Gentleman's position, but he cannot have it both ways. The Government of which he was a distinguished ornament commended the terms of the renegotiation to the country, not only in this House, but in the referendum.

Admittedly the doctrine of collective responsibility was lifted for the period of the referendum, but not afterwards. If the right hon. Gentleman really felt that this matter was so fundamental and so injurious to this country's interests that the verdict of history would be unqualified condemnation of those who were party to this renegotiation or to the terms of entry, surely he was honour bound to dissociate himself from the Administration that renegotiated the terms.

So be it. I am not concerned to go any deeper into the past. I do it only because the right hon. Gentleman, as I said, in his engaging John Bull speech—not the sort of speech that we hear from him in other more delicate fields—chose to make the point that the historians of the future would condemn all of us puny figures for having been party to selling Britain's interests down the river.

That is a charge that I am bound to rebut, and bound to throw back to the right hon. Gentleman. If he felt that that was really a true assessment of what happened in 1971 and again in 1975, why did he continue to remain a member of the Administration presided over by various of his right hon. Friends? In due course no doubt the right hon. Gentleman, in the memoirs that I am sure will flow from his easy, elegant pen, will explain in greater detail than he was able to do tonight his own particular, rather special and unconstitutional position.

I should like to move on—

Mr. Deakins

About time. Twelve minutes.

Mrs. Dunwoody

The hon. and learned Gentleman remembers the budget.

Mr. Rees

I remember the budget. I am only sorry that we were cheated of the opportunity of hearing the hon. Lady, whom we know has made a great contribution to the debate on this issue. She always bows when I pay her a compliment—which is part of her excessive charm, no doubt, over on the Continent.

My right hon. and learned Friend the Member for Hertfordshire, East took up a point in the Chancellor's speech on the different figures that he produced by comparison with those in the Commission reference document No. 620. The difference is readily explained by the difference in exchange rates; but otherwise my right hon. and learned Friend the Chancellor and the Commission are, I think, at one in their factual analysis of the position.

My hon. Friend the Member for Harrow, East (Mr. Dykes) made a most interesting and constructive suggestion about a progressive key for our VAT contribution. Clearly, as the expenditures of the Community reach their limit, this may well be something that must be looked at. Certainly we would view with grave disquiet and reservation any suggestion that we should break through that particular barrier. If it were suggested, we would certainly take up my hon. Friend's suggestion.

My hon. Friend the Member for Birmingham, Selly Oak (Mr. Beaumont-Dark) raised some interesting points about charitable donations. I reassure him briefly that there will be no question of harmonisation of direct taxes, at least this side, I believe, of the abolition of fiscal frontiers. Harmonisation of excise duties is exercising our minds at present and is likely to do so for quite some time.

The hon. Member for Grimsby (Mr. Mitchel) made a long and general contribution on the whole question of whether we should be in the Common Market at all. I am sorry that he is not here at present, but, as a Member for a fishing constituency, he may be assured that we recognise that fishing policy stands on its own and will be determined independently.

The hon. Member for Inverness (Mr. Johnston), representing the Liberal Party, whose position is honourable and consistent on this matter, though quite different from that of the right hon. Member for Stepney and Poplar, raised a number of questions, which I shall attempt to deal with briefly. He asked what prospects we saw for the reform of the common agricultural policy. The Government do not feel that they can sensibly link this issue with the budget considerations. The absorption of an increasing proportion of budgetary receipts—70 per cent. now, whereas it was envisaged when we entered the Common Market that it would only be 40 per cent. through the CAP—is a crucial factor, but to mix up the budget negotiations with a renegotiation of a fundamental feature of the CAP would not be productive at this time. However, the Government are not insensitive to the arguments that the hon. Member advanced. There is widespread agreement—not only in this country—that changes must be made that will avoid the wasteful expenditure, for example, on unwanted surpluses.

The hon. Gentleman also raised a delicate question on whether we should form an alliance with the Assembly on these matters. It is difficult to form an alliance with such—dare I say it?—an amorphous body. Obviously from time to time the Assembly will give voice to sentiments that we shall find sympathetic and constructive. Indeed, the debate only a fortnight ago was very sympathetic to our cause. I think that we were grateful for, I shall not say the unanimity, but the majority, of sentiments on that occasion, but to imagine that we can directly involve the Assembly in the negotiations would not be practicable.

Mr. Russell Johnston

It is of course possible to ally oneself to the Assembly where a proposal comes from the Assembly and is subject to the weighted voting procedure within Council.

Mr. Rees

I recognise that point, and if any specific practicable motion comes from the Assembly that will advance our cause we shall look at it with great sympathy, and naturally we shall invoke it in the course of negotiations.

The hon. Gentleman also asked about the Prime Minister's position vis-a-vis the French President. All I can say is that no undertakings were given or received on that occasion.

My hon. Friend the Member for Faversham (Mr. Moate) made perhaps the most attractive case against our membership of the Common Market. We have heard him over the years, but on this occasion he stopped short of the final brink. We were encouraged by his approach. We recognise that his sympathies are entirely with the Prime Minister on this occasion.

Next I come to the most perceptive and sympathetic contribution of the hon. Member for Caithness and Sutherland. He pressed the Government a little on the future size of the budget and resources in particular. I do not think that we can invite the Commission or the Community to spend itself into some kind of balance for our benefit. Nor do I believe that it would be for our benefit, because obviously there cannot be an exact correlation between what we will be asked to contribute and what we will be able to take out. This may be something that we shall have to consider in negotiations, but I do not see that as a route by which we can achieve the objectives which I think that the whole House has at heart.

My hon. Friend the Member for Flint, West (Sir A. Meyer) followed with a perceptive analysis of the overall advantages of our membership of the Common Market. In fact, he provided the best refutation for the rather glib and shallow suggestions that we should use our exit from the Common Market as a kind of ultimate deterrent. I do not believe that that is credible. Those who place emphasis on the stability of Western Europe and the world as a whole should pause to reflect how far we would stabilise European or world relations if it were even possible to extricate ourselves from the web of relationships that we have formed since 1971.

The hon. Member for Vauxhall (Mr. Holland) gave us one of his interesting, long expositions. I expect that it would have sounded a little easier in Lisbon than it did in the House, and I suspect that it will read a little more easily tomorrow than it fell on our ears tonight. The hon. Member is not here now, so I hope that the House will forgive me if I pass on to other matters.

I turn now to the British case as it will be presented in Dublin. It has been stated forcefully and consistently by the Chancellor of the Exchequer and the Prime Minister. Since a comparison of the net contributions to and receipts from the Community budget between 1976 and 1979 and the projected receipts and contributions for 1980 reveals our case so clearly do not think that I need labour that point now. The House has already focused its attention on these figures, and it would only weary hon. Members if, at this late hour, I were to go into the details. A mere recitation of those figures demonstrates the strength of our case.

The hon. Member for Caithness and Sutherland was a little censorious about the points that may be put against us which the Chancellor deployed in his opening speech, but it is right that we should have a fairly clear view of the kind of arguments that will be deployed. It is no good us imagining that because we thump the Dispatch Box at Westminster that of itself will make the walls of Jericho or Luxembourg fall down. Unless we appreciate the kind of arguments that will be deployed, and the tenacity with which they are held, we shall deceive ourselves of the difficulties that we face. The Prime Miniser recognises these difficulties.

Mr. Deakins

Does the hon. and learned Gentleman think that it is strength of intellectual argument that has led the French to take their stand over lamb?

Mr. Rees

Under all our arguments there is a good healthy substratum of national self-interest, and this must be recognised. I do not believe that we are going into this negotiation dispassionately, thinking entirely of the long-term future of the Common Market. We believe that unless this fundamental inequity is righted the long-term health and prospects of the Community will be prejudiced. Unless or until there is a total dissolution of national boundaries and we are totally internationalised—I do not see this happening, and I do not propound a federal solution, as I know the sensitivities of Labour Members—this substratum of national selfinterest is bound to influence our thinking.

Labour Members have criticised us bitterly and suggested that we had been careless of the national interest. I do not accept that. I think that we have been very robust. We did not entirely foresee the future, but nor did the previous Labour Government. As the right hon. Member for Stepney and Poplar said, they did not foresee that the financial mechanism would not work out in 1975. That is true of life in so many spheres. Obviously we must be careful, and we shall learn from our predecessors' mistakes. Because the Common Market is not set firm, and because it is a developing institution, we should go on negotiating and facing the difficulties as they arise.

After all, I remind the House that we have met certain internal difficulties constitutionally which we had to face during the years of the previous Administration. We rode them out in a rather satisfactory way. If we have to do that at Westminster in relation to the United Kingdom, it is inevitable that we shall have to do it in relation to the Community.

My right hon. and learned Friend raised the difficulties of the points that would be made against us. North Sea oil will be attributed against us. There will also be the degree to which we import, or fail to import, from the Community. On that I think that at least in this House we are all very much aware of the way in which the pattern of our trade has shifted. In any event, we are hardly in any position—certainly not the Conservatives, although the Opposition may be—to contemplate import controls or a direction of our trade.

There is also the argument about own resources. I believe, as I suspect do right hon. and hon. Members, that this is really a legalism. In form, it may be that constitutionally they are part of the resources of the Community as such, but in this debate, and in the negotiations, we shall be concerned with the economic impact on this country. The scale of these transfers is now such that something has to be done about them.

Mr. Spearing

In regard to the 1 per cent. VAT, which is part of the so-called own resources system, will the Minister assure us that no undertaking will be given at Dublin, or anywhere else, that there will be an agreement to approve the 1 per cent. increase, which by international treaty must be approved first by this House?

Mr. Rees

Of course, anything would have to come back to this House, but I should not be prepared to circumscribe my right hon. Friend's room for manoeuvre in that way. After all, it is entirely hypothetical, but if the hon. Gentleman asks me to speculate, it could be that we would be offered such a glittering inducement that even he might be tempted to accept. I think that it would be wrong for me to be pressed or to give any undertakings on that score.

Mr. Shore

That is an important matter. We have had a pretty informed debate, apart from the frivolity with which the hon. and learned Gentleman approached his speech at the beginning. Although we have covered many matters raised in these documents, I do not think that we have touched on the question of enlarging the sphere of taxation of the Community. I should take it very seriously amiss if I were to be told now that the Minister cannot give a guarantee that this question will not be discussed, and possibly even agreed, at Dublin before we have had an opportunity seriously to discuss it here. I hope that he can give that guarantee.

Mr. Rees

My right hon. Friend the Prime Minister is too experienced in these matters, and in international negotiation and in affairs of State, not to realise the absurdity of the right hon. Gentleman's point. Of course we do not envisage extending—[Interruption]—I was asked for a specific undertaking that in no circumstances would we ever contemplate this, and I merely said that I could not possibly give an undertaking of that kind.

I come finally to the question of a juste retour. The right hon. Member for Llanelli, reverting a little—as he has had occasion to over the past few months—to his legal past, got a little legalistic on this and attempted to marry it up with a clear statement by my right hon. and learned Friend of our negotiation objective, which is a broad balance. A juste retour, as I have always understood it—again it is anathema to the Commission as such—means a precise correlation programme by programme. That is the argument that we must rebut. I hope that the message will go forth from this House to those who are listening to our debates abroad that this is not what the Government are seeking to achieve in this instance. What we seek to achieve is a broad balance that will last as long as the problem lasts and that will take effect at least as soon as 1980. That is the broad stated objective, and I hope that it commands the full support of the House.

Again, the right hon. Gentleman was a little ambivalent. At one point he said that our case was unanswerable. Then, almost in the same breath, he said that he thought that the Government had a rather weak hand. Is it one or the other? I suggest that our case is very strong. The figures speak for themselves. We are the largest net contributor to Common Market funds. We are an essential and integral part of the Common Market.

The Commission—and this was embodied in the 1971 White Paper—said: If unacceptable situations should arise the very survival of the Community would demand that the institutions find equitable solutions. Such an unacceptable situation has arisen, and we demand firmly, I hope persuasively and I am sure courteously, that an equitable solution should be found. I am glad at least to carry the right hon. Member for Stepney and Poplar with me. I see that I have won him over.

Mr. Spearing

We shall amend Act yet.

Mr. Rees

Diverse views have been expressed in the course of this debate from diverse premises, but I hope that our broad conclusions are the same. I feel that if right hon. Gentlemen speaking from the Opposition Front Bench were retracing the steps of their right hon. Friend the Member for Huyton to Dublin—it is amazing how many important negotiations on this subject have taken place in Dublin—they would be pursuing the same objectives—indeed, the right hon. Member for Stepney and Poplar has courteously acknowledged by a nod of the head that he would be—though possibly their methods and rhetoric might be different.

Recognising that an important national interest is at stake, I hope very much that it will not be necessary to divide the House tonight. It would, as I am sure the whole House will recognise, immeasurably strengthen the Prime Minister's hand and moral authority if she had an undivided House behind her in the negotiations to come.

I have not uniformly agreed with all that Mrs. Barbara Castle said or did while she was a distinguished Member of this House. On personal grounds, of course, I regret her departure from it, even though she has a capable successor who made a contribution to the debate. I note, as the House may have done, her recent contribution to a debate in the European Parliament on this very subject. She concluded: I offer this solidarity to Mrs. Thatcher: stand firm and I will back you up. She then sat down, as my report reads, to robust applause from the Conservative and other benches. I assure Mrs. Castle and the House that my right hon. Friend will be firm—has indeed been firm—will be patient and will be determined. I do not expect robust applause from the Benches in this House, but I hope that I shall carry the House with me on that modest basis. I hope that, in view of the assurances that my right hon. and learned Friend and I have given, there will be no need to divide the House and that my right hon. Friend the Prime Minister will go to Dublin with the good wishes and support of the whole House.

Question put and agreed to.

Resolved, That this House takes note of Commission document No. 9093/79 on budgetary questions, together with supplementary information in documents 9369/79 and 9721 with addendum 1, and also Commission document COM(79) 620 final on convergence and budgetary questions, and fully supports the Prime Minister in her determination to secure the objectives approved by the House on 16 July.