EUROPEAN COMMUNITY (CONVERGENCE AND BUDGETARY QUESTIONS)

HC Deb 24 March 1980 vol 981 cc1069-135

[Relevant Commission document: No. 11028179.]

9.56 pm

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

I beg to move, That this House takes note of Commission document No. 4845/80 on convergence and budgetary questions, and fully supports the Prime Minister in her efforts to secure agreement at the next European Council to action which will bring about a substantial, immediate and lasting reduction in the United Kingdom's net contribution to the Community Budget and furthermore to ensure that there is a commitment by the Council to long-term restructuring of the Budget which would bring about a significant reduction in the proportion of spending on the Common Agricultural Policy, particularly by reducing the production of surpluses, and a more equitable distribution of expenditure over the whole Community.

Mr. Deputy Speaker (Mr. Bernard Weatherill)

I should tell the House that Mr. Speaker has selected the amendment standing in the name of the Leader of the Opposition. That amendment will, however, be moved in a slightly amended form. It involves the insertion after the word "surpluses" of the words and creating a more equitable distribution of expenditure". I should also tell the House that Mr. Speaker has selected a manuscript amendment to the amendment of the Leader of the Opposition tabled by the hon. Member for Caithness and Sutherland (Mr. Maclennan). That amendment is to leave out from second 'Community' to the end of the amendment. Copies of the Leader of the Opposition's amendment in its amended form, together with the manuscript amendment of the hon. Member for Caithness and Sutherland, are available in the Vote Office.

At the end of the debate, the motion and the two selected amendments will be put together to the House in the following order—first, the manuscript amendment of the hon. Member for Caithness and Sutherland, secondly, the amendment of the Official Opposition and, thirdly, the Government motion.

Mr. J. Enoch Powell (Down, South)

On a point of order, Mr. Deputy Speaker. While appreciating and accepting the Chair's absolute discretion on the acceptance of amendments, may I make two representations? The first relates to the extreme difficulty for hon. Members which arises from an amendment being accepted which is not able to be within the knowledge of hon. Members until shortly before the statement which you have made. That makes it very difficult for an orderly debate upon a major topic to take place.

My second point is that, although this matter does not involve the vexed and major question of two amendments to Government motions on matters of policy, nevertheless if the selection of an amendment to an Official Opposition amendment were to become a regular procedure, the position of the Official Opposition in regard to securing debates of their propositions, as opposed to those of the Administration, would be radically altered.

It is difficult to make this submission, especially in the absence of Mr. Speaker. Nevertheless, I submit that the matters which his decision raises are of considerable moment, and no doubt there will be another opportunity for raising them.

Mr. Deputy Speaker

I thank the right hon. Gentleman for putting it in that way. He will understand that I have no authority to comment upon or alter Mr. Speaker's selection of the sub-amendment.

Mr. Lawson

I have considerable sympathy with the point of order raised by the right hon. Member for Down, South (Mr. Powell).

The motion refers to the next European Council meeting which had been planned to open in Brussels a week today. As the House will be aware, the Italian Prime Minister has announced this afternoon that he felt the meeting of the European Council should be postponed because, as a result of the Italian domestic political situation, he has not been able to devote himself to the preparation for the meeting. We entirely understand and sympathetic with Signor Cossiga's difficulties. But the budget problem is a serious and complex one, affecting the future of the Community, which all members have to resolve as soon as possible. We were and remain ready to tackle that matter next week. But, in the new circumstances which have arisen today, we have made it clear to the Italian Government and to our Community partners that the Council should be convened at the earliest possible date.

The House will not expect me to say more on a matter which is still under discussion between the Governments concerned, except to confirm, as I do, that we remain determined to bring this difficult matter to a satisfactory conclusion as soon as possible so that a substantial reduction in our net contribution takes effect this coming financial year.

Mr. Denzil Davies (Llanelli)

What will be our net contribution in the next financial year? I think that it is important that we should know that in view of the amendments.

Mr. Lawson

Our net contribution, unless we can get the redress that we are seeking—which is what I assume the right hon. Gentleman is talking about—will be over £1,000 million. If the right hon. Gentleman will allow me to develop my speech, I shall be dealing with all these matters. He should be a little less impatient. If he is, it will enable me to get through my opening remarks sooner, and that will give more time to right hon. and hon. Members on both sides of the House to make their contributions to what is a short debate on an important subject.

This is the third occasion in the few months since the present Government took office that the House has debated this important matter. By now, the whole House will be well aware of the explosive growth in the United Kingdom's net contribution to the Community budget that has occurred over the past few years.

Mr. Denzil Davies

How much?

Mr. Lawson

The right hon. Gentleman keeps saying "How much?" I am coming to that. From a level of about £150 million in 1976 it had risen to £900 million in 1979. Unless something is done to reverse the trend, the figure this year, as I said, is likely to be well over £1,000 million. It is impossible to give a precise figure, because there are many imponderables. As I told the right hon. Gentleman, who is muttering from a sedentary position, whether it is £1.1 billion, £1.2 billion or £1.5 billion, or whatever, it makes no difference to the importance of the matter that we are discussing or to the principles which are at stake.

Mr. Nigel Spearing (Newham, South)

Does the hon. Gentleman recall that on 25 February, in col. 442 of the Official Report, he gave a written answer to his hon. Friend the Member for Northampton, North (Mr. Marlow) in which he estimated the figure of the net budget transfer in 1980 to be £1,310 million? Does he not now stand by the figure that he gave on 25 February?

Mr. Lawson

The hon. Member for Newham, South (Mr. Spearing), who is expert in the affairs of the Community, knows that we have to rely to a considerable extent on the estimates made by the Commission. The Commission is in the habit of revising those estimates from time to time. The figure that I gave at that time was based on the latest estimates by the Commission. It now looks as though the figure may be a shade less than that, but it will be between £1 billion and £1.3 billion.

Mr. Russell Johnston (Inverness)

rose——

Mr. Lawson

I will gladly give way, but I do not think that this is assisting the progress of the debate.

Mr. Johnston

According to the Commission paper produced today, the figure is 1,683 million units of account.

Mr. Lawson

That is correct, and that is precisely the range that I was indicating in pounds. I assumed that hon. Members would prefer pounds sterling, but I can talk in units of account if that is the desire.

Wherever the figure is within this range, the point is that it would make the United Kingdom far and away the largest net contributor to the budget, with a net contribution almost double that of West Germany, which is the only other significant net contributor. It is the contention of the Government, for which we have already received the full backing of the House on each of the two previous occasions to which I have alluded, that this state of affairs is neither equitable nor sustainable.

If the European Community is to thrive, and we believe it to be in the interests of the West as a whole that it should, it simply cannot impose this manifestly unacceptable burden on this country. Like any other organisation, the Community must show itself to be alive to the interests and needs of its members, and that means all its members. Like any other organism, it must adapt if it is to survive.

Indeed, that was clearly acknowledged by the six original members of the Community during the accession negotiations in 1970. Even at that time the United Kingdom had been expressing concern that the incidence of Community revenues, together with the predominance of agriculture in Community spending, might well result in this country being called upon to make very large net contributions to the Community budget once the transitional arrangements ended in the late 1970s. At that time the Community contested this and argued that changes in the pattern of Community spending would ensure that the problem never arose in that form. But it did explicitly agree—and I quote as I have before the ipsissima verba—that should unacceptable situations arise within the present Community or an enlarged Community, the very survival of the Community would demand that the institutions Lind equitable solutions. When the present Government took office we made two things absolutely plain to our Community partners. First, we made plain our total commitment to United Kingdom membership of the Community and our determination to make the Community work. Secondly, we made plain our resolve to achieve that equity in the Community's finances which the Community itself, in the quotation that I have just read to the House, had acknowledged to be essential.

Inevitably this has not been easy. The very idea of examining the distributive effects of the Community budget was a novel one for a Community which is reluctant to encourage member States to expect to get out of the budget exactly what they put in, and which never before has been confronted with such a totally inequitable outcome from the implementation of its policies: and of course if Britain pays less inevitably others will have to pay more. No Government welcome that prospect, however compelling the arguments in logic and equity for their doing so.

So it has been hard going. But we have made considerable progress.

Mr. Denzil Davies

Come on.

Mr. Lawson

Yes, we have, and the document that we are discussing is evidence of that progress. It may be helpful for the benefit of the few hon. Members present who may not have read the document in its entirety if I briefly summarise its contents.

The Commission begins by emphasising once again the need for changes in the balance of Community expenditure. It then goes on to propose that an adapted financial mechanism should be part of the solution to the probe lems of the United Kingdom over the Community Budget. Lastly, the Commission suggests that the Community should establish a special fund under a regulation based on article 235 of the Treaty. Money thus made available would be used to help to finance public expenditure programmes designed to improve this country's economic and social infrastructure, and thereby to promote what is described as a convergence of economic performance within the Community.

Mr. Alan Clark (Plymouth, Sutton)

Do not these sums, in many cases, have to be matched by equivalent sums from our side?

Mr. Lawson

No, that is not so.

The document before us is a direct result of the European Council held at Dublin last November. That Council was very far from being the fiasco that it is sometimes presented as by the press and, indeed, by some of the less perceptive Opposition Members. In Dublin the Community Heads of Government established the framework for a solution to this country's problem which the Commission has elaborated in the document before us.

The House may find it easier to understand why it was so useful to establish this framework if I quickly recall the causes of the United Kingdom's budget problem. Only about one-third of our net contribution arises from our high level of payments to the Community. Two-thirds result from the low level of Community spending in this country. In 1980 the Community will, on present policies, spend less than half as much per head of the population in the United Kingdom as it does in the Community as a whole. Our meagre share of Community expenditure, less than 10 per cent. of the total, reflects the continued domination of the Community budget by expenditure on agricultural support.

The common agricultural policy still absorbs over 70 per cent. of the budget, the bulk of which, as the House knows, is attributable to the cost of storage and disposal of surplus production. This country, with its small farming sector, can never benefit to any great extent from such expenditure, as indeed the Community itself appreciated as far back as 1970.

The Dublin Council recognised the need for action on all these fronts if this country's problem was to be satisfactorily resolved.

As regards our excessive gross contribution—that is, the money that we pay in—the Council agreed that the Commission's proposals for adapting the existing financial mechanism—the much-vaunted but pathetically ineffectual outcome of the previous Government's so-called renegotiation"—could form the basis of a solution. Removal of all the restrictions and limitations which at present castrate the financial mechanism, so as to transform it into an effective instrument for redressing this country's excessive gross contribution, would yield us a refund of about £350 million in 1980, or roughly one-third of our likely net contribution [Interruption.] Opposition Members who are muttering from sedentary positions would surely have settled for that themselves, representing, as it does, a vast improvement on what they were in practice prepared to settle for in 1975.

As my right hon. Friend the Prime Minister told the House on 3 December, after Dublin, she was not prepared to accept an offer that was so patently inadequate to meet this country's needs. She insisted that any solution should take account of the other larger part of the problem, which stemmed from the low level of Community spending in this country.

Under pressure from my right hon. Friend, the European Council at Dublin agreed to see what could be done on this front as well. To deal with the immediate problem, it asked the European Commis- sion to find ways of increasing Community spending in this country which would contribute to the Community's declared objective of promoting economic convergence. The result is the document that we are debating this evening. For the longer term, too, it expressed its determination to reinforce those policies most likely to favour the harmonious growth of the economies of the member States and to reduce the disparities between these economies. In other words, it endorsed the Commission's suggestion that the Community should spend less on blanket agricultural support and more on its structural policies.

The Commission's document identifies a series of means by which the Community can help to improve Britain's social and economic infrastructure. Since the document was presented to the Council, the Commission has discussed the various possibilities with us. In a new document that we have just received and which will be laid before the House shortly in the usual way, the Commission says that it is already evident—

Mr. Peter Hardy (Rother Valley)

The hon. Gentleman mentioned the new document and the views of the Community. Will he tell us whether people in the Community are happy that this Government seek to obtain larger funds from the European Community, although we are already being criticised for failing to take advantage of substantial opportunities to obtain Community funds for a variety of purposes?

Mr. Lawson

There are no opportunities that we have failed to take advantage of. I think that the hon. Gentleman is mistaken.

The Commission's new statement is an important step forward towards the solution of our problem. It will also help the Government to achieve the reductions in public expenditure and public borrowing that are central to our economic strategy. It is, of course, at present too early to say what programmes and projects the Community may help to finance. The Commission has put forward some ideas which we shall pursue with it.

The key questions concern the amount and duration of the assistance that is to be provided. On those points our position is absolutely clear. We seek a solution that will, in the words of the motion, bring about a substantial, immediate and lasting reduction in the United Kingdom's net contribution. By "immediate" we mean one that will be fully operational as from the financial year 1980–81, now only a fortnight away. By "lasting" we mean a solution that will ensure that the problem does not recur. Neither we nor the Community can afford to have to return to this problem year after year.

As for the scale of the substantial reduction that we seek, and about which the right hon. Member for Stepney and Poplar (Mr. Shore) has shown so much concern, we have indicated that we are prepared to join the search for a genuine compromise. However, it must take full account of the seriousness of this country's problem. As my right hon. Friend the Prime Minister reminded us only last Thursday, we have little room for manoeuvre.

Mr. Eric Deakins (Waltham Forest)

Will the hon. Gentleman confirm that the lasting solution that the Government seek is one that will take account of the vastly increased costs of the CAP, and hence of our budget contribution, when the three new members are admitted in the next few years?

Mr. Lawson

A lasting solution clearly means one that lasts as long as the problem lasts. If the result of enlargement is as the hon. Gentleman suggests—and this is a speculative issue depending on agreements not yet reached—that will be one element in deciding the scale and duration of the solution. In the longer term, of course, there can be no doubt that the Community needs to achieve a better balance of expenditure within its budget, and not just for the sake of resolving this country's problem. It is vital that the Community budget should be subject to the same discipline as all member States apply to their domestic budgets. Expenditure must be constrained by the money available. The open-ended character of the CAP, as it now operates, must be modified and new priorities established.

Let there be no illusion that these long-term reforms can be in any way a substitute for the measures expressly designed to correct the United Kingdom's budget problem that are needed here and now.

Mr. Eldon Griffiths (Bury St. Edmunds)

My hon. Friend earlier spoke of a new document from the Commission. I think that he said that it could represent an important step in solving our problems. I appreciate my hon. Friend's problem. However, how long will it be before the House sees that document and can make its own judgment?

Mr. Lawson

We shall lay that document before the House as soon as possible. I thought that it would be for the convenience of the House if I alluded to it now. Because of the postponement of the European Council, it will be laid before the House before that meeting takes place.

Mr. J. Enoch Powell

On a point of order, Mr. Deputy Speaker. The Minister has quoted, and intends to continue to quote, extracts from a State paper which is in the Government's possession. Is it not a requirement of the House that that paper should be laid if it is to be quoted during the course of a debate?

Mr. Lawson

The right hon. Gentleman, for once, has nodded. At no time did I quote from the document. I merely referred to its existence and to the subject matter.

Mr. Bob Cryer (Keighley)

Further to that point or order, Mr. Deputy Speaker. The Minister specifically alluded to the document. It is a convention of the House that if a document is alluded to by a Minister it is laid on the Table for hon. Members to receive. Similar points have been raised on many occasions, and the documents have been laid on the Table following requests from Back Benchers. Surely that precedent should be followed.

Mr. Robin Maxwell-Hyslop (Tiverton)

Further to that point of order, Mr. Deputy Speaker. The rulings from the Chair on the matter invariably have been the same, namely, that it is only if the document is quoted that it must be laid upon the Table.

Sir Derek Walker-Smith (Hertfordshire, East)

Further to that point of order, Mr. Deputy Speaker. I rise merely to assist you. The custom of the House derives from a legal principle in the courts that a person cannot give oral evidence from a written document. If my hon. Friend the Minister does not give oral evidence of what is contained in the document, he is within the rules.

Mr. Hardy

Further to that point of order, Mr. Deputy Speaker. Did not the Minister go further than alluding to the document? Did he not refer to the contents of the document and, therefore, should not that document be laid?

Mr. Deputy Speaker

I am grateful to the House for so much assistance. The hon. Member for Tiverton (Mr. Maxwell-Hyslop) anticipated my ruling. It would be necessary for the Minister to lay the document on the Table if he intended to quote directly from it. If he merely alluded to it—as I understand he did—it was not necessary for the document to be laid.

Mr. Lawson

Thank you for that ruling, Mr. Deputy Speaker. I assure the House that the document will be laid at the earliest possible moment. I thought that it would be of assistance to the House to allude to it in the debate.

The Government have no doubt that the Commission's proposals could, given the political will among the member States, form the basis of an adequate and acceptable solution.

I turn to the amendment in the name of the Leader of the Opposition, and to the amendment to the amendment which Mr. Speaker has selected. One is to correct a drafting error in the Opposition's amendment. That sort of bumbling approach is characteristic of all their actions in this area. We are prepared to accept, without demur, that their drafting error should be corrected.

The other amendent is that in the name of the hon. Member for Caithness and Sutherland (Mr. Maclennan), which concerns matters that are dealt with in the Opposition amendment. The internal quarrels within the Opposition should be left to fester unaided by right hon. and hon. Members on either side of the House.

The Opposition amendment is in two parts. The first part seeks to reaffirm the position taken by the House on the two previous occasions on which we debated the matter, namely, that the United Kingdom net contribution to the Community budget should be zero. The two previous debates took place before the European Council met at Dublin. As I have already made clear, very important positive progress was made at that Council for which the document—[Interruption.] Opposition Members do not like to see the Government finding a solution to the problem. They know that no progress whatever was made when they were in office.

The document that we are debating today bears clear witness to the progress that has been made. At the time we moved from a position of seeking the total elimination of our net contribution to the acceptance, in a spirit of genuine compromise, of a modest United Kingdom net contribution. There is no secret about this. The Prime Minister has made the position quite clear to the House and to our European partners ever since the Dublin summit.

That means equally clearly that I must advise the House to reject the Opposition amendment. Indeed, I hope that the Shadow Foreign Secretary will not seek to press his amendment. The Leader of the Opposition himself told the House on 11 March—and I quote his precise words: I hope that the right hon. Lady will go to Brussels knowing that she has the full support of everyone in the House for a substantial reduction in the amount of the payment."—[Official Report, 11 March 1980, Vol. 980, c. 1150.] The difference between a substantial reduction in this country's net contribution and its total elimination is logically quite distinct. The Leader of the Opposition, on 11 March, quite clearly—and sensibly—gave his support to the very words embodied in the motion before the House.

It is therefore my profound hope that at a time when the Prime Minister will, before long, embark on an international negotiation which is as difficult as it is vital to our country's interests, the Opposition will not press their opportunist amendment but instead will remain true to the position expressed by the Leader of the Opposition as recently as 11 March, and allow the Prime Minister to go to Brussels with the backing of a unanimous House of Commons.

Mr. Roger Moate (Faversham)

In recommending that the Opposition amendment be rejected, or not even moved, can my hon. Friend tell us that the Government will not oppose the last part of that amendment—the part that is dealt with by the amendment of the hon. Member for Caithness and Sutherland (Mr. Maclennan)? Can my hon. Friend be explicit about this, because it is an important point?

Mr. Lawson

It is important. As my hon. Friend has pointed out, the second part of the amendment deals with the possibility that in the last resort we might withhold part of our net contribution to the Community budget. This aspect, too, was mentioned by the Leader of the Opposition in the important utterance that he made on 11 March, although it is true that the precise words of the amendment echoed the early-day motion tabled by my hon. Friend the Member for Bury St Edmunds (Mr. Griffiths) on 18 March and now supported by 136 of my right hon. and hon. Friends.

Of course, the Prime Minister is aware of the strength of feeling on this matter on both sides of the House, and I am sure that she will convey it to her fellow Heads of Government in her own inimitable manner. Needless to say, the Government have no wish to follow this course and we hope that it will not come to that. We are negotiating for an equitable outcome and will consider this possibility only in the last resort.

Mr. Dick Douglas (Dunfermline)

rose—

Mr. Lawson

No, I will not give way.

Mr. Douglas

rose—

Mr. Lawson

No, I will not give way, so there is no point in the hon. Member jumping up and down like a jack in the box.

Mr. Douglas

rose—

Mr. Deputy Speaker

Order. The Minister is not giving way.

Mr. Lawson

We have said that we will consider the possibility of withholding part of our contribution only as a last resort. The Prime Minister made this clear as recently as last Thursday. In the light of that, I see no difficulty in the second part of the Opposition's amendment concerning withholding. However, for the reason that I have already given concerning the first part of the amendment—a reason which was implicitly accepted by the Leader of the Opposition on 11 March—I hope that the Opposition will not press their amendment. If they do, I repeat that I shall have to advise my right hon. and hon. Friends to reject it. How much better it would be for the House to give its unanimous support to the motion; and, as my right hon. Friend the Prime Minister prepares to go to Brussels, before long, to fight for our country's interests, I believe that she has a right to expect no less.

10.30 pm

Mr. Peter Shore (Stepney and Poplar)

I beg to move, to leave out from first "Council" to the end of the Question and to add instead thereof: 'so that, as the House unanimously resolved on 16th July and 22nd November 1979 Great Britain's contribution to the Budget is at least not greater than the receipts, and furthermore to ensure that there is a commitment by the Council to long-term restructuring of the Budget which would bring about a significant reduction in the proportion of spending on the Community Agricultural Policy, particularly by reducing the production of surpluses and creating a more equitable distribution of expenditure over the whole Community; and will support the Government should it as a last resort find it necessary to withhold part of the United Kingdom contribution in order to achieve a satisfactory settlement.' We shall sustain our amendment in the Lobbies if the Government, for the weak reasons advanced by the Financial Secretary, find it necessary to oppose us.

The amendment seeks to make two additions to the motion. The first is to reintroduce the resolutions passed unanimously by the House on 16th July and 22nd November in which the House stated its view that the British contribution should not exceed the receipts that we obtain. The second part of the amendment adds: and will support the Government should it as a last resort find it necessary to withhold part of the United Kingdom contribution in order to achieve a satisfactory settlement. With characteristic effrontery, the Financial Secretary attempted to attribute to my right hon. Friend the Leader of the Opposition an interpretation that his words do not sustain. When our support was keenly asked for by the Government in the debate on 22 November, I said: 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 s 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."—[Official Report, 22 November 1979; Vol. 974, c. 607.]

Mr. Lawson

The right hon. Gentleman has accused me of misrepresentation. That is a serious charge. If he will look at Hansard for 11 March, he will see that the Leader of the Opposition said: I hope that the right hon. Lady will go to Brussels knowing that she has the full support of everyone in the House for a substantial reduction in the amount of the payment."—[Official Report, 11 March 1980; Vol. 980, c. 1150.] That view is embodied in the motion. I hope that the right hon. Gentleman will not charge me with any misrepresentation.

Mr. Shore

The Financial Secretary cannot get away with attempting to state the considered position of my right hon. Friend, which is embodied in our amendment, on the basis of an abbreviated version of an exchange in Question Time in the House. It does the hon. Gentleman no good to try to wriggle out of it in that way.

Before commenting on and commending the amendment, I should like to refer to the debate itself. We heard this afternoon that the meeting of the European Council had been postponed and that no new date had been set. I heard the news with surprise and regret—surprise because, although we are aware of the difficulties of the Italian Government, I understood that an interim Administration was to be formed by Signor Cossiga, and regret because it means that the matters that were supposed to be settled at Dublin—no later—are to be delayed for months longer.

We do not know when the next summit is to be held.

Mrs. Peggy Fenner (Rochester and Chatham)

How then can the right hon. Gentleman say that matters will be delayed for months?

Mr. Shore

I shall be pleased to hear that the summit is coming forward in the next few weeks. Nevertheless, it has again been delayed. This must be a matter of regret, because there is no status quo in the situation. Money is pouring out of this country into Europe. We need immediate action to arrest the outflow.

This debate contrasts strangely with the debate on 22 November. It has only been possible to open the debate, even at this hour, thanks to our colleagues on the Transport Bill, and it will last, I suppose, for no more than three hours at a time when little public attention can be focused upon it. Previously we had a full day and the debate was opened, far more appropriately, by the Chancellor of the Exchequer. We regret the absence of the Chancellor. His absence is particularly unwelcome precisely because he will be presenting his Budget on Wednesday.

As the Financial Secretary knows, there is a crucial link between Britain's contribution to the EEC budget and the United Kingdom Budget to be presented on Wednesday. That link—or should I say "heavy golden chain"?—represents an amount of the order of £1,000 million.

The Chancellor spelt out the connection on 22 November when he said: 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". The right hon. and learned Gentleman also said: Our 1979–80 contribution is already equivalent to 11 per cent. of the United Kingdom PSBR".—[Official Report, 22 November 1979; Vol. 974, c. 592–3.] There is not much doubt about the connection and relevance in the mind of the Chancellor as recently as 22 November. I can well understand why he insisted that new arrangements must operate in respect of 1980 as well as in subsequent years.

This brings me to a major question. What has been the basis of the Government's calculation of our EEC contribution in this year's United Kingdom Budget?

What figure for our net contribution to the EEC has been entered in the national accounts? Are the Government working on the assumption of success and that the £1,000 million will be retained by the United Kingdom? Or are they working on the assumption of failure and for a further £1,000 million cut in United Kingdom public expenditure or a further £1,000 million increase in taxation?

This issue cannot be evaded. I hoped that the Financial Secretary would give us a straight answer. If he speaks, with your permission, Mr. Deputy Speaker, at the end of the debate, he will perhaps address himself to it. We shall, I suppose, know, in any event, in two or three days' time; it will have to come out. It is crucial to the whole plan of the Budget for this year.

I turn now to the major anxieties expressed in the first part of the Opposition's amendment—the anxieties that the Government are retreating from the position they accepted with the full support of the House, first on 16 July and again on 22 November. The motion that the House passed called for two things: first, for a fundamental reform of the budget arrangements, and, secondly, an outcome in which the words are familiar—Britain's contribution to the budget is at least not greater than the receipts. On both these main fronts, there is, unhappily, evidence of a serious retreat. I turn first to the question of fundamental reform.

Mr. Tony Marlow (Northampton, North)

The right hon. Gentleman says in his amendment that the contribution to the budget is at least not greater than the receipts. Would he accept that in any organisation such as the Common Market there is a headquarters overhead cost towards which everyone has to contribute? In that case, we are bound to make a slightly greater contribution than we receive.

Mr. Shore

I understand that, and I shall come to that point in a moment, because we must see that against the actual contributions that other countries are paying. It is not apparent to me that they are bearing any part of the overheads at all.

I see evidence of a retreat. The case for fundamental reform is unanswerable. The latest estimate of losers and winners—and I turn directly to the hon. Gentleman's point—was published by the Commission last Friday. I do not know why the Financial Secretary was so coy about this. This reinforced what was already an overwhelming British case.

The figure of £1,000 million of last November—the net figure of our contribution—has now become £1,125 million. That is almost twice as large as the West German contribution of £665 million. West Germany has, as we know, a national income which is roughly twice our own. All the rest are gainers. France gains £62 million, Luxembourg gains £178 million, Holland gains £244 million, Denmark gains £265 million, Belgium gains £297 million, Ireland gains £335 million and Italy gains £410 million. What indeed would they do without us?

It is indeed an amazing situation that reflects equally the bizarre cluster of taxes that make up the so-called "own resources" of the Community and the great imbalance of Community expenditure in sustaining what must be the most protected and costly agricultural system in the world.

It was my hope that, armed with the resolution of the House, the Government would open up the whole question of the structure and composition of the EEC tax system, and that it would insist that "own resources" should give way to a progressive and redistributive tax system and that since a major CAP reform cannot realistically be met—if at all—except over a period of years the simple and immediate solution would be found in a straight refund of excess British contributions.

That has not happened, and as far as I can see the "own resources" system has not even been challenged during all these weeks. Indeed, in her post-Dublin statement on 3 December the Prime Minister had only this to say: Fundamental reform may be desirable—I happen to think that it would be—but fundamental reform would change all the existing mechanisms, all the existing basis, of the budget". Yes indeed; that is the point. The right hon. Lady went on to say: Therefore, one goes not to fundamental reform but to what we did—to using the existing Community mechanisms. Those were two: to diminish the contributions and to increase the receipts".—[Official Report, 3 December 1979; Vol. 975, c. 33–34.] I regret this very much for two solid reasons that I now put to the House. First, the present tax system is not only absurd in its incidence and composition but it has the effect of putting the United Kingdom permanently in the position of seeking to claw back what has already been conceded. We are, therefore, always in the position of a demander with a status quo operating powerfully against our interests. That was the situation when the previous Labour Government argued for the first corrective mechanism. It is the same with the revised version of the corrective mechanism that the Government are seeking today.

The second objection is no less powerful. By seeking to secure increased Community expenditure in Britain we are allowing the EEC increasingly to determine our own public expenditure priorities and to increase its influence and competence over Government decisions in Britain.

The other area of retreat with which we are concerned is the aim and the target of the whole negotiations. We armed the Government with the words Britain's contribution to the budget should be at least not greater than the receipts". We needed to make it abundantly plain that in any modern and acceptable tax regime some regard must be paid to taxable capacity and that since we stand in seventh place in the national income league of the Nine the question of Britain contributing to others should not arise at all. That was why those words were chosen. I thought that we were at one on this.

I believed that we were on 22 November when the Chancellor of the Exchequer, commenting on comparative GNPs and calling for a broad balance that we were prepared to accept as being very near our aim, said that he was amazed at his own moderation. So broad balance it was until Dublin.

Dublin was a clear failure and the Prime Minister came back with a new formula. She was ready, or so the House was told on 3 December, to search for a genuine compromise, although her room for manoeuvre—the Financial Secretary has recalled the words—was limited. So in spite of the Prime Minister's assertion last Thursday that we had very little room for manoeuvre, there has been movement—and in the wrong direction.

Meanwhile, the scale of Britain's contribution has risen, according to the latest estimates, by no less than £124 million. The Government's motion now refers not to broad balance but only to a "substantial" reduction. I think that the House has every reason to think carefully and sceptically about what that word means.

I warned the right hon. Lady before Dublin, and after that not only was her own credibility at stake but, more important, that of this country. If, in the event, we are out-bluffed, out-manoeuvred and out-faced on this issue deliberately and carefully chosen as the main battlefield for redress—and there are many other issues on which we shall need redress—we shall lose all credibility in our future dealings with the EEC.

That brings me to the last part of our amendment, that the House will support the Government should they as a last resort find it necessary to withhold part of the United Kingdom contribution in order to achieve a satisfactory settlement.

Mr. Hugh Dykes (Harrow, East)

rose—

Mr. Shore

All right. I have often given way to the hon. Member, but he generally makes his normal speech during his intervention.

Mr. Dykes

There is no need for the right hon. Gentleman to get panicky about that tonight. Will he say what are the other issues on which the Opposition want redress?

Mr. Shore

There are very many matters. There are matters concerning State aid, the general course of economic policy and the loss of rights by this House to the EEC. There should be no doubt that there are many matters that will need to be put right.

I said that the House will support the Government should they find it necessary to withhold part of the United Kingdom contribution in order to achieve a satisfactory settlement. The House will recognise the words. They are taken from the closing lines of the motion in the name of the hon. Member for Bury St. Edmunds (Mr. Griffiths) and a number of his hon. Friends. It is supported by 136 Conservative Members of Parliament. They will be pleased to hear that the Financial Secretary, speaking on behalf of the Government, has no objection to their words. Indeed, as I understand it, that is not the reason that he is seeking to invite the House to oppose our amendment. Nevertheless, it is an amendment of the utmost importance. It rightly refers to a remedy of "last resort", and it is a last resort that I believe we are rapidly approaching.

The words contained in paragraph 96 of the famous 1971 White Paper—if I may re-quote what the Financial Secretary said—stated: Should an unacceptable situation arise, the very survival of the Community would demand that the institutions find equitable solutions. Those words were also quoted by the Chancellor of the Exchequer on 22 November. I assume that those words carried no weight at the Dublin summit, or in any subsequent discussions. Those words were the so-called safeguards which the House was offered six years ago to ease the anxieties which were then so strongly expressed by many right hon. and hon. Members on both sides of the House.

I said at the time that I did not believe that they had any binding force, and that if they had been binding they would have appeared, if not in the Treaty of Accession itself, then in one of the large numbers of protocols, joint declarations and declarations that were attached to it. But they did not appear there.

I gather that the Government now share that view. I assume that they have had advice from the Law Officers, otherwise I assume that they would take the matter to the European Court, along with the other alleged breach of agreement relating to promises that agricultural support expenditure would fall steeply in the total of Community expenditure.

I assume also that the Government have considered the wider question whether in the operation and the effect of the "own resources" system the Council and the Commission are in breach of the Treaty of Rome, and, in particular, of article 6 (2), which states: The institutions of all the Community shall take care not to prejudice the internal and external financial stability of the member States. I take it that those remedies are closed. If that is so, we are faced with an obstinate refusal to right a manifest wrong. Against the incomprehension of the Seven and the wilful and arrogant opposition of France, the options before us are either meekly to surrnder our claim, or to take direct British action to sustain it. The Government have no reason to cavil at our resolution on this account.

Last Thursday the Prime Minister told us: in the last resort we shall have to consider withholding our value added tax contribution. Let there be no doubt about that."—[Official Report, 20 March 1930; Vol. 981, c. 636.] The Government and their advisers must by now have decided what needs to be done. The House would welcome a statement, both on the present law in relation to the withholding of Britain's budget contributions, and on the amending legislation which in my view will be necessary if we are to exclude the payment to Brussels either of VAT or the agricultural levies and customs duties.

I am surprised at the attention and focus that have been placed upon VAT rather than upon the other two components of "own resources". Because of the pattern of Britain's expenditure, VAT, while it still operates adversely, at least has some basis, reason and common sense. It relates to the actual expenditure on goods and services in the different countries. It can therefore be taken to be some surrogate of ability to pay. But the other two components in "own resources" are entirely uncertain and arbitrary in their effect. We know, and the Commission knew when it decided to cement this system upon the Community as a condition of opening negotiations with Britain in 1970, that in putting a tax on trade with countries outside Europe, and in putting a tax on imports of food with countries outside Europe, they were taxing the whole history of Britain's trade, particularly its food trade.

Sir Ronald Bell (Beaconsfield)

The right hon. Gentleman knows that I regard this discussion as a ritual dance, masking the inevitable. Is not the difference between VAT and the other components that the other components are appropriated specifically, whereas VAT is simply an amount of money equal to the yield of a 1 per cent. value added tax?

Mr. Shore

I note what the hon. and learned Gentleman has said, but I am not sure that that constitutes a major difference in terms of Community law or in terms of the Treaty, or that it should govern our approach to the three taxes which we are discussing. Under the European Communities Act 1972 those three taxes are the legal property of the Community. I quote again from a speech by the Chancellor of the Exchequer on 22 November. He said: Nobody in his right mind would contend that the legal tail should be allowed to wag the economic and political dog,"— whatever that may mean. However, it sounds encouraging to me, and therefore I put it to the House to encourage all hon. Members.

Tonight, on behalf of Her Majesty's Opposition, I place on record our support for direct action to obtain relief from the Community budget. We agree with the Prime Minister that we are in fact talking about "our own money." While Britain has never been slow to contribute to others if the need is established, we cannot and will not tolerate arrangements which, due to the weakness, folly and obsession of the right hon. Member for Sidcup (Mr. Heath), backed by a complaisant Conservative majority, allow the British people to be exploited by countries more prosperous than we ourselves.

In conclusion, I repeat the pledge that we gave on 22 November: that the Opposition will give every facility to amending legislation that the Government may need to bring forward to the House to secure the objectives that we all seek.

Several hon. Members

rose—

Mr. Deputy Speaker (Mr. Bryant God-man Irvine)

We now have just over two hours left for the debate. I am already aware of 12 right hon. and hon. Members who wish to catch my eye, plus the wind-up speeches. I can leave the arithmetic to the House.

10.56 pm.

Sir Derek Walker-Smith (Hertfordshire, East)

As you have just said, Mr. Deputy Speaker, this is a short debate, the length of which is in inverse ratio to its importance. Therefore, I shall seek to be as brief as possible.

I am wholly in favour of the Government's motion in the terms in which it is tabled. I have to depart from the Opposition's amendment, though for reasons rather different from those put forward by my hon. Friend the Financial Secretary to the Treasury, as I shall make clear later.

The Government's motion comprises two facets: first, support for the reduction of Britain's net contribution, and, secondly, support for a policy of restructuring the Community budget so as to reduce spending on the common agricultural policy. These two objectives are, of course, linked. While the first may seem the more urgent, the second is certainly the more important.

A rationalisation of the CAP will automatically benefit Britain and reduce our net contribution. Complementarily, whatever temporary amelioration or arrangement can be achieved for Britain in the short term, in the long term only rationalisation of the CAP can secure an improvement in our position.

It follows that the short-term objective must be presented and pursued in the context of the longer-term objective. The improvement of Britain's position must be seen as a consequence of the restructuring of the budget and the CAP, which is itself a logical and necessary exercise for the improved working of the Common Market in the interests of the Community as a whole. On no other basis is Britain likely to secure a lasting improvement in her position.

The short term plea of poverty can never be completely convincing, any more than it can ever be a dignified posture for a great nation. It is bound to stick in the gullets of a proud people and is not one that we should wish to make. Nor can it carry much conviction indeed, coming from the uncovenanted beneficiaries of North Sea oil. It is bound to evoke the response that, if we have to rely on a plea of poverty, it is our own fault, as indeed, to a large degree it is.

No more convincing is reliance on the so-called principle of a juste retour. Nowhere in the Treaty is such a principle enshrined. Indeed, it would be odd if it were so in an economic community whose basic concept is the efficacy and desirability of free and unfettered competition.

Mr. Tom Ellis (Wrexham)

Will the right hon. and learned Gentleman give way?

Sir D. Walker-Smith

There is no one in the House to whom I would rather give way than the hon. Member, but I think that I would be better advised to resist the temptation. We will talk about it later.

It follows, therefore, that the emphasis must be on the long-term objective, with any immediate ad hoc amelioration of Britain's position ranking only as something on account in the necessary interval before the long-term improvement can be made.

As to the present workings of the CAP—I say "present workings" because the workings are not enshrined in the Treaty—I spoke on this in more detail in November last and I respectfully remind the House of my conclusion on this point. I said: 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 said then: I do not say that it will be easy, but reform is necessary and will in the long run benefit not only Britain…but also those who may be minded to oppose it now."—[Official Report, 22 November 1979; Vol. 974, c. 612–13.] My second point concerns the relationship between contribution and expenditure. I do not believe, as some may be tempted to do, that Community spending in the United Kingdom can, of its nature, ever be a satisfactory alternative to a restructuring of the CAP. [Hon. Members: "Hear, hear."] There are two main reasons for this. First, it is at best a palliative. That is admitted in paragraph 9 of the Commission document, which says: In its proposals…the Commission also stated any measures on the expenditure side of the budget relating to United Kingdom should be special, temporary and ad hoc. The Commission reaffirms the views. The second reason is that the proposed procedure by way of a Council regulation under article 235, with the procedures and controls summarised in paragraph 20 of the Commision document, would inevitably entail a step in the direction of detailed centralised Community control—a step towards what is usually, though loosely, termed in the House a Federal Europe.

For both these reasons, therefore, I conclude that compensation by way of increased expenditure in the United Kingdom is not a satisfactory substitute for the basic restructuring of the CAP.

My third point relates to method. The motion seeks support—and properly—for my right hon. Friend the Prime Minister's efforts at the Council. It does not specify methods. But not so long ago at Question Time the Prime Minister proclaimed—again properly, in my view—her determination to act in accordance with the rule of law. There are now suggestions in the Opposition proposal and in early-day motion 513, that the United Kingdom should unilaterally withhold some of its contribution to the Community own resources.

Mr. Stanley Orme (Salford, West)

Tell us what the Prime Minister said.

Sir D. Walker-Smith

I am telling the House what I say.

Mr. Cryer

We are not criticising the hon. and learned Member for Hertfordshire, East (Sir D. Walker-Smith), but he should tell us what the Prime Minister said.

Sir D. Walker-Smith

I was sent here by my constituents to express my views. I was doing so when some of the Opposition Members who are now making sedentary remarks were still in their political nappies. Maybe some of them still have not grown out of them. This is a serious debate and we want to make our serious points shortly.

We have to ask ourselves: would such action be within the law? Time forbids tonight a detailed analysis of the legal position. Basically, however, article 201 of the Treaty envisaged the replacement, following a unanimous decision of the Council, of the original method of financing the Community under article 200—that is to say, by way of prescribed percentages from the member States, by a system of Community "own resources".

This system was duly specified in the Council decision of 21 April 1970. Articles 2 and 3 of the decision specified respectively customs duties from non-member countries and agricultural levies as part of the "own resources" for the Community, and article 4 specified a third element as a yield from VAT not exceeding 1 per cent. Therefore, prima facie at any rate, payment of the prescribed VAT contribution is a Treaty obligation imposed in 1970, accepted by Britain in its Act of Accession and not sought to be altered in the so-called renegotiation of 1975.

If and in so far as it is a treaty obligation, it would be a violation of international law to breach it. I am bound respectfully to caution my right hon. Friends in regard to such a course. Bad behaviour by another member State in flouting the rule of law would be a bad precedent for Britain to break the law. Law and the treaties are the cement of the Community's constitution. If that cracks, the edifice must crumble and collapse.

But it would not be only the Community that would be damaged. The high standing of Britain in the world rests in no small measure on the belief that we honour our bond and abide by the law. Lose that, and we lose much—perhaps all. [Interruption.] Those who do not mind whether the Community collapses—which is one thing—must nevertheless still have regard for Britain's standing and her reputation. In Shakespeare's words, Who steals my purse steals trash… But he that filches from me my good name Robs me of that which not enriches him, And makes me poor indeed. Therefore, I ask this question: if our partners in the Community will not see reason, is there no alternative other than to break the law?

Mr. Eric S. Heller (Liverpool, Walton)

rose—

Sir D. Walker-Smith

There is an alternative, and I shall spell it out. It would be better—far better than to seek to continue nominal membership of a crumbling Community in an atmosphere of competitive and cumulative law-breaking and evasion—to seek an honourable way out, an honourable exit from a Community in which, in its unreformed state, we could not usefully play a part.

There is such a way. It is, of course, true, as I indicated to the House in the previous Parliament, that unilateral repudiation of a treaty and its obligations is a breach of international law, and that is not what I would advocate. But there is another way. Under article 54 of the Vienna Convention on the Law of Treaties, ratified by the United Kingdom only 10 years ago, the termination of a treaty or the withdrawal of a party may take place…at any time by consent of all the parties after consultation with other contracting States. That is the course that we would have to pursue—to sit round the table with our partners, not in a spirit of recrimination or hostility but in amity and understanding, to seek that honourable solution, and to say then—

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

rose—

Hon. Members

Give way.

Sir D. Walker-Smith

—that if they unwisely insist on a continuance of the common agricultural policy in its present form, in the words of Sir Winston in another context, we can have no part or lot in the thing they seek to do. It would be a sad thing, after 10 years of conscientious endeavour to assist the working of the Community—but not so sad as to seek to continue on a basis of sham or evasion of the law.

There would remain those various possible forms of friendly and meaningful association with our European friends that some of us put forward 10 years ago and, indeed, 20 years ago, as an alternative to membership of the European Economic Comunity.

But we are not yet faced with that position. Our hope must be that the Community will listen to the voice of reason and see that in the long run and, indeed, as a matter of urgency, the rationalisation of the CAP and the budget is vital not only in Britain's interests but in the real interests of the Community as a whole. My right hon. Friend the Prime Minister will go to the Council with the voice of reason and with our hopes that it will prevail.

11.9 pm

Mr. Robert Maclennan (Caithness and Sutherland)

The House meets tonight against a background of crisis in the European Community and in the economy of the United Kingdom. The two issues are not unrelated. It is right that even in so short a debate we should reaffirm the country's deep concern that the budgetary arrangements of the European Community constitute an unacceptable burden on the British people.

It is right that the Opposition should have the opportunity of reaffirming their support of the Government in their attempts to rectify a wholly inequitable and unjust burden at the forthcoming summit. The House has done this before. It did so with a unanimity that no doubt supported the Prime Minister in her efforts. I deeply regret that it is not possible to voice that same unalloyed unity tonight. I regret that that is due in no small measure to the part played by the Prime Minister and to the way that she has conducted these negotiations.

The motion commended by the Financial Secretary to the Treasury spoke only in terms of the Government's objectives. Had that been the only issue before the House, we might have supported the Government without cavil. Regrettably that is not the only issue before us. The Prime Minister, in the course of two interventions last week, took us beyond the Government's objectives to consideration not only of how the Government would seek to fulfil their objectives but of their response if our fellow members of the Community should fail to accept our proposal.

In an earlier debate on the Government's conduct in their negotiations about Rhodesia, I voiced some doubt to the Lord Privy Seal about whether it was appropriate for the House not merely to give its assent to objectives of diplomacy but to be asked to approve the methods and techniques. I voice that doubt again tonight. It cannot help the Government, either in their diplomatic negotiations with the Community or in their understanding of such issues, to seek to obtain our support for the proposition that Her Majesty's Government should illegally withhold the Community's own resources should those negotiations fail.

It may be argued that the Government have not put that proposition to the House. I accept that that is so. However, the triviality of the Financial Secretary's speech might have been lessened if he had addressed himself to the issue. That issue was put before the House by the hon. Member for Bury St. Edmunds (Mr. Griffiths) and 135 of his colleagues. It bore all the marks of being an inspired motion. The name at the top of the motion led some of us to believe that that was so. Whether that is the case or not, it has not been repudiated by the Government. In so far as there has been any comment on it, it must be taken that the Government are not displeased by that expression of view. The Financial Secretary spoke of the proposal that stands in the names of my right hon. Friends. He said that he had no objection to the part of it that had been drawn from the terms of the early-day motion in the name of the hon. Member for Bury St. Edmunds. We can therefore take it that the Government accept, in broad terms, its sentiments.

Mr. Eldon Griffiths

I did not engineer the early-day motion. It was the product of a uniting among those on this side of the House who had different views on the matter. I, like the hon. Gentleman, have been an ardent supporter of the European Community, and I shall continue to be so. I ask him to accept that the early-day motion was an expression from the many voices of opinion on this side of the House.

Mr. Maclennan

I may be naive, but I am not as naive as the hon. Gentleman wants the House to believe. I did not suggest that he had inspired the motion. I suggested that it was inspired by the Government. It received from the Financial Secretary the imprimatur of official approval. If we were able to focus exclusively on the inequity of the budgetary arrangements, those like myself who fought long and hard for entry to the European Community—and to ensure that we played a constructive role in it which would bring about a more equitable distribution of the Community resources—would have given our unalloyed support to the Government. That, alas, we cannot do. The Prime Minister made it plain that she intends, as a last resort, to act illegally.

Mr. Heffer

Does not my hon. Friend agree that my right hon. Friend the Leader of the Opposition made it clear a week ago that the Government should refuse to pay VAT contributions because it was necessary to reach a settlement with the EEC? Is not my hon. Friend arguing the case that he argued when he broke the ranks of the Labour Party—[Interruption.] I am sorry if hon. Members do not like my remarks, but he broke the ranks of the Labour Party—[HON. MEMBERS: "What about devolution?"] My hon. Friend broke the ranks—

Mr. Deputy Speaker

Order. The hon. Member knows that interventions should be brief.

Mr. Heffer

My hon. Friend broke the ranks of the Labour Party when it was totally opposed to entry to the EEC, and many of my right hon. and hon. Friends voted with the Conservative Party. Is not my hon. Friend continuing that argument, although we have made it clear that we shall support the Government if they make a real attempt to protect our interests?

Mr. Maclennan

My argument is not with my hon. Friend whose long-term opposition to the EEC is well known. If my lion. Friend is as willing to extend the hand of comradeship to me as I am to him—

Mr. Heffer

I have no intention of doing that.

Mr. Maclennan

If my hon. Friend were to do so, we would find ourselves in an harmonious party.

Mr. Heffer

I shall not do so. It is a disgraceful matter.

Mr. Maclennan

The Prime Minister raised the issue in its sharpest form. The suggestion comes from a Government who made one of their principal planks at the general election the importance of sustaining law and order.

There can be no worse posture for a Government to take in that battle—and it is a battle in this modern world to sustain law and order—than deliberately to announce the intention to depart from law and order if certain political objectives are not achieved.

I am moved to comment on this matter tonight because this is not the first time that the present Government have, in pursuit of political objectives, shown somewhat scant regard for the law. In fact, Ministers have, on more than one occasion of late, come before this House to announce policy decisions for which it appears they can make a colourably strong legal case, but which, if pressed, they would find hard to justify as the appropriate legal action.

I refer to the case of the revision of the immigration rules. The Home Secretary, in announcing them, said that they were probably defensible, but he refused to invite the Attorney-General to give us his authoritative view that they were not in breach of the European Convention on Human Rights.

The second example is the case of the Secretary of State for Social Services, who—

Mr. Michael McNair-Wilson (Newbury)

On a point of order, Mr. Deputy Speaker. Can the argument about immigration have anything to do with the EEC budget?

Mr. Deputy Speaker

I think that the hon. Member must have not heard the last few words of the hon. Member's previous sentence.

Mr. Maclennan

As I was saying, the second example is the case of the Secretary of State for Social Services, who showed scant regard for the law in his instructions to an area health authority, and once again the Government appeared to find a political objective more important than the upholding of the rule of law.

But undoubtedly the issue which faces us tonight is by far the most serious indication of the Government's willingness to depart from the rule of law, because on this occasion there is no pretension that the Government would not be acting illegally if they withheld from the Community their own resources. Under the Council's decision of 21 April 1970, which was quoted by the right hon. and learned Member for Hertfordshire, East (Sir D. Walker-Smith), the provisions were laid down for the establishment of the payments to the Community by the "own resources" method. His speech has saved me from going over the legal arcana in support of the view which has not been challenged, that to withhold own resources, to withhold VAT levies or customs, would be an infringement of the law.

Indeed, the Prime Minister herself has not sought to deny that it would be an infringement of the law. She was interviewed on the "Panorama" television programme by Mr. Robin Day, who asked her whether she was prepared to withold some of our contributions, such as the VAT-related elements, if this country did not get more than half a loaf. The Prime Minister answered: There are two things that you could do, one of which would be to consider withholding, which I would be very loth to do because it means going against the Community law". In an earlier incarnation the Prime Minister was a barrister, and therefore she understands the meaning of the law. She knows perfectly well that what she is doing is a political choice to defy the law of the Community. That is to invite contempt not only for the Community, but for the very institution of the law of which this House is the prime safeguard. I hear my right hon. Friend the Member for Battersea, North (Mr. Jay) suggest under his breath that the law of the Community is not real law. That argument is not one that the Prime Minister would seek to sustain and it is not one that is sustainable by the House of Commons, which passed the Act that makes this Community law the law of our land. It also incorporated into our domestic law the provisions that my right hon. Friend so much dislikes, and that the House accepted when, following further consideration of these matters, the renegotiation of the very financial mechanisms that are at issue tonight, and the referendum of the people of this country, we determined by a clear majority to maintain our membership of the European Community.

He who attacks the law by which this country lives goes much further than damaging our membership of the European Community. He undermines our respect for what holds society together. The Government's failure to recognise that, and their propagation of the notion that because the political objective is reasonable that entitles us to disregard our freely entered into international legal commitments and the law of the land, put at risk much that this House has fought for since it was first elected as a representative and guardian of the free people of this country.

Mr. Deputy Speaker

Do I take it that the hon. Gentleman is not moving his amendment?

Mr. Maclennan

I beg to move, as a manuscript amendment to the proposed amendment, to leave out from second "Community" to the end of the admendment.

Mr. Heffer

On a point of order, Mr. Deputy Speaker. On another occasion 46 Members supported an amendment of mine on the Olympic Games. It was not accepted by the Chair. How is it that a manuscript amendment can be accept- ed at this stage, when I was told quite clearly by the Chair that only one amendment could be accepted? I should like to know exactly what is the position.

Mr. Deputy Speaker

The matter was determined before I came into the Chair. I am only carrying out the instructions that I gather have already been announced to the House.

Mr. Heffer

Further to that point of order, Mr. Deputy Speaker. [HON. MEMBERS: "Wasting time."] I may be wasting time, but this is a matter of importance. I trust that when on future occasions other Members try to move further amendments on issues of the type that I tried to raise on the Olympic Games they will not be ruled out of order on the basis of your decision tonight, Mr. Deputy Speaker.

Mr. Deputy Speaker

Decisions of Mr. Speaker are not matters for the hon. Gentleman, or for me, to question.

11.28 pm

Sir Brandon Rhys Williams (Kensington)

The House is approaching the subject of our relationship with the European Community rather as if my right hon. Friend the Prime Minister had today returned from the summit completely empty-handed. I think that we are being a little too pessimistic if we assume that the forthcoming summit, whenever it is held, will result in a total defeat for my right hon. Friend's campaign.

I was rather pleased when we heard today that the summit meeting had been postponed, because that gives us a little longer to make known how very strong public opinion in this country is and to study the positions that are being taken up by the other member States. They are by no means all as hostile to this country's interests as certain hon. Members' speeches might have us believe.

My right hon. Friend goes into the negotiation, I believe, with the good will of the whole House. We are not helping her tonight by taking the fractious tone that we are taking and appearing to be disunited, when a lasting reduction in the United Kingdom's net contribution to the Community Budget and a commitment by the Council to long-term restructuring of the budget must be objectives shared equally strongly on both sides of the House.

My right hon. Friend has considerable strengths in the negotiations. I do not want to make too strong a party point, but the Treaty of Rome is really the free enterprise manifesto. On the Tory side of the House our deep-seated convictions go along with the essence embodied in the Rome Treaty. On the Opposition side of the House, from the very start, there have been right hon. and hon. Members who were opposed to our adherence to the treaty because its entire philosophy was hostile to the brand of socialism which they preached.

My right hon. Friend is not opposed to the essence of the Rome Treaty and that is recognised on the Continent and it is much in her favour. North Sea oil, which appears to be a millstone or embarrassment, is undoubtedly an enormous source of strength to this country in our dealings with the other member States. It is only fair to pay a certain tribute to the right hon. Member for Deptford (Mr. Silkin), a former Minister of Agriculture, Fisheries and Food, because he succeeded in awakening the interests of consumers, not only in this country but throughout the Community, in the future course of food prices. There are, no doubt, many people on the Continent who are afraid of inflation, just as we are, and who do not welcome the way the common agricultural policy seems all the time to be pressing food prices up without bringing about the basic restructuring of Continental agriculture which is needed if ultimately Continental agriculture is to solve its problems.

We also have the strength that Great Britain is a very important market for the other member Stales. Indeed, it is too important, and I shall come to that in a moment.

Certainly, we have also to admit that my right hon. Friend enters the negotiations with two major disadvantages. One of them is that the renegotiation of the Treaty, carried out by the former Labour Government, was totally bungled. It was recognised that problems just such as we have encountered this year would arise. But the way in which the renegotiation was handled was bungled and the mechanism incorporated in the agreement has not operated as it ought to have done this year.

Mr. Cryer

The hon. Member is not alone, on the Conservative Benches, in talking about bungling the renegotiations. Could he explain what view he took in the referendum, following renegotiations, and say whether he advocated that people should vote "No" or "Yes"?

Sir B. Rhys Williams

It was recommended to the House, after weeks of negotiations, that the problems had been solved. I think that hon. Members on both sides of the House wanted to believe, and did believe, that the advice the House received was right. I should have liked to have the wisdom and insight of the hon. Gentleman. Acceptance was strongly commended to us by his right hon. Friend. As things turned out, his right hon. Friend was wrong and he was right. No doubt that will help his advancement in his party in due course.

I do not expect that my right hon. Friend will be able to come back having achieved in the current year a complete readjustment of the imbalance between Britain's contribution and what we receive. I do not consider that it is possible, in the context of the annual budget, especially as time goes by, to snatch all the bones out of the dog's mouth and achieve a fairer redistribution in the current year. That does not mean that my right hon. Friend's mission will have failed. It does not mean that she must attack on particular lines which will ultimately lead to success and to the long-term restructuring of the Budget". It is helpful to try to increase our comprehension of the bargaining positions of the other member States and not merely build up an attitude of confrontation. We have problems with redundancies and overmanning in the steel, textile and other industries that are in difficulty or decline. On the Continent, they have problems with their agriculture. We should sympathise with their problems, just as much as we ask them for their sympathy for ours.

It is necessary to aim at the restructuring of the CAP, and not just at its destruction or the abandonment of its principles. We should recognise that it has social purposes and we should insist that those purposes are not achieved simply by setting agricultural prices inordinately high.

There are ways of achieving the social purposes, and farm workers on the Continent deserve our sympathy just as much as do redundant textile or steel industry workers in this country. We should work with the other member States to solve the problems in a realistic and human spirit. It is not impossible to obtain support for the reform of the CAP that would take the social element out of the series of arrangements that have grown up over the years and place far more emphasis on the responsibility of national Governments to deal with the social problems of their own agriculture industries.

We need to shift the balance in our thinking about agriculture from short-term to long-term policy making. One of the basic problems of Continental agriculture is still a shortage of capital. Producers on low incomes go out for the milk and dairy sector, where they can get two crops in a single day, and do not put enough effort into, for example, long-term crops such as timber, where they get only a single crop in a lifetime. The fundamental problem is shortage of capital—which brings me to an important point.

The Community will not be able to solve its problems within the context of an annual budget. We are still living in the Stone Age in relation to the Community budget. We can look ahead only from one year to the next. Until we know what the next crop is to yield, we cannot look further than one year into the future.

While we are working from hand to mouth in that primitive way, the problems of Western Europe will not solve themselves. We need to introduce a system of budgeting that runs over several years at a time and even takes in long-term investment as part of the deliberate projects of the Community. That is a matter which my right hon. Friend should stress, because this country has so much need for major capital investment in order to restructure our industries and to improve our electricity supply, our transport systems and many other aspects of our industrial base.

We also need to take a long look at the significance of the 1 per cent. contribution which next year will prove inadequate to finance even the CAP, let alone any other aspects of the Community budget, such as social policy and the rest.

The problem facing us will have to be solved next year, and as members of the Community we should be bending our minds to the right way to find a solution to it, just as the other member States are seriously considering the same problem. We should work with them and see that the solution that we find together brings about the restructuring of the budget in this country's interests. I should like to see far more emphasis on capital expenditure and less on redistribution of income within the context of the Stone Age, one-year-at-a-time budget.

I promised that I would come back to the rate of exchange and the balance of imports and exports between this country and the other member States. I am not one of those who think that the Bank of England has handled our affairs well since the war, or indeed during the whole of my lifetime. It has been obsessed with the prestige of the pound and has not given enough attention to the interests of manufacturing industry.

It would have been better if Hugh Dalton, instead of nationalising the Bank of England, had relocated it in Birmingham. We might then have had the character in our central bank that the Germans have in theirs, a major preoccupation of which is the profitability of German exports. It does not seek to turn Frankfurt into an international finance centre. The Bank of England, in contrast, has not been concerned to promote the profitability of British exports. Its obsession has been to make London into a profit centre for international finance, regardless of the long-term effect on the British economy. Today, we are seeing this policy in the extraordinarily high rate of exchange for sterling, which has resulted in floods of manufactures from the Common Market and the rest of the world coming into the British home market and the difficulties of our exporters sending goods abroad in exchange.

If it was not for the fluke of North Sea oil, our balance of payments would be exceedingly sick. It is possible to blame the richness of North Sea oil for the exchange rate situation. I recommend that my right hon. Friend should send a message to the governor of the Bank of England instructing him to arrange his affairs in such a way that there is a reduction in the sterling rate of exchange at the rate of 1 per cent. a week against the Smithsonian average until the autumn when the matter could be looked at again. If we could achieve a better balance on our trade with members of the Common Market, we should be able to restore the broad balance for which we are looking through the activities of the private sector.

Although I do not believe that we shall be able to achieve a readjustment of the public sector element in the budget overnight, or even within the next 12 months, we do not have to suffer, as we are now doing, from floods of imports from the Common Market into this country and the weak performance of our exporters in sending our goods into the Common Market to achieve a balance.

We can achieve through export profits a return to this country far greater than the amount we are spending in our official transactions with the Community through the present operation of the budget—but only if the rate of exchange can be adjusted to make that possible. This is why I believe it lies within our own hands to a great extent to restore our balance of advantage with the Common Market.

I would deeply regret a situation in which we found ourselves put to the point where we had to breach the Treaty or to repudiate our debts. I do not believe that we should make the possibility of that a part of our negotiating posture. Our object should be to achieve a better understanding of the attitudes of the other member States and to put our own affairs in order.

11.42 p.m.

Mr. J. Enoch Powell (Down, South)

Anyone who studies the document before the House and referred to in the Government motion, as well as the preceding document relating to the Dublin summit, must be struck by the references to "convergence". Indeed the emphasis on that concept finds a place in the title of this document. Further study will show that the idea of "convergence" is meant differently, indeed, in an opposite sense, by this country and by the rest of our partners in the Community.

For Britain, "convergence" means, and always has meant, the attainment of a roughly equal standard of economic performance between the member States of the Community. Indeed, that prospect was held out to this country as one of the inducements to agree to our membership eight years ago. But that is not the meaning of "convergence" as that term is understood by the Commission or by the Continental members of the Common Market. They mean by it the increasing amalgamation of the economies of the different States until the Common Market, in effect, functions as a single economy.

The contrast is brought out strikingly and, indeed, is proved by the different methods by which Britain and the Community wish to solve what is called Britain's problem. We call for a radical alteration of the Common Market that is bound permanently, by its nature, to involve the large deficit—the large net payment—that this country has to make to the rest of the Community. We call for the removal of that part of the institution that was essential to the member States of the Six before we joined. What is more we clearly have in our minds—and this is present in the terminology used in both the Government's motion and the amendment of the Opposition—the notion of a quid pro quo. One pays in and one roughly gets out what one has paid in. That is appropriate to the retention of our individual national sovereignties and of our individual national economic entities, but it is repudiated in express terms by the EEC, which instead proposes a series of measures which are temporary.

The most striking clash between the objectives of the Government and the proposals put forward by the Community is that the Government insist that the solution must be lasting—the Government insist that whatever rearrangement there is must be lasting in its effects—whereas the Community insists that these are to be temporary measures. They are envisaged by the Community as essentially regional policies which will be applied for a time until gradually we learn to see ourselves, and learn to fit into the economy of the Community as a whole, as a province within a larger State.

Our Community partners might well adapt the celebrated American claim that we have "lost an empire and not found a role" and accuse the British of having ceased to be a nation and of not being prepared to admit that they were a province. It is a fundamental divergence, not a convergence, that has now emerged, and it is only right that we should recognise its fundamental nature and that we should insist on that fundamental nature being recognised by the rest of the Community.

The Government are, of course, right in saying that our problem, as we see it as a national economy, is one which calls for a permanent remedy. But then they are looking in the opposite direction to that in which—

Mr. Tom Ellis

Will the right hon. Gentleman give way?

Mr. Powell

I am sorry, but we must all try to be brief and I hope that the hon. Member will forgive me if I develop my arguments as briefly as I can.

The Community is looking in the direction of increasing economic unification. I think that whatever the state of opinion was eight years ago the experience of the last eight years has proved that the constitutional and economic divergence and incompatibility of the United Kingdom with the rest of the Community has not diminished. It has become more conscious and, as experience has evolved, more and more of the people of this country have understood and grasped it.

What we must do, therefore, is to seek not a patching-up and glossing-over of what is a radical divergence but a fundamental alteration of our relationship with the rest of the Community. There is no question of going back upon 10 years of our history. There is no question of the United Kingdom turning its back on the Continent, economically or politically. But unless we are to be in a jangling, warring and incompatible stance, one towards another, we must find a means whereby our constitutional and economical incompatibilities with the present system are recognised and met.

That raises the question of how we are to approach the matter. I do not believe that we should approach it by what I call "the French method". It is easy in our frustration to say that we have seen how successful the French were in imposing their will upon the Community by staying away, by not playing the game, and by breaking the law and inviting the Community to see what it would then do. I do not believe that those are measures for Britain. Apart from other considerations, they are measures which imply the integration of the Community, and which play upon the integration of the Community. They lie within the ambit and concept of French stataecraft. They are not measures that meets our requirements and the reality of our economy and constitution.

I intend to support the amendment of the hon. Member for Caithness and Sutherland (Mr. Maclennan) because I do not believe that we can adequately measure the gravity and the fundamental nature of the conflict in which we now find ourselves simply by saying that we shall stop paying.

I am in accord, to my pleasure and not to my surprise, with the speech of the right hon. and learned Member for Hertfordshire, East (Sir D. Walker-Smith). It is not to my surprise, because eight years ago, without any deviation from principle, he led the opposition to Britain's entry into the EEC. There is one correct and honourable way whereby we can secure the fundamental change and reorganisation of our relationship with the rest of the Community.

When we were considering joining the EEC we first had to make a declaration of intent that it was our intention, given a successful negotiation, to join. Until that declaration was made no negotiation could take place. We must learn a lesson from what happened then. The course we must take is to state our intention, if the Community remains in its present form and structure—incompatible with our economy and constitution—to withdraw from it in due form and at due time. That statement would not be the beginning of a quarrel. It is not intended as a breach. It is intended as the necessary base and beginning of a genuine negotiation whereby our relationship with the rest of the Community would be transformed to mutual benefit.

Mr. Heffer

The right hon. Gentleman argues that he will support the amendment tabled by my hon. Friend the Member for Caithness and Sutherland (Mr. Maclennan). His logic is that at no time should any country refuse to pay taxes of any kind that are an imposition on that country. But would he agree that the Americans were wrong in their action regarding the tea tax at Boston? Were the Americans right or wrong to take that stand in the interest of the American people, and is it not right that we should take the stand that we are now taking in relation to VAT?

Mr. Powell

If I thought that there was no other way available in which to regain our national independence and the sovereign legislative power of the House, I would take any step. But I do not believe that we are thus destitute of means, and I do not believe that the adoption of those methods at this stage would result in the kind of relationship that should exist between Britain and Europe in the future.

We have a method in our hands. We have the right, in proper and due form, if we think fit, to withdraw from the Community. But we must do so in proper and due form. By making the announcement of that will the basis of a genuine negotiation, it will prove whether the European Economic Community as it is now—of which the parameters are incompatible with the economy as well as with the constitution of this country—can be transformed into the link and co-operation which should exist between the United Kingdom and Western Europe.

11.55 pm

Mr. Selwyn Gummer (Eye)

We are this evening discussing the budget of the European Community and Britain's reaction to it. It is sad that when we come to discuss weighty matters of this kind, we so often return to the old battles and arguments that we have had in the House on many occasions. I hope that we can concentrate, as, indeed, the Government's proposition does, on the particular matter of the budget and on the fundamental problems which it poses to us.

It is not satisfactory for anybody to suggest that the way in which the budget contribution falls upon this country can continue or ought to continue. As hon. Members will know, those of us who have supported the whole concept of the European Community publicly and clearly all our political lives are taking the very clear stance which the Prime Minister, in her efforts in Europe, has taken to ensure that there is a more sensible way of running the Community and a more equitable way of financing it. We have done so within the context of believing that the Community ought to work, and we wish to make it work.

The sadness of tonight's debate is that we have listened to a speech from the right hon. Member for Stepney and Poplar (Mr. Shore)—although he has not heard much of the debate which has subsequently taken place—which has the difficulty behind it that he speaks as one who has never believed in the European Community. Therefore, it is difficult to take seriously his recommendations of the changes which would bring about the kind of improvements which we seek. I listened to his speech with the same care and distrust with which I would listen to the speeches of Communists or Fascists seeking to defend a change in the democratic way in which we run our country. They do not believe in the system to start with and, therefore, it is difficult to take seriously their proposals for alteration.

That is the first reason why I believe that the Government's recommendation, and not the amendment, ought to be accepted. The Government are making a proposition from the standpoint of believing in the Community and wanting to make it work. Indeed, one of the problems that we face is that for the earliest years in which Britain was part of the EEC we were represented in Brussels largely by Ministers who did not believe in that Community, who had voted against our accession and who did little or nothing to improve the situation. Yet they now have the effrontery to come to this House and complain about what this Government are doing.

It is sad that the right hon. Member for Stepney and Poplar did not do a great deal more when he was in a position to change the Community. It is sad that the CAP, which presented many opportunities for change, had a straight, flat "no" from the right hon. Member for Deptford (Mr. Silkin), who had in his hands a whole range of changes which would now be beneficial to us but the chances for which are now past. It is a heavy burden which will be laid at the door of the right hon. Member for Deptford for his handling of Britain's relationship with the Common Market through the CAP, as I am sure history will demonstrate.

We have been asked to show our support for the Government by going further than the Government proposal. The Opposition have pointed out that the amendment simply makes more clear and sharp that which the Government have proposed. Yet the very nature of their proposition is false at its heart, because it suggests that the real mistake with the Common Market is that it does not provide a simple payment-in and payment-out equation.

The problem with the Common Market at the moment is that the mechanism does not work satisfactorily. Too much of the resources is concerned with agriculture and too little with other matters. The resources demanded from agriculture are increasing every day and, as my right hon. and learned Friend the Member for Hertfordshire, East (Sir D. Walker-Smith) reminded us, will increase so much that next year it will be impossible under present arrangements to pay for them in any event.

The problem with the budgetary system is that it does not work and that it must be changed. Those of us who fought for our entry into the Common Market and believed in the growing unity of Europe have said all along that one of the major changes which must take place is in the common agricultural policy. Anyone who looks at the speeches in those early days, when we argued for our entry, will see that is true. But, if we are to make those changes, we must do so in the context of believing that the Common Market ought to work and that we are going to try to make it work. We must also accept our own blame for the reasons for its present failure.

The right hon. Member for Stepney and Poplar, in a throw-away line, mentioned that we were seventh in the league of Nine. That should be laid not at the door of the European Community but at our own door.

When I first started to fight for growing unity in Europe, I used to argue on doorsteps and at meetings throughout the country that we should join. The immediate reaction of many of the audience was "Why should we join? We are the richest country in Europe." We were then unable to join. Eight or nine years later we were arguing the same points again. We had not been members in the meantime. Then the main argument from the floor was "We are one of the poorest nations in Europe. How can we possibly afford to join?"

That change took place not because of our membership of the European Community but because, as a nation, we failed to find a way of protecting the prosperity of our people in the world in which we now live. As a nation, we have been so concerned with our internal arguments and policies about nationalisation and similar programmes and with the belief that the world still owed us a living—that somehow or other we still had a place in the world without having to work for it—that we failed to face the real issue of how to put our own house in order. That has been part of the British character over these past 10 years.

I fear that the European Economic Community is being used by many as yet another excuse for the failure of our own nation. It is another excuse for getting out of the real issue of how Britain can put her own house in order and find her own place in the world.

I turn to my last point: how can we, with honour, debate this matter this evening and not face the real issue whether our inability to make the European Community work is basically because of what the right hon. Member for Stepney and Poplar called the wilful and arrogant opposition of France or whether it was because, unlike Eire, we did not start from the beginning with the enthusiasm and determination to make our association work? We did not do that because we did not from the beginning see that Britain has no future in the world unless she is prepared to build it for herself and to take the opportunities as they come.

There are opportunities within the European Community. There are many which we missed. We missed them because we failed to seize the whole concept of Europe. We have shown ourselves unable to raise the argument from the day-to-day argy-bargy about "You have got more than we have and you are taking more from us than we take from you." We have failed to raise the level of the debates in Europe and in the House. So often debates that should have been about the future of this nation and the great society that we could build in the growing Community have tended to be at the level of cat-calling others because they happened to be foreigners.

If we really want to make the change, our only answer is for my right hon. Friend the Prime Minister to go to the summit and to have discussions there with three objectives in mind. First, there must be a determination by the House and the nation to remain a member of the Community and to make of that Community the kind of society in which we and our children want to live. Secondly, there must be a strength of argument which comes not only from the necessity but the clear logic that the present structure and payments cannot be defended and should be changed. Thirdly, we must make clear to our fellow members in Europe that we can succeed only if the Community takes itself more seriously and is not willing to be forced back to old and forgotten battles but wants to make the new start which the accession of the other three member States made possible.

It is our fault that we have wasted five years making such a start. My right hon. Friend goes to the summit with our support not only for a more equitable arrangement for this country but, more important, for the restructuring and the recreation of the greatest ideal of our time.

12.8 am

Mr. Douglas Jay (Battersea, North)

I strongly support the amendment tabled by my Front Bench. I say to the right hon and learned Member for Hertfordshire, East (Sir D. Walker-Smith) that I am all in favour of withdrawing from the Common Market in the most amicable and constitutional way possible, so long as we withdraw.

Tonight, for the sake of brevity, I want to make one point only, which is strictly relevant to the EEC budget that we are supposed to be discusssing but which hon. Members have not appreciated so far. There is no way of substantially altering the burden on the United Kingdom Budget by variations on the expenditure side of the EEC budget.

Some weeks ago the Prime Minister showed that at that time—I do not think that the Financial Secretary will disagree with me—she did not understand the facts when she talked of relieving the United Kingdom public sector borrowing requirement and eliminating the notorious £1,000 million or £1,100 million, or what- ever it is, net United Kingdom deficit by higher EEC expenditure here.

The facts, as I understand them, are as follows: If, by some magic, an extra £1 billion a year were spent in the United Kingdom from the EEC budget our balance of payments would be relieved. But the effect on the United Kingdom Budget and the PSBR is surely quite different. The crucial point is that either the extra EEC budget expenditure—say, on regional or social policy—is additional to what the United Kingdom Government would have spent or it is not, and the EEC is then paying for what otherwise would have been paid for out of the United Kingdom Budget.

If the EEC expenditure is additional there will be no effect on the United Kingdom Budget or the PSBR, one way or the other. All that will happen is that extra money will be spent by the EEC in the United Kingdom. If, however, the EEC expenditure is not additional, but merely replaces what would have been spent here anyway, I agree that to that extent the United Kingdom Budget is relieved.

Two other consequences follow if we make that assumption. First, only minor relief to the United Kingdom Budget is possible, measured perhaps in tens of millions of pounds rather than in hundreds of millions, for the simple reason that the total regional spending out of the EEC budget is so small as compared with that on the common agricultural policy and the total EEC budget that unless the CAP is drastically cut down in a way that is simply not practical politics there will have to be enormous increases in EEC regional expenditure if the United Kingdom Budget is to be relieved by hundreds of millions of pounds. I think that the Financial Secretary will agree that that is simply not practical politics at present.

Even if it were practical politics, a second consequence would follow if the EEC simply took over what otherwise would have been British Budget expenditure. In that case, existing regional or social expenditure now controlled by the United Kingdom Budget would be taken over by the EEC Commission or perhaps the Council of Ministers. The real consequences then of the operation would be the transfer of control over social and other priorities in this country from the United Kingdom Parliament and Government to Brussels. That is what is bound to happen if the expenditure is not additional but the EEC simply takes over the control that would otherwise have remained here.

I suppose that if this really happened we should be building a Channel tunnel instead of acutely needed houses, and motorways instead of hospitals, and so it would be all along the line. I do not think that many hon. Members would wish to do that if they understood what it would really mean, if it were possible. In any case, I do not think that it is quite the prospect that has been held out to people living in Scotland and Wales and other needy areas—that what is proposed is not that there should be additional spending on regional policy but simply that the control of it should be transferred from the British Parliament to Brussels, and that they should get no more in total.

The conclusion is, therefore—I hope that the Financial Secretary will tell us if I am wrong—that one cannot, even if one wanted to, significantly ease the United Kingdom Budget and PSBR problem by increasing EEC budget expenditure in this country without creating other consequences that would be unacceptable to almost all of us, namely, losing our own control of the priorities. The only way to remove the present intolerable burdens on the United Kingdom is for the United Kingdom to withdraw altogether from the EEC or to make drastic changes in the EEC system—changes which are too drastic to be politically possible, at least as long as France remains another member of the EEC.

If anyone thinks that we can get out of this difficulty simply by manipulating EEC expenditure and increasing it rather than reducing our contribution he is really following an illusion and we are brought back to the fact that to my mind is now proved up to the hilt—that there is no relief for this country from these economic burdens as long as we remain a member of the EEC.

12.14 am

Mr. Peter Lloyd (Fareham)

I think that all hon Members will agree that we are paying too much into the EEC budget. I am glad that this evening's argument has not been couched in whining terms, complaining of the United King- dom's poverty. That argument is undignified and irrelevant. Either our membership during the coming year will be worth the estimated £1.3 billion or it will not. The value of net contribution will remain unaffected by our relative poverty or riches.

When the Prime Minister goes to the summit meeting to negotiate a reduction she will certainly have the support of the majority of hon. Members and the overwhelming support of our people. As my hon. Friend the Member for Kensington (Sir. B. Rhys Williams) pointed out, she will receive some understanding and sympathy from our European colleagues. Nevertheless, it will be a struggle to reduce our contribution to the budget.

Our basic budgetary problems spring from the very structure of the EEC and our traditional trading patterns. It is not just a question of the CAP or of food levies. Indeed, we contribute about 19 per cent. of the total Community food levy. We contribute 27 per cent. of the tariff on trade. That figure shows that our extensive trading with the rest of the world punishes us. It is not true that we are in such a position purely because we have not taken advantage of the Community. If we had been more successful in our economic policies we would have faced a greater problem. If we had been more successful, we would have sold more to the rest of the world, we would presumably have bought more from them, and therefore our tariff contributions would be even greater.

The CAP is rightly seen as a bête noir. It makes food very expensive for consumers in Britain. If subsidising farmers is a way of justifying high food prices, we get little back. Many in Europe see the strength of the argument against the CAP. They would probably agree with many of the remarks that we have made. However, we must remember that the CAP is about the only full-blooded Common Market institution. It suits many EEC members. Contrary to some of my hon. Friends, I believe that it will prove surprisingly durable.

I concentrate on these difficulties because I wish to establish how hard it will be to change the existing structures. All eight of our colleagues must agree. They have to agree not that it would be nice if something were done but on what should be done. Five countries may think one thing but the other three may disagree, and prefer something else. That is a recipe for paralysis. That is why the Commission proposed special ad hoc aid promoting convergence—so often discussed—along lines congruent with existing EEC policies.

The Comission made no mention of the basic structures of the Community. No changes to the existing budgets in the regional and social policies were suggested. They remain undeveloped. That is a dangerous avenue. EEC aid is usually dependent on extra spending by the recipient Government. It has been argued that this would not be so. I am glad to hear such optimism. The right hon. Member for Battersea, North (Mr. Jay) also argued convincingly that any aid that we receive is unlikely to replace precisely the expenditure in train.

Perhaps Opposition Members will see that additional spending as a desirable element. However, they may agree that any expenditure that is limited and controlled in its nature, timing and priorities should not be welcomed. The greatest danger of the Commission's approach results from the fact that projects are temporary. They will come to an end. Our European colleagues may say that the United Kingdom could have claimed that it was poor, but that that is no longer so. They may say that Britain is awash with oil revenues. At that time special arrangements will cease. We will have forgone yet another opportunity to tackle the basic problems.

Another set of overriding dangers in the proposed approach is that concessions will be demanded in return for the temporary hand-out. We shall be asked to agree to agricultural price increases, even though they will exacerbate our long-term problem. We shall be invited to compromise over fish and North Sea oil. It may be suggested that now is the time to join the EMS. There are many hon. Members who want Britain to join the EMS to prove that we are good Europeans and that we can be trusted. They hope that that will depress the pound and increase exports. It will not do so. It will increase inflationary pressures in Britain. That is another argument.

The only way in which the EMS can work in the long term is if it is converted into a full-bodied monetary union. That is a large step along the road to a federal Europe. It is not a decision that should be lurched into as a package of other policies, when those negotiating it do not have their minds on the EMS and its implications but on reducing the budget.

Immense pressures will be put upon us to accept a settlement with some or all of those undesirable features. I know that my right hon. Friend the Prime Minister is determined to stand up for our longterm interests, but the best that she can achieve is a budget rebate with a promise that the basic structures will be reconsidered. I doubt whether those basic structures can be changed. If I am right, it would be better for the Eight to continue their present arrangements while Britain established a different association.

There is nothing humiliating or second-rate in that suggestion. It is appropriate to our different history and our different institutions. It would be far better for the EEC to work out how to accommodate its new connections and to prepare for the entry of Greece, Portugal and Turkey, whose economies cannot be readily integrated with the Eight.

There is a fear that that would split the West at a time when Russia is proving unpredictable and aggressive. I do not believe that those fears are well founded. NATO was at its zenith before the EEC was established. We are being distracted from political co-operation in Europe. Friendships are being poisoned by discords produced by cramming Britain into an EEC straitjacket which it does not fit.

12.23 am

Mr. Russell Johnston (Inverness)

Many hon. Members have left the Chamber, which is one of the regrettable aspects of debating an issue at this hour of the night. I shall make my speech much shorter than I would wish.

I do not agree with the hon. Member for Fareham (Mr. Lloyd). I wish to quote from the two documents that we are discussing. Paragraph 3 of document 4845/80 states: In its communication to the Council of 21 November the Commission had already drawn attention to the need to strengthen structural and general investment policies within the Community. That earlier communication document 11028/79, states: the existing policies of the Community are insufficient to bring about the degree of convergence between the economies of the Member States which is necessary for the progress and cohesion of the Community. That is the nub of the matter. The basic problems that we are discussing will not be improved or changed fundamentally without further integration within the Community. That is my view. It is not the view held by Back Benchers or Front Benchers on both sides of the House. The basic problem faced by Britain is that neither of the two major parties is proposing any policy or has any clear attitude to change in the Community. They have no views on economic and monetary union, energy policy, regional policy, social policy, the increased power of the European Parliament, or any such matters. Their view seems to be simply that we should sustain the status quo, and I do not think that that makes much sense.

Alternatively there is the view condemned by the right hon. Member for Down, South (Mr. Powell), no doubt having read the magazine "Now", which has a splendid Boadicea-like picture of the Prime Minister on the cover, in which he and the right hon. Member for Plymouth, Devonport (Dr. Owen) debated in print the question "Stay or quit? The decision we must face." I found it extremely depressing to read the former Foreign Secretary's remarks. He said: We should take decisive action by legislating in the United Kingdom Parliament to, withhold our VAT contribution He went on to say: We will be challenged in the European Court and they will find against us, as they did against French restriction of lamb imports. But, if we stand firm as France has done, there is little scope for retaliation. The argument appears to be that if the French break little laws we can break big ones. What is the point in having laws at all? What is the point of having a Community at all? That is a most extraordinary attitude to adopt in the circumstances.

I wonder how many hon. Members remember the political and economic arguments about entry. The idea was that Britain would give great leadership to the Community. That was touted about all over the place, and even those hon. Members who opposed our entry could hardly gainsay the fact that Britain had a democratic record second to none, and we would show them how to do it. Then, of course, there was the famous British talent for compromise, and the splendid British record for diplomacy—the fact that we were legendary in our democratic and diplomatic skills. What if left of that? What is left of our diplomacy and our capacity for compromise?—very tattered remnants. We are isolated, and that is quite an achievement. We are totally isolated—one out of nine. That is not something to be proud of.

It is not that we do not have a case. We have an argument of substance. What is wrong is the way that we approach the argument. It is rather like trying to dance Swan Lake in tackety boots. The only objective voice in the Community—the Commission—agrees that our contribution is inequitable, but it, like all our friends, cannot go along with arguments that are based simply on special pleading and seem to neglect general principles. We will not solve this impasse unless this country can bring to the Community some sense of direction, and there does not seem to be a great deal of that.

It is worth remembering that our net contribution, about which we complain so bitterly, is £1,000 million, which is equivalent to, or probably less—certainly less according to Professor David Mar-quand—than what we would be paying in deficiency payments now to agriculture had we not joined the EEC. That fact cannot be repeated often enough.

Equally, those young Tories who rush to sign motions on the Order Paper should ask themselves whether a fortress Britain is really what they want. Is their economic concept of Britain that of a vassal of the United States?

I must ask the fundamental question—how can this be changed? The Financial Secretary said that the fundamental character of the CAP must be modified. I agree, but I must emphasise that I am very glad that we have heard little tonight of the nonsense of cheap food. There is no cheap food in the world today. [Interruption] There is no cheap food in a world that is expanding at the rate described by the Brandt commission. If there is cheap food on that basis it is exploited—the West is exploiting the under-developed world.

Secondly, if our problems stem from industrial and regional difficulties, there should inevitably be more spending in those areas. Does the Financial Secretary favour larger regional and social funds? Britain has been noteworthy as the country that has blocked enlargement of those funds in the past, under the previous Government. Is it the case that the present Government will not do so? Even on so minor a matter they are preventing the spending of the non-quota element of the regional fund and are blocking the expenditure on the steel industry proposed through the social fund. Have the Government any view about a redistributive element in the budget?

We are in a serious position. We are talking not only about the present but about the future. I do not think that Britain has any future in the Community if she continues to renounce all the concepts of co-operation upon which the Community is established. That would cut her off from the major potential for stability in the whole world political structure. We should not underrate that. It would weaken our influence and reduce our capacity to contribute constructively to the relationship between the developed and the under-developed world.

I pray that that is not a course that we shall follow.

12.31 am

Mr. Denzil Davies (Llanelli)

This has been an important debate, as most of the debates about our contribution to the EEC have been. In fact, it is too important a debate to be held at this time of night, with a limit of three hours. Indeed, the Government tried to tack the debate and the related documents on to some very important agricultural documents, and tried to have the whole debate last Thursday. When we protested, we were grudgingly finally allowed these three hours, so late on a Monday evening. If the Government were so serious about the summit, I should have thought that they would give us at least half a day to debate the matter at a reasonable hour.

My hon. Friend the Member for Caithness and Sutherland (Mr. Maclennan), who moved an amendment to the Oppo- sition amendment, argued the case basically on the legal position over withholding payments. I do not wish to go into that, except to say that I am sure that no hon. Member, including my hon. Friend, would deny that this House has the legal right to repeal those sections of the European Communities Act under which the Government have the authority to make the payments. All the payments that we are complaining about are made under section 2 and possibly section 3 of the Act, which the House passed. I am sure that no one would argue that the House does not have the authority to repeal those sections if it wishes.

I can understand why the Government wanted to push the debate into the recesses of the late evening and the early morning. After they accepted our motion last summer—a motion that called for a balance in our contributions—and after all the fanfare that preceded the Dublin summit and then the total failure of the Prime Minister's negotiations in Dublin, I can well understand their desire to avoid a full debate.

This is the third occasion since last July that the matter has been debated in the House. Last July it was suggested that our estimated net contribution was about £1 billion. The Financial Secretary has been very coy about the figure for the next financial year but I should be very surprised if we learnt from the Chancellor of the Exchequer on Wednesday that it was much less than £1.3 billion. If that is so, the estimate of our net contribution has increased by almost 30 per cent. in nine months. During that period, despite the Prime Minister's huffing and puffing and the pious hopes of the Chancellor and the Financial Secretary, there has been not a penny reduction in our contribution across the exchanges to the EEC budget.

Indeed, the Prime Minister said in a lecture on 13 October last year: We seek a remedy which will restore a broad balance. We look for decisions at the European Council next month. That was last November, and we all know what has happened since.

If the Italians can cobble together a Government, the Prime Minister will go again to the summit, cap in hand, to ask the Europeans to let us have back some of our own money. Even worse, and more pathetically, we have seen the British Prime Minister going on French television to beg the French to be nice to us at the forthcoming summit. The reasons for the Government's failure are clear. Their efforts have lacked credibility.

When the "Iron Lady" has spoken in the councils of Europe no one has really been very worried. Apparently the German Chancellor has gone to sleep and all the other Ministers have looked for an earlier train. It used to be said of the American President, Teddy Roosevelt, that he spoke softly and carried a big stick. Unfortunately, one can say to the right hon. Lady, in terms of these negotiations, that she speaks very loudly but carries a little stick.

One reason why the Government's negotiating position is not credible is that the Prime Minister and the Chancellor were the enthusiastic supporters of the very taxation system that is now the source of our problem. We are not debating, as the hon. Member for Fareham (Mr. Lloyd) said, simply payments across the exchanges, however important they are. We are debating a fundamental taxation system—a system that is enshrined in the treaties and that has been enshrined in the European Communities Act by, in the main, the votes of the Tory Party.

Mr. Spearing

My right hon. Friend said that the taxation system was enshrined in the treaties. Is he aware that the directive quoted by the right hon. and learned Member for Hertfordshire, East (Sir D. Walker-Smith) earlier gives the origin of the articles of the Treaty of Rome for levies and tariffs but fails to mention any article relating to VAT? I have yet to hear on which article it is based.

Mr. Davies

I hear what my hon. Friend says. I do not want to pursue that legal argument. These payments are enshrined in the whole of the treaty mechanisms leading from the Treaty of Rome, and they are included in the European Communities Act.

Sir. D. Walker-Smith

The right hon. Gentleman will find that it is in the decision of the Council of Ministers of 21 April 1970, taken in pursuance of article 201 of the EEC Treaty.

Mr. Davies

I am grateful to the right hon. and learned Gentleman. I have no doubt that the VAT contribution some- how arises from directives and provisions in these many treaties. The point that I seek to make is that these matters were enshrined in the European Communities Act with the help of the votes of the Prime Minister and the Chancellor of the Exchequer. Indeed, the Chancellor, for the benefit of those hon. Members who were not in the House at the time, was was the architect of the Act. The right hon. and learned Gentleman actually moved the guillotine motion, which allowed us only 45 minutes from these Opposition Benches to debate the issue of our contribution. During that debate, time and again, we warned the Conservative Government that our contribution was likely to be what it is, and time and again they denied that that would be the case.

It is no wonder that when the Chancellor now goes to the Council of Finance Ministers his protestations are met with complete silence. Such protestations, coming from this Government, must have a hollow ring in the capitals of Europe, bearing in mind the history of the Tory Party in this matter.

When the Prime Minister and the Chancellor, and most of the Tory Party, voted for this tax system they voted for something else. They voted for a regime that sought to deny this House the power to change that tax system. Someone referred to the American War of Independence. The slogan in that war was "No taxation without representation." What we have in the Common Market is taxation with one-ninth representation.

Mr. Dykes

Oh.

Mr. Davies

The hon. Member should not say "Oh." It is taxation with one-ninth representation. Indeed, ultimately it means nothing at all to have that representation.

Mr. Dykes

I am sorry to interrupt the right hon. Gentleman's ignorant tirade about the way in which the Community started. If this taxation system was so fundamental and so objectionable to the Labour Party when in government why did it not renegotiate it in 1975 and submit it to the British people?

Mr. Davies

The hon. Gentleman knows that an attempt was made to renegotiate these payments and that that attempt was not successful. No one is seeking to deny that. The point that I seek to make is that the hon. Gentleman and his hon. Friends voted for this tax system. Now they seek to resile—

Mr. Gunner

rose—

Mr. Davies

I am sorry. Time is pressing. I cannot give way. The hon. Gentleman has spoken in this debate.

The Government's position is also not credible because the Tory Party has been the European party of British politics. [HON. MEMBERS: "Hear, hear."] Conservative Members confirm that the Tories still are the European party of British politics. In opposition, they criticised Labour Ministers time and again for not being "good Europeans". My right hon. Friend the Member for Deptford (Mr. Silkin), in particular, came in for virulent criticism when he tried to stand up for British interests.

That much-tattered fraudulent prospectus, the Tory manifesto, said on Europe: The frequently obstructive and malevolent attitude of Labour Ministers has weakened the Community as a whole". If the Tory Party is gradually becoming, if I may borrow a phrase from Dylan Thomas, the "no-good boyos" of the European scene, we welcome that conversion, but having heard the "Hear, hears" a moment ago, I doubt whether that is so. The Tory Party is still the European party of British politics, and that is why the Prime Minister's negotiating position is not credible.

Mr. Tim Renton (Mid-Sussex)

I appreciate that it is necessary for the right hon. Gentleman to show his militant tendencies on the Common Market for his own political future, but he represents a Welsh constituency and I should like him to tell us whether he thinks that the Ford plant at Bridgend, which has been so important in bringing employment to South Wales, would have been built there if Britain had not been a member of the Common Market.

Mr. Davies

I am sorry that I gave way to the hon. Gentleman. I was not arguing against membership; I was arguing against the contributions that we are making, which I gather the Government do not agree with either.

In the last analysis, the other member States, including the French, know that the Government do not have the guts to withhold contributions, whether of VAT, customs duties, or anything else.

Last week the Prime Minister got some bloodcurdling headlines about what she was going to do. In fact, she made a rather wet statement. All that she said was that after the summit the Government would consider the matter. Doubtless the Government will consider the "empty chair" policy, obstruction, withholding VAT payments and all sorts of things. The right hon. Lady's statement meant little and was merely an exercise of phoney brinkmanship by the Prime Minister, and it will be seen as such in the capitals of Europe.

The Foreign Secretary gave the game away. Reporting an interview that he gave on television, an article in The Guardian on the Friday after the Question Time in which the Prime Minister made her statement said: The situation was further confused last night by Lord Carrington —in fact, the Foreign Secretary did not confuse the situation; he made it clear, because the article went on: Although he confirmed that failure at Brussels would produce a grave situation he also said that it would be wrong to respond by saying: 'I'm going to do A, B, C, D, E, F.' He added: 'Of course you have got to consider them, but what we have got to do is to get a solution'. Retrieving the situation later, the Foreign Secretary said: I mean, supposing we get nowhere…at Brussels…the Government has to consider all the measures…as the Prime Minister has said. The threat is not a credible threat, because after what we have heard tonight, I do not believe that the Government would face up to the political and constitutional crisis involved in withholding payments.

My right hon. Friend the Member for Stepney and Poplar (Mr. Shore) dealt with the backsliding of the Government from the original motion that they accepted in July and that was reiterated in November, to the motion before us, which does not call for a broad balance in our contribution.

Whatever sum the Government get must be looked at not only in terms of the amount of money but of the rest of the deal that will be forced on the Government. No doubt the French will seek to link lamb imports and CAP prices and will seek to talk about energy prices and the EMS. I hope that the Government will treat those issues separately.

The hill farmers, fishermen and housewives of Britain must not be sacrificed to give the Prime Minister a spurious and phoney diplomatic triumph. In particular, I see no sense or purpose in linking the EMS to our budgetary contribution. I do not believe that even this Government, having got themselves entangled in the Treaty of Rome, will get themselves enmeshed in the EMS as part of the price for any deal.

The Government's negotiating tactics have been poor. That is why they have failed to obtain any money so far. The Sunday Times, in a searching article, this week, said: So what has gone wrong? 'Britain's negotiating tactics,' comments one highly placed Brussels observer, 'has been so grotesquely incompetent as to beggar belief.' This view is widely held. The one reason that the negotiating tactics have been so poor is that the right hon. Lady and the Government have been arguing from a weak position. They have been making threats that have not been credible. Now that the summit has been postponed, why should the Chancellor of the Exchequer, on Wednesday, not announce that the Government intend to keep back the VAT contributions? Against that background, the Government's negotiating position would be much stronger. We could then negotiate from a position of strength. I do not know what the Government fear. We are one of only two contributors to the EEC. Seven countries pay nothing into the EEC. All receive something. Only two countries pay in money. We pay almost twice as much as the Germans.

What are we afraid of? They need our money. They need our markets. They need our trade. The Government should start negotiating from a position of strength. If the Government and the right hon. Lady fail again to achieve a satisfactory solution, and if the Government, at the end of the day, are not prepared to impose a just solution unilaterally, this House, one of these days, will take the matter out of the Government's hands. The House will determine the matter. If the matter is not resolved and it keeps coming back, this House will reassert itself and secure again for itself its traditional role as the only constitutional body with a moral and democratic right to impose taxation on the British people. I hope that the right hon. Lady makes this clear to other Common Market leaders.

The Government motion is too weak and too wet, and it fails to go far enough. If the Cabinet, at the end of the day, lacks the guts to act, this House will do so for it, and take the matter out of its hands.

12.49 am

Mr. Lawson

With the leave of the House, Mr. Deputy Speaker, I should like to reply. There is little time left. I hope that right hon. and hon. Gentlemen on both sides will forgive me if I do not deal with all the points made during this important debate. I have listened carefully to what has been said. I am sure that my right hon. Friend the Prime Minister will study carefully the report of the debate.

The right hon. Member for Llanelli (Mr. Davies) had the effrontery to talk dismissively of what the Government might achieve during the negotiations that are taking place. Anything that the Government achieve out of the negotiations will be an improvement on what the previous Government achieved. They achieved absolutely nothing in redress of this injustice. The right hon. Gentleman also said that we should withhold contributions now. I do not know whether that is official Opposition policy. It was certainly not the position rightly taken up by the Leader of the Opposition who, I suspect, speaks with a little more authority than the right hon. Gentleman.

A number of hon. Members, especially the right hon. Member for Battersea, North (Mr. Jay), asked about the expenditure route. My right hon. and learned Friend the Member for Hertfordshire, East (Sir D. Walker-Smith) also referred to this. The matter is made clear by the document before the House. There is no way in which our imbalance can be made good by expenditure through the regional and social funds or through any of the existing funds, for the reasons that the right hon. Member for Battersea, North rightly stated. It is appropriate to look at an expenditure route, if that will work. The greater part of the imbalance derives from the fact that we do not get the agriculture expenditure received by the other countries.

It has been suggested that a special fund should be set up under article 235 of the Treaty to direct expenditure to this country. The argument about the regional and social funds do not apply to this proposal.

Mr. Jay

Will the Financial Secretary make clear whether the expenditure from this special fund in this country will be additional to what the British Government were, in any case, spending here? If that is so, that does not relieve the British Budget.

Mr. Lawson

The point that the right hon. Member for Battersea, North was making was that if the expenditure is additional it does not affect the public sector borrowing requirement and if it is not additional it does affect it. That is absolutely correct.

The main speech from the Opposition was made by the right hon. Member for Stepney and Poplar (Mr. Shore). I would like to deal with some of the points that he made. He first asked how the United Kingdom contribution would be dealt with in the Budget. I can only ask him to contain his impatience and wait for the Budget on Wednesday and for the public expenditure White Paper that will be published at the same time.

The right hon. Gentleman also asked—this was a matter of concern to a number of right hon. and hon. Members, including my right hon. and learned Friend the Member for Hertfordshire, East, who made a powerful speech—about the legal steps that might be taken and the Government's interpretation of the legal position. The Government are concerned to uphold the rule of law, but the House will have noted with some interest the suggestion made by the right hon. Gentleman that article 6 of the Treaty placed certain obligations upon the Community institutions themselves. Those obligations are just as real as the obligations placed upon individual member countries.

I think it premature at this stage to talk about the legal technicalities. We have said quite clearly—this was the position of the Leader of the Opposition as recently as 11 March—that the question of withholding any part of the VAT contributions was very much a last resort. We hope that that last resort will not come about. We are seeking a solution that will not require measures of that kind.

Indeed, the right hon. Gentleman had the effrontery to complain bitterly about the whole of the terms under which we were members of the European Community. These were the terms that were renegotiated by the Government of which he was a member. They were the terms that they then put to the British people as being terms they could accept. The right hon. Gentleman did not resign from the Government; he accepted those terms. He cannot now tell the Government that the terms are no good after all.

Of course I accept the fact that the right hon. Gentleman has been a dedicated anti-Marketeer and a dedicated opponent of British membership of the Community throughout his political career, but that is not our position. His position is clear—though I do not know whether it is the official position of the Opposition; that is a mystery. He went back entirely on the helpful remarks of the Leader of the Opposition on 11 March, which I quoted earlier, deliberately to try to sabotage the efforts of the Prime Minister to secure justice for this country in the negotiations in Brussels.

Why does he wish to sabotage those negotiations? It is because their purpose is to secure a successful outcome within the framework of British membership of the European Community. That is what at all costs the right hon. Gentleman wishes to avoid. While we seek a remedy within the Community and the context of the EEC, he seeks to leave the Community.

There is a manuscript amendment in the name of the hon. Member for Caithness and Sutherland (Mr. Maclennan), supported, as I understand it, by the right hon. Member for Down, South (Mr. Powell). I advise my right hon. and hon. Friends to take no part in the bitter, internecine quarrel within the ranks of the Opposition that that amendment represents.

The official Opposition amendment is a more serious business. I still hope that even at this late hour they will not press it. I hope that they will adhere to the statesmanlike attitude demonstrated by the Leader of the Opposition on 11 March. But if they insist on pressing the amendment I must ask my right hon. and hon. Friends to reject it. It seeks to undermine the Prime Minister by committing her to a position that has already been overtaken by events and that would ensure the failure of the important negotiations that will shortly take place. Our purpose is to ensure that those negotiations are a success.

Mr. Tam Dalyell (West Lothian)

Will the Financial Secretary clarify his remarks about additional expenditure?

Mr. Deputy Speaker

The hon. Gentleman has sat down.

Mr. Dalyell

Will the Minister clarify his remarks? It is not good enough—

Mr. Spearing

On a point of order, Mr. Deputy Speaker. When the Financial Secretary replied he complained of a

shortage of time. He deliberately and clearly refused to answer a question raised by my right hon. Friend the Member for Battersea, North (Mr. Jay), and in addition—

Mr. Tristan Garel-Junes (Watford)

On a point of order, Mr. Deputy Speaker. The debate started at exactly five minutes to 10 o'clock.

Mr. Deputy Speaker

That is not a point of order, and if it were it would be a matter for the Chair.

It being three hours after the commencement of proceedings on the motion, Mr. DEPUTY SPEAKER put the Questions necessary for the disposal of the proceedings pursuant to Standing Order No. 3 (Exempted business).

Question, That the amendment to the proposed amendment be made, put accordingly and negatived.

Question put, That the amendment be made:—

The House divided: Ayes 71, Noes 125.

Division No. 241]	AYES	[12.56 am
Archer, Rt Hon Peter	Harrison, Rt Hon Walter	Park, George
Ashton, Joe	Haynes, Frank	Powell, Rt Hon J. Enoch (S Down)
Benn, Rt Hon Anthony Wedgwood	Heffer, Eric S.	Powell, Raymond (Ogmore)
Bennett, Andrew (Stockport N)	Hogg, Norman (E Dunbartonshire)	Prescott, John
Booth, Rt Hon Albert	Holland, Stuart (L'beth, Vauxhall)	Roberts, Ernest (Hackney North)
Campbell-Savours, Dale	Homewood, William	Robinson, Peter (Belfast East)
Carmichael, Neil	Hooley, Frank	Ross, Wm. (Londonderry)
Cocks, Rt Hon Michael (Bristol S)	Jay, Rt Hon Douglas	Rowlands, Ted
Coleman, Donald	Jones, Barry (East Flint)	Shore, Rt Hon Peter (Step and Pop)
Cryer, Bob	Leighton, Ronald	Silkin, Rt Hon John (Deptford)
Cunliffe, Lawrence	Lestor, Miss Joan (Eton & Slough)	Silverman, Julius
Dalyell, Tam	McCartney, Hugh	Smith, Cyril (Rochdale)
Davies, Rt Hon Denzil (Llanelli)	McElhone, Frank	Soley, Clive
Davis, Terry (B'rm'ham, Stechford)	McKay, Allen (Penistone)	Spearing, Nigel
Dixon, Donald	MacKenzie, Rt Hon Gregor	Stoddart, David
Douglas, Dick	McNally, Thomas	Stott, Roger
Dunwoody, Mrs Gwyneth	Marshall, Jim (Leicester South)	Welsh, Michael
Evans, John (Newton)	Mitchell, Austin (Grimsby)	Whitehead, Phillip
Flannery, Martin	Molyneaux, James	Winnick, David
Foot, Rt Hon Michael	Morris, Rt Hon Charles (Openshaw)	Woolmer, Kenneth
Golding, John	Moyle, Rt Hon Roland	Wrigglesworth, Ian
Graham, Ted	Newens, Stanley
Hamilton, James (Bothwell)	Orme, Rt Hon Stanley	TELLERS FOR THE AYES:
Hamilton, W. W. (Central Fife)	Paisley, Rev Ian	Mr. George Morton and
Hardy, Peter	Palmer, Arthur	Mr. James Tinn.
NOES
Alexander, Richard	Brooke, Hon Peter	Dunn, Robert (Dartford)
Ancram, Michael	Brown, Michael (Brigg & Sc'thorpe)	Dykes, Hugh
Aspinwall, Jack	Bruce-Gardyne, John	Eggar, Timothy
Beaumont-Dark, Anthony	Buck, Antony	Faith, Mrs Sheila
Berry, Hon Anthony	Cadbury, Jocelyn	Fenner, Mrs Peggy
Best, Keith	Carlisle, John (Luton West)	Fisher, Sir Nigel
Biggs-Davison, John	Carlisle, Kenneth (Lincoln)	Fletcher-Cooke, Charles
Blackburn, John	Chalker, Mrs Lynda	Gardiner, George (Reigate)
Blaker, Peter	Chapman, Sydney	Garel-Jones, Tristan
Boscawen, Hon Robert	Clarke, Kenneth (Rushcliffe)	Gilmour, Rt Hon Sir Ian
Bottomley, Peter (Woolwich West)	Colvin, Michael	Gorst, John
Bright, Graham	Cope,John	Gow, Ian
Brinton, Tim	Dover, Denshore	Griffiths, Eldon (Bury St Edmunds)
Brocklebank-Fowler, Christopher	du Cann, Rt Hon Edward	Griffiths, Peter (Portsmouth N)
Grylls, Michael	Mills, Iain (Meriden)	Sproat, Iain
Gummer, John Selwyn	Moate, Roger	Stainton, Keith
Haselhurst, Alan	Montgomery, Fergus	Stanbrook, Ivor
Hawkins, Paul	Morris, Michael (Northampton, Sth)	Stevens, Martin
Hawksley, Warren	Morrison, Hon Charles (Devizes)	Stewart, John (East Renfrewshire)
Heddle, John	Morrison, Hon Peter (City of Chester)	Stradling Thomas, J.
Henderson, Barry	Myles, David	Tebbit, Norman
Hicks, Robert	Neale, Gerrard	Thompson, Donald
Hogg, Hon Douglas (Grantham)	Needham, Richard	Thorne, Neil (Ilford South)
Hordern, Peter	Neubert, Michael	Townend, John (Bridlington)
Howell, Ralph (North Norfolk)	Page, Rt Hon Sir R. Graham	Taylor Teddy (Southend East)
Hurd, Hon Douglas	Page, Richard (SW Hertfordshire)	Viggers, Peter
Johnston, Russell (Inverness)	Parris, Matthew	Waddington, David
Jopling, Rt Hon Michael	penhaligon, David	Wakeham, John
Kershaw, Anthony	Percival, Sir Ian	Waldegrave, Hon William
Knight, Mrs Jill	Rathbone, Tim	Walker, Rt Hon Peter (Worcester)
Knox, David	Rees, Peter (Dover and Deal)	Walker, Bill (Perth & E Perthshire)
Lawson, Nigel	Renton, Tim	Walker-Smith, Rt Hon Sir Derek
Le Marchant, Spencer	Rhodes, James, Robert	Waller, Garry
Lloyd, Peter (Fareham)	Rhys Williams, Sir Brandon	Watson, John
Loveridge, John	Ridsdale, Juliian	Wells, Bowen (Hert'rd & Stev'nage)
Lyell, Nicholas	Royle, Sir Anthony	Wheeler, John
MacGregor, John	St. John-Stevas, Rt Hon Norman	Wickenden, Keith
McNair-Wilson, Michael (Newbury)	Shaw, Giles (Pudsey)	Wolfson, Mark
Major, John	Shelton, William (Streatham)	Young, Sir George (Acton)
Mather, Carol	Shepherd, Colin (Hereford)
Maxwell-Hyslop, Robin	Skeet, T. H. H.	TELLERS FOR THE NOES:
Mellor, David	Speed, Keith	Lord James Douglas-Hamilton and
Meyer, Sir Anthony	Speller, Tony	Mr. Tony Newton.

Question accordingly negatived.

Main Question put and agreed to.

Resolved, That this House takes note of Commission document No. 4845/80 on convergence and budgetary questions, and fully supports the Prime Minister in her efforts to secure agreement at the next European Council to action which will bring about a substantial, immediate and lasting reduction in the United Kingdom's net contribution to the Community Budget and furthermore to ensure that there is a commitment by the Council to long-term restructuring of the Budget which would bring about a significant reduction in the proportion of spending on the Common Agricultural Policy, particularly by reducing the production of surpluses, and a more equitable distribution of expenditure over the whole Community.