European Communities Budget

HC Deb 23 July 1982 vol 28 cc658-76 9.37 am

The Financial Secretary to the Treasury (Mr. Nicholas Ridley)

I beg to move, That this House takes note of the preliminary Draft Supplementary and Amending Budget No. 1 for 1982 and the preliminary Draft General Budget of the European Communities for 1983. This is the ninth debate on the European budgetary proposals in a series that goes back to 1975. It is an annual event when the House gives its views on the draft budget documents before the Government go to the Council to negotiate the final budget for the following year, in this case 1983. The Commission has put forward proposals for the draft budget next year and for the amending budget for this year. I have a certain amount to say about the latter as well as the former.

We have explained some of the details of these documents to the House in a memorandum that the Treasury deposited on 2 July. I hope that hon. Members have had a copy. I realise that this is a fairly narrow subject—

Mr. Nigel Spearing (Newham, South)

Oh!

Mr. Ridley

—in that the budget deals only with corrections to the present year's budget and the plans for next year's budget whereas many hon. Members will want to debate the wider issues, particularly our budgetary contribution and matters that were covered at some length in last Wednesday's debate. I shall be happy to respond to hon. Members' remarks about those wider matters. I must at this stage confine myself to the details of the two documents.

Mr. Peter Shore (Stepney and Poplar)

Does the Minister accept that the budget is supposed to represent the results of the famous May 1980 mandate and that therefore the debate should cover the whole area of our interests with the EEC? I hope that, where relevant, the Minister will range widely over the issues.

Mr. Ridley

I am not a bit surprised that the right hon. Gentleman should say that. I merely said that I would concentrate in my opening speech on the documents before us and, with the leave of the House, respond to right hon. and hon. Members later.

We are discussing the Commission's initial proposals. They represent the first step in the process that leads to the budget. Next week the Council meets the Parliament and the First Reading of the budget takes place on 27 and 28 July under the Danish Presidency. I shall be the United Kingdom member of the Council. We shall take into account what is said about the documents today to bring the proposals as near as possible to what the House wants.

Last year I acted as President of the budget council. We ended with a disputed budget. It involved a most unseemly dispute between lie Parliament and the Council. The agreement broke down on a number of issues, the principal one of which was whether budget items should be classified as obligatory or non-obligatory. The treatment of items varies according to their classification, so the amount of the budget was affected by the Parliament taking a different view from the Council on classification.

Statements were made to the House on 27 January and on 3 February. The matter was followed up in a debate on the Supply Estimate on 16 March when the hon. Member for Colne Valley (Mr. Wainwright) questioned the increased contribution which we put before the House in the form of a Supplementary Estimate. Those matters should be resolved.

On 16 March I said that I hoped that the issue would be resolved in the discussions put forward by the United Kingdom Presidency, which the Belgian Presidency carried out in the first half of this year. I said: It is our earnest hope that we can avoid these budget debates"— between the Council, Parliament and the Commission— in the future and can work out a sensible formula for carrying out these tasks."—[Official Report, 16 March 1982, Vol. 19, c. 259.] Because the budget was not agreed we had to pay a little more than is allowable under the European Communities Act. I said that we would pay the extra amount into the EEC No.1 account so that it remained in our control. I said that we would keep the discussions going and in the meantime go the European Court for a resolution of the dispute, if it could not be sorted out by negotiation. I said that if there was no agreement we would seek the court's ruling. I am glad to tell the House that an agreement was reached. The text of the agreement is in the Library. The court action is be withdrawn. The agreement was signed by the President of the Council, the Commission and the Parliament on 30 June this year and was ratified by the European Parliament on 8 July.

Sir Michael Shaw (Scarborough)

I have heard rumours that, although the documents have been approved, a difference of interpretation has come to light about some of the important words in the documents. Are the language differences now resolved?

Mr. Ridley

I doubt whether they will ever be resolved completely. European documents are not legally precise, like our legislation. Indeed, they are sometimes designed to mean all things to all men because otherwise they may not come into existence. There is some dubiety about the meanings of some phrases but a major degree of agreement is progress.

The first two sections of the new agreement define the classifications of the various budget lines. The annex to the first two sections specifically reclassifies the 1982 budget as part of the agreement. Agreement on procedure for deciding the classification of new budget lines in future is included.

The third section deals with interinstitutional collaboration on the budgetary procedure. There is an important agreement that Parliament will not adopt a budget until disagreement with the Council has been resolved by further discussion. That puts right one of the things that went wrong last year.

The fourth section covers three aspects of the Council's continuing right to control and limit expenditure. It covers, first, the maximum rate by which non-obligatory expenditure can be increased by the Parliament and the definition of that; secondly the setting of ceilings by the Council in regulations on particular lines of expenditure and, thirdly, the requirement that each item of expenditure shall have a legal base.

I shall be happy to answer questions about the agreement. I hope that it will make an effective improvement to the budgetary process and will last for a considerable time. I am glad that during our Presidency we gave the initiative the push that resulted in agreement. It is an example of limited but important progress in Community institutions.

There are two consequences of the agreement for us. The first is that the 1982 budget will now be implemented as published in the official journal of the Community. The second consequence is more complicated. It involves a notional assiette. I know that I am not allowed to use French words, Mr. Deputy Speaker, but I think that it means "plate". "Assiette froid" means "cold buffet". The meaning in this case is that the base from which the classification of the different items is to be calculated will be in accordance with the new agreement rather than on the basis of the 1982 budget. That means that, when considering the 1983 budget, we shall operate as though the classification agreement was in existence last year. The matter is complicated and I hope that I have made it clear.

Mr. Peter Shore

Retrospection.

Mr. Ridley

There may be said to be an element of deemed retrospection The preliminary drafts from the Commission do not reflect the two consequences because they were drawn up before the agreement. In the budget council we shall ensure that they conform to the two conditions that I have just described.

On 16 March the House voted additional sums of £7 million for 1981–82 and £21 million for 1982–83. As I said in that debate, we were the stakeholders for the extra moneys. We paid them into the EEC No. 1 account which is held by the Paymaster General and under Treasury control.

The agreement does not yet alter the status of the payments, but it paves the way, through the reclassification that I have mentioned, for the 1982 budget to be established on a new basis. That might be done through a rectifying budget now, or later in the year when other charges can also be taken into account.

To pick up a point that I made in that debate, I can confirm that the balance of £131.2 million in the EEC No. 1 account at the end of 1981–82 was far in excess of the £7 million paid from the Supplementary Estimate. The same applied at the end of the first quarter of 1982–83, when £7.012 million was paid from the vote and a balance of £112.3 million was in the EEC No. 1 account.

When a new level of budget is established through an amending budget, either the one that we are discussing or a subsequent one—there might be other changes since the beginning of the year as well as the effects of the classification agreement—payments into the EEC No. 1 account will be adjusted accordingly. That will discharge the Government's obligation fully to account for those payments to the House.

The 1983 budget is only for one year and the Government note with regret the absence of a triennial financial forecast for the following two years. We would much prefer to have a longer profile of planned spending so that the House could have some idea of the shape of things to come. We shall raise that matter in the Council.

We must encourage the Commission, the Council and the Parliament to look at the allocation of resources in the longer term within a confined total and to start to talk the language of priorities in budget-making. That is absent from Community budget-making and it is a point that I have made many times in budget councils. We should be making value judgments about what should be increased and what should be decreased, just as we have to do at home.

Finally, I should like to make a few points about the shape and content of the draft budget for 1983. The payments included in the 1983 preliminary draft budget show refreshingly smaller increases than in the past. Compared with proposals for 1982 presented by the Commission this time last year, the overall increase, excluding our refunds which are a separate financial transaction from this part of the budgetary process, is only 7.7 per cent.

Some subsidiary figures show how, by more realistic estimating, the Commission has produced relatively modest changes. As between the preliminary draft budget last year and this year, administrative and related expenditure is only 4.9 per cent. up and the expenditure on agriculture is only 2 per cent. up, whereas the regional fund is 26 per cent. up, the social fund 32 per cent. up, and industry, energy and research are 53.5 per cent. up. Within that total increase of 7.7 per cent., there is a much more encouraging re-allocation in the Commission's proposals for the money.

It might help the House if I gave some historical background to the figures. Apart from the cost of administration, which since 1975 has varied between 5 per cent. and 5.8 per cent. of the total budget, the weight of the main constituents has changed considerably over the years.

In 1973, expenditure on the guarantee section of the European agricultural guarantee and guidance fund, represented nearly 80 per cent. of the European budget. Up to 1980 it varied between 70 and 75 per cent. From 1981, following high world food prices, it dropped to less than 62 per cent. It is estimated that it will not rise beyond 65 per cent. in the 1983 draft budget that is before the House. I stress that the estimates are highly vulnerable to factors outside our control.

Since 1973 the social fund has grown from 1.2 per cent. of the budget to 5.8 per cent. in the 1983 draft budget. The regional development fund, which started in 1975 by taking 1.4 per cent. of the budget, now represents 6.4 per cent. of the 1983 draft budget.

Research, investment and energy expenditure took up 1.8 per cent. of the budget in 1973, 2.3 per cent. in 1981 and 3.1 per cent. in the preliminary draft budget. Taken together, expenditure on investment, industry and employment will have risen from about 3 per cent. in 1973 to 12 per cent. in 1982. The proposals in the 1983 draft budget would bring the figure up to 15.3 per cent.

Mr. Jack Straw (Blackburn)

I am grateful to the hon. Gentleman for those figures, but will he acknowledge and accept that payments to the United Kingdom out of the regional and social fund do not result in any additional public spending over and above that laid down in the public expenditure White Paper?

Mr. Ridley

The hon. Gentleman knows full well that if the United Kingdom did not receive those sums and, indeed, if we did not receive our refunds, the Government would not be able to maintain the level of public spending that they do. Therefore, I confirm what he says.

I ask the House to approve the draft budget and to give the Government a mandate to negotiate the budget's approval and to give its views on how it would like it improved so that when I go to Brussels next week I shall have not only the confidence but the views of the House during those discussions.

9.56 am

Mr. Peter Shore (Stepney and Poplar)

This is the second debate this week on European matters. On Wednesday we debated and voted upon an Opposition motion that stated the belief that events have show that Common Market arrangements for the Budget, Agriculture, Fisheries and Food are contrary to the interests of the United Kingdom and that the Treaty of Rome cannot provide a sound and secure basis for long term fruitful cooperation with the United Kingdom's European friends and allies". Very properly, that debate covered a wide canvas—the totality of our relationships with the EEC, including, as the words that I have read out make plain, a specific mention of the present, to us intolerable, arrangements for the EEC budget as a whole and, in particular, the United Kingdom's contribution to it.

But for that all-embracing motion and the vote upon it on Wednesday, we would today have tabled a specific motion reaffirming broadly the motion on the budget that we put down and voted upon almost exactly a year ago.

I say that to make it plain to the Financial Secretary before he departs early next week for Brussels that he has no more support in his endeavours on the broad shape of the 1983 preliminary draft budget than he had for the preliminary draft budget for 1982, 12 months ago.

I listened with great interest to the hon. Gentleman's speech. I note what he said about the late achievement of the British Presidency with regard to the classification agreement. We now know far more clearly than we did before what is to be classified as obligatory and non-obligatory expenditure. No doubt there will be dancing in the streets of Brussels and wild celebratory parties in Luxembourg and Strasbourg as a result of such an achievement.

Mr. Spearing

At public expense.

Mr. Shore

As my hon. Friend has said, it will probably be done at Euro-public and particularly British expense. However, it is a very modest achievement.

The tedium of the budget procedures in the European Assembly, and of the procedures between it, the Commission and the European Council and the grotesqueness of the structures and arrangements of the budget will continue to command far more attention. I certainly share the Financial Secretary's concern that there is no triennial forecast this year. Some sense of perspective is required, particularly when, as we are well aware, the 1 per cent. VAT yield is moving towards the ceiling laid down in the February 1970 agreement, which authorises that part of own resources.

The absence of a triennial forecast is linked to what the Financial Secretary said about the relatively low growth in the overall size of the payments budget this year. I do not necessarily say that that is deliberate, but it is a rather surprising consequence both of the Treasury's explanatory memorandum of 2 July and of the words used in the introductory part of volume 7 of the major clutch of Commission documents before us. It is a consequence of the way in which the somewhat inadequate and incomplete accounts for the 1983 draft preliminary budget have been presented that the overall increase is understated, possibly to a significant extent.

The Financial Secretary properly and frankly acknowledged that no sum was included for the refund to the United Kingdom. We do not yet know with absolute certainty what the sum is, but when it is included it will change the picture from the rather modest—as the hon. Gentleman said—increase of 7.7 per cent. to a higher figure. That must be pointed out.

The preliminary draft budget for 1983—the principal subject for our debate—marks, most importantly, the continued and almost total failure of the Government to achieve the reform objectives that they set for themselves with such clamour and apparent fervour nearly three years ago.

I shall recall the events. Having been defeated at the Dublin summit in December 1979, and having been driven to accept the temporary and inadequate compromise of 30 May 1980 in Luxembourg, the Government pinned their hopes of far-reaching and permanent change on the searching reappraisal of Community practices—the now famous mandate that was given to the Commission on that date. The Commission reported back to the Council of Ministers 13 months later, to be precise on 22 June 1981. It is remarkable that the House, which has had several opportunities to discuss European matters during the past 12 months, has not seriously debated the content of the Commission's report as a result of that mandate of 30 May. When we faced the Community budget debate this time last year it was at least plausible for the Government to argue and for the Commission to assert that the results of the mandate could not, in so short a period, be properly reflected in the Commission's preliminary draft budget for 1982, or in any decisions taken on the mandate report by the Council of Ministers. However, no such excuse is available today. The Commission has had a full year in which to reflect upon its report and to feed it into the budget structure. As for the Council of Ministers, we have had six months of creative British Presidency, ending on 31 December 1981, and two further summit meetings in which the conclusions on the mandate were a central part of the agenda.

Therefore, this is the first post-mandate budget. It is the first budget of the new era and of the new Community dawn that the Government's alleged determination had forced and persuaded their fellow members in the EEC to enter. It was to be the start of a new pattern of expenditure and as a central part of it the CAP was to play a markedly different and less dominant role. This was also the age when changes were to be made in the absurd way in which member States finance the EEC budget. Above all, it was to be the beginning of a new period in which the United Kingdom, after the surrender of its interests by the right hon. Member for Sidcup (Mr. Heath) and his Government in 1971—when they agreed to pay an open-ended ransom to the EEC budget for the privilege of British membership—and after the failure of the Government of my right hon. Friend the Member for Huyton (Sir H.

Wilson) in the renegotiation of 1974–75 to retrieve that initial and major error, was to see a permanent, fair and equal financial relationship between the United Kingdom and the EEC.

That was certainly what was hoped for. Alas, that was not to be. In the draft budget for 1983 we have before us a testament to the failure of the Government's attempts to renegotiate their unequal burdens with the EEC and a monument to the continued failure to reshape, in any significant degree, the totality of the EEC budget and the methods of financing it. I shall spell out why the 1983 draft justifies the title of a budget of failure.

Mr. Hugh Dykes (Harrow, East)

Does the right hon. Gentleman's last remark mean that he would seriously welcome much more being spent on the social and regional funds in future?

Mr. Shore

Given the choice between expenditure on the common agricultural policy and expenditure on other matters, there is no doubt, as common sense indicates, that that would be a better form of expenditure. However, as the hon. Gentleman might, in a sense, expect, I shall develop my remarks on that point.

I turn to the subject of the continued dominance of the CAP. Next year, as the Treasury's explanatory memorandum makes plain, the EEC budget provides for expenditure of over £12,000 million. Of that sum, no less than £8,000 million is to be devoted to price support of European farm products. As we all know, the benefit of those vast subsidies does not accrue to consumers either in the United Kingdom or elsewhere in the EEC. Some part of it goes to European farmers, but a very substantial part is simply wasted. It goes in storage costs for the large surpluses, cut price sales, when those surpluses become unmanageable, to whatever countries will purchase them, after the Soviet Union, and, further, through the deliberate subsidising in the world market of Community farm products that would otherwise be uncompetitive.

The preliminary draft budget for 1983 anticipates an increase in farm guarantee expenditure of about £500 million. According to the Commission, it will then account for 64 per cent. of the 1983 budget. It is true, as the Commission claims, that that is less than the 1980 percentage share, when the figure was just over 71 per cent., but the Commission fails to say—the House must recognise this—that the reduction, such as it has been, owes more to the hardening of world farm prices, and therefore the reduction of certain expenditure, than to any change in decisions about the CAP. One may doubt whether world food prices will continue this year and next to be as favourable from the point of view of the cost of subsidising CAP exports as in the two previous years. However, we are still accepting that broadly two-thirds of the total Community budget will be absorbed in agricultural expenditure.

That is all the more amazing and all the more disproportionate at a time when recession in the industrial sectors of the Community, most grievously in the United Kingdom, has so noticeably deepened. That is reflected in the unemployment figures in the Community as a whole, which are disturbing and depressing. The last set of figures was published along with the papers that accompanied the most recent summit meeting. The figures should be familiar to hon. Members on both sides of the House. There has been an increase of two to three times over the past four to five years.

The Brussels Commission and all the institutions within the Treaty of Rome are patently ill-equipped to deal with the fundamental problems of slump and unemployment. Last year, in presenting the 1982 preliminary draft budget, the Commission wrote: in drawing up the 1982 budget the Commission has sought particularly to enable the community to respond as effectively as possible to the demands placed upon it by the continuing economic recession. The same theme is pursued in this year's submission. Referring to what it called the major reorientation of the community policies which were supposed to be initiated through the 30 May 1980 mandate, the Commission states in the introduction to volume 7: This year, however, the Commission is able to present a budget which represents a first step towards fulfilling the objectives of the mandate even though some important elements of that debate are still under discussion. I am afraid that the evidence for that progress towards major reorientation is thin and unconvincing. The Commission has proposed a substantial increase in the social and regional funds, which has been mentioned by the hon. Member for Harrow, East (Mr. Dykes) and the Financial Secretary.

Even if approved by the Council of Ministers and the Assembly, the Commission's proposals for increased expenditure via the social and regional funds will, in 1983, be barely more in real terms per capita for the anticipated 10.5 million unemployed in the EEC than when unemployment was 6.8 million in 1980. Thus, in spite of the cosmetics and the commitment to a major reorientation of the community policies in 1983 the EEC will remain basically what it has been almost since its inception—a common agricultural community with a common external tariff surrounding a customs union.

The 1983 preliminary draft budget takes no forward step towards changing the bizarre arrangements for financing the EEC, for the reason that no commitment to such a change has been made, and, like major CAP reform, it was virtually excluded from the terms of reference given to the Commission in the 30 May mandate.

Of the three main taxes that make up "own resources", as hon. Members will discover when they look through either volume 1 or volume 7 of the documents, in 1983 Britain will pay nearly one-third of the total contributed through levies and premiums on imported food. Only one other country, Italy, pays half as much in levies on imported food as Britain.

Of the second main tax, customs duties, Britain will pay, it is assumed, slightly less in 1983 than in 1982. However, we shall contribute more than 25 per cent. of the total revenue from customs duties. Only Germany will contribute more. As for VAT, the third of the own resource taxes, Britain will contribute just over 20 per cent. As the Treasury memorandum acknowledges, in total in our gross contributions we shall contribute no less than 22.4 per cent. of the total, about £2,700 million. As our GNP, as a percentage of the total EEC GNP, amounts to only 17.1 per cent. and that percentage reflects an overvalued exchange rate of the pound sterling, we are contributing more to the EEC budget than any reasonable calculation based on our capacity to pay would justify.

So much for the gross contribution. What about our receipts and our resulting net payment? Here once again we confront the failure of the Government to rectify the imbalance between the United Kingdom's contribution and the United Kingdom's receipts from the EEC budget. We are now heading towards the third anniversary of the Prime Minister's insistence that that problem must be solved speedily and on a permanent basis. It is three years since she told the rest of the EEC that she was not prepared to go on playing Lady Bountiful to the Community. It is three years since she insisted that the present inequitable arrangements had to be replaced by those that would have left us in broad balance with the EEC budget. It is three years since she insisted so vehemently that after all it was our money. The House knows that in the end she was fobbed off with a two-year temporary arrangement and the Commission mandate to which I have referred. That mandate yielded virtually nothing. An additional year has now been added to the two year temporary period. In her efforts to solve the problem earlier this year the Prime Minister succeeded only in entangling herself more deeply in the procedures and rules of the Community.

In the absence of an agreement, the Prime Minister was obliged on 25 May this year to accept a further ad hoc one-year agreement for Britain's budget payment. In the debate on 26 May the Foreign Secretary told us that the Commission estimated that the United Kingdom's net contribution in 1982 would be £880 million. He said: We have accepted a basic refund of £490 million, which, on the basis of the Commission's estimate, will make the United Kingdom's contribution, after refunds, one of £390 million."—[Official Report, 26 May 1982; Vol. 24, c. 942.] The Foreign Secretary went on to explain the formula agreed for that year should the £880 million net contribution be exceeded. This arrangement which was imposed on the United Kingdom came too late for the arithmetic to be recorded in the draft preliminary budget for 1983. As the House will have noted, in the relevant tables there is simply a gap for 1983 under the heading Supplementary measures in favour of the United Kingdom", and it is partly that which gives that misleading impression of the relatively small rate of growth of the overall Community budget for 1983.

What I find surprising is the lack of any serious discussion of the 25 May agreement in the Treasury's explanatory memorandum which, after all, was produced only on 2 July. We must know the precise figures now for the payment to the United Kingdom that has beets agreed for 1982, including by now the details. I had hoped that the Financial Secretary would tell the House more about this and also whether any new conditions had been imposed or were likely to be imposed in the new regulation that under these arrangements will have to be issued by the Brussels Commission.

I should also like to hear the Government's explanation why the financial mechanism which, with the benefit of hindsight and experience, they renegotiated in 1980 has failed yet again and apparently will continue to fail to yield any return to the United Kingdom. I have no doubt that the Financial Secretary will assist us with an explanation.

Mr. Ridley

The right hon. Gentleman will know that it was his own Government who negotiated the financial device to which lie has referred. On no occasion has it yielded one new penny of refund.

Mr. Shore

The Financial Secretary has missed the point entirely. I agree with him that the financial mechanism which was negotiated as an attempt to undo the damage done by the previous Government in 1971 failed to do that. Unlike a number of other people, I thought at the time that it would fail to do it, and I said so. But the hon. Gentleman has missed the point, because what is remarkable is that when, in the negotiations which led up to the 1980 agreement conducted by his own Government, measures were sought to assist the United Kingdom at least in the preliminary period before a permanent settlement could be found, the financial mechanism was renegotiated. A mark II financial mechanism, with all the authority, experience and expertise of the present Government, was devised. But mark II is no more successful than mark I was. Not a single refund has come through the triggering of that mechanism. Therefore, all has to be loaded on the fall-back fail-safe mechanism—the supplementary measures. But I am still waiting for the hon. Gentleman's explanation. Obviously he is not aware of what happened, and we look forward to hearing from him when he has had time to reflect on it.

The details of the settlement for 1982 and the sums of money to be allocated for it in the 1983 budget are entirely secondary to the massive defeat that the Government sustained in their effort to obtain a lasting and sensible solution to the scandal of our unjust and disproportionate contributions this year.

As long ago as 31 March 1982, the Prime Minister, reporting on the European Council Meeting, told the House that decisions on all aspects of the mandate must be taken together; that is to say, decisions on the budget, the common agricultural policy and industrial and social affairs of the Community. Because no satisfactory arrangements had been reached at the end of March on either the CAP, the industrial and social affairs of the Community or the total shape and finance of the Community budget, the Prime Minister made it plain to the House and to our fellow members of the EEC that there would be no British agreement to the agricultural price settlement for this year unless and until Britain's budget problem was settled. In short, Britain would use the veto on the agricultural price settlement until the 30 May mandate was agreed and a just and lasting settlement to Britain's budget problem was achieved.

As the House knows, the British position was destroyed at the meeting of the Council of Agricultural Ministers in Brussels on 17 and 18 May when, consciously and deliberately, the Council overrode the British veto and simply declared that the veto itself, which had been in place ever since the famous Luxembourg compromise of 1966, simply did not apply. Thus the Government's bargaining power on Britain's budgetary contribution was destroyed at a stroke.

Not only was our bargaining position destroyed. The central convention that had dominated the conduct of the EEC for the past 16 years—the central constitutional convention which was prominently displayed during the referendum campaign in Britain in 1975 and in the 1971 White Paper prior to the right hon. Member for Sidcup signing the Treaty of Accession—was destroyed with it.

The following day, the Prime Minister herself said that the decision was "without precedent" and had serious implications. The Minister of Agriculture, Fisheries and Food told the House on 19 May: the Council had violated an accepted convention under which all previous price fixings had been adopted."—[Official Report, 19 May 1982; Vol. 24, c. 352.] The gravity of the decision and the implications for the United Kingdom have not yet been understood fully either in the House or in the country. Of course, the Foreign Secretary raised the matter, as he had to, at the Luxembourg meeting of the Council of Ministers on 20 and 21 June. There was little to comfort us when he reported back to the House on 22 June. He could not get that decision negatived, cancelled or reversed. Nor could he get any guarantee that the veto would not be overridden again whenever other member countries thought it right to do so. The best that he could tell the House was that where … very important interests are at sake"— this is the old doctrine— discussions must be continued until unanimous agreement is reached, and that Community business should continue to be governed by this principle. This position was supported unreservedly by two member States and by two others with minor qualifications."—[Official Report, 22 June 1982; Vol. 26, c. 155.] The Foreign Secretary refrained from saying which member States unreservedly accepted the British view. However, we know from the statement made by the Minister of Agriculture, Fisheries and Food the previous month which States they were.

On the occasion when the offence was committed, we had the support of the Danes and Greeks. But that should give us little satisfaction, because the combined voting strength of the United Kingdom, Denmark and Greece is insufficient to prevent the other Community States from obtaining the qualified majority that the voting rules require. If they had had that voting power, the original offence could never have been committed. But it was, and it is plain that there is nothing, now that the 1966 convention has been broken, to prevent it from being broken again. All that we have is the report by the Foreign Secretary that there were two other member States which, with minor qualifications, broadly supported the principle of the national veto and the Luxembourg compromise.

But this, too, is totally unsatisfactory. By definition, those two other unnamed States which supported our position in June with minor qualifications were among those States that voted in the first place to violate the Luxembourg compromise on 19 March. As the Foreign Secretary was candid enough to confess to the House, there cannot be any certainty about future conduct. He went on to say that he would have preferred a clear-cut result. So would we all. It is not clear to any of us what a clear-cut result or commitment can now involve. There is no possible way in which a clear-cut commitment to the doctrine of the national veto can be obtained without a change in the Treaty of Rome. There is a great irony in all that. It is now just over 10 years since, as Opposition spokesman on European affairs, I tabled an amendment to the European Communities Bill which would have enshrined in the European Communities Act 1972 the veto principle that we were all then assured was universally accepted and inviolate. We forced a vote. The amendment was defeated by only 13 votes on 13 June 1972. It is rather interesting to note who voted against it. The Financial Secretary voted against it. He is to preside over the budget council this coming week. He was not alone because his colleague the Economic Secretary voted in the same Lobby, the Chancellor of the Exchequer voted in the same way, and so did the Prime Minister who has complained so bitterly about the lamentable results. I urge them to reflect.

I should have thought that the remedy to the budgetary problems is clear. We have urged it upon the Government again and again over the past two and a half years. The only leverage that we have on the EEC countries is to amend the European Communities Act 1972 so that we can halt at will the outflow of British money, the Community's so-called own resource. We should then insist upon a proper net contribution to the EEC, one that is approved by the House. We have offered immediate assistance to the Government in both the framing and passage of such amending legislation. That is only the first part of a larger process of disengagement from the Treaty of Rome to which we are committed. For all the Prime Minister's bombast, the Government will not tread that obvious road to a solution. I invite the House to consider carefully where the present course is leading.

The Prime Minister has come a long way since she insisted that it was our money. She has found that no mixture of threats or blandishments has yielded any lasting solution to the outrage of our budget contribution. She has only managed to obtain a temporary reduction and study. The mandate does not offer any solution. It devotes only two of its more than 30 pages to discussing the British budgetary problem. The rest of the document is given to the ambitions and fantasies of the Commission, seeking as always to enlarge its activities, to promote European union and to widen its competence into still larger areas of the affairs of member States.

The solution that the Commission has in mind is not one that would give a permanent balance to Great Britain's payments and receipts to the budget, nor one that would demand any drastic curtailment of expenditure on the common agricultural policy, but a solution that would involve, in some unquantified and undemonstrated way, a new possible balance that could be struck if there were to be a vast increase in social, regional and industrial policies, and expenditure upon them, under which Great Britain might conceivably receive more than it now pays.

There is the great paradox and disadvantage. Such a solution would involve a substantial increase in the Community's own resources. I warn the Government that that road is not one that they should even contemplate pursuing. The Opposition have had enough of these annual occasions when we can do nothing but express our opinion. We cannot make any decisions about the European Community's budget or our contributions to it. We have to continue these exercises, and we hope that the Financial Secretary, out of some primitive instinct for self-protection, will seek to advance the British cause at the forthcoming meeting of the budget council. We have little confidence in his capacities, although in the national interest we wish him such success as may be possible.

10.35 am

Sir Michael Shaw (Scarborough)

I have listened, as always, with considerable interest and admiration to the speech of the right hon. Member for Stepney and Poplar (Mr. Shore). His most notable contribution was that of gloom. I assume that that was intended. There was a complete lack of hope that we could achieve what we are seeking in the Community. From that I am convinced that the Labour Party is bent on getting this country out of the Community as soon as it can. That being so, we are put at a great disadvantage in our negotiations. When discussing the problems and how best they can be overcome to better not just our position but that of other countries of the Community, our influence must be restricted by the obvious divisions within the House.

As my hon. Friend the Financial Secretary said, this is the ninth in the series of debates we have had on the preliminary draft budget of the European Community. It seems less than a year since we last discussed the topic. That is not surprising, because the last budget has been with us for a long time and is still not entirely resolved. We have been told that it is to be resolved in its original form. I am not clear whether any formal declaration has been or will be made or whether—as on one occasion—it will be accepted with no further comment by the Council. I should be interested to know whether that is so.

We also have a first supplementary draft budget. In all probability, we shall have a second in the autumn. The 1982 budget has been a protracted affair. There was a time when such affairs took up a great deal of my political life, but nothing can be more boring than the endless recollections of someone who has been a professional in a certain area, so I shall try to keep my contribution brief.

I congratulate my hon. Friend the Financial Secretary and the Government on their work during our Presidency. Although the debates in December on the 1982 budget ended unhappily, as my hon. Friend said, a certain positive good resulted. In substantial measure that was due to my hon. Friend's work.

Under the 1975 amended treaty, which was ratified in 1977, the joint budgetary authority was set up consisting of the Council and the Parliament. Sooner or later they had to learn to work together. In the main, the years since then have shown the difficulties in achieving that desirable objective. In only one year was the budget agreed on time by the Parliament and the Council. I hesitate to say this, but it was the year in which I was the rapporteur for the Parliament. In every year since there has been disagreement and falling out. That cannot be good for the Community's future.

My hon. Friend, when he was president of the budget council, saw the need for an agreed interpretation of treaty provisions. Every time that we came to an argument about what various sections meant, a clear decision on an agreed interpretation was fudged. I did not mind too much, as I reckoned that I could fudge as well as anybody, and more often than not the advantage lay with ourselves in Parliament, but things could not go on in that way indefinitely.

In addition, there was not a proper conciliation procedure between the Council and the Parliament. Although I was hesitant in my view, my hon. Friend was right to persuade his colleagues in the Council to go to the Court to seek an official interpretation. That brought matters to a head, and agreement has now been reached between the Parliament and the Council. It was preferable to reach agreement than to go to the Court. The understanding must be honoured. It is much easier to take a flexible approach provided that it is agreed by both parties. In a sense, it is the old argument of a written constitution or one such as we enjoy.

A joint declaration was made by the parties on 30 June. It may prove to be an historic declaration. It was made by the European Parliament, the Council and the Commission on measures to improve the budgetary procedure.

My hon. Friend raised the question of classification, which has been an annual problem. If paragraph I of the declaration can make it absolutely clear to all into which classification—non-obligatory or obligatory—items fall, it will take out a tremendous amount of annual argument.

The arrangements under paragraph II are wise. They seek to sort out how new items of expenditure can be classified as quickly as possible so that the general movement of the budget procedure is not held up and serious differences do not remain between the parties.

Paragraph III refers to "interinstitutional collaboration" in the context of the budgetary procedure. In the past, inadequate provision was made for the way in which the Parliament and the Council got together to thrash out differences of opinion. As far as it can, it makes sure that proper time is given not only for discussion between the two parties but for deliberation afterwards, so that their views can be taken into account before the final draft budget is put forward by the Council.

Again, for example, in regard to the new rate of increase in non-compulsory expenditure, systems are laid down whereby meetings of the heads of institutions can be arranged to sort out differences as and when they arise, rather that to leave then to the end. On three or four occasions other matters are taken up in the document.

I wish specifically to refer to fixing the limits of expenditure, the existences of lines in a budget and whether they provide a legal basis for expenditure. These matters are fundamental to the Parliament. I often disagreed with many of my hon. Friends in the European Parliament. Many felt that because there was a line in the budget, it was automatically an authority for the Commission to spend the money. That must be wrong. If money can be spent only by the creation of a regulation, whatever budgetary powers the Parliament may be given and may rightly exercise in accordance with the treaty can be nullified if the Council refuses to adopt a regulation.

A compromise is built into the declaration—an acceptance of the Parliament's rights to a certain extent by the Council and an acceptance of the Council's point of view by the Parliament. The compromise shows that it is possible for true conciliation to take place between the two parties and it augurs well for the future.

The last paragraph of the declaration deals with the financial regulation and the need for its early revision. How long it will be before that revision takes place? In December 1977, when I finally got through the revised financial regulation, I built into it a specific provision that the financial regulation should be reviewed every three years. I did that deliberately as I knew that with direct elections and, frankly, the fact that, thorough though my own review had been, it was impossible to pick up everything in one review, it would be necessary for the document to be changed from time to time. Therefore, I wished to force those concerned to reconsider it every three years. Five years have now passed and the document is still floating around the corridors of power waiting for people to make up their minds. When are they likely to do that and when is this likely to be adopted?

On the European budget itself, convention has it—

Mr. Spearing

Ah!

Sir Michael Shaw

I know that the hon. Gentleman does not agree with convention, but convention has it that the Council and the Parliament do not interfere in each other's budget. If such a convention is to last, each institution must appreciate the absolute necessity of showing that it is conducting its affairs with the utmost responsibility and internal discipline.

It seems clear that mistakes have occurred, particularly in relation to the Parliament. The expansion through direct elections and the heavy additional costs involved have not been reflected in an appropriate updating of its financial system and the staff who run it. The inadequacies disclosed by the Court of Auditors show how right the Parliament itself and many others, particularly the British members, were to insist that the Court of Auditors be set up.

Mr. Douglas Jay (Battersea, North)

As the hon. Gentleman is such an expert on the subject, can he tell us how soon that report will be published so that we can read it?

Sir Michael Shaw

I cannot tell the right hon. Gentleman that, although rumours reach one as to what is in it. On the evidence so far published—the reaction of the Parliament—it is clear that there has been fairly far-reaching criticism. The most important aspect of that reaction has been that the President, Mr. Dankert, has taken this problem upon himself, and I praise him for that. That is vital, because the future respectability and influence of the European Parliament depend on its getting this right. Therefore, it is absolutely right that Mr. Dankert and whatever committee he cares to set up should take that responsibility. Having done that, he should then implement any recommendations made by whatever consultants he calls in to advise him on these matters. Above all, he must put at the head of the financial department of the Parliament a higher grade of official than it has had so far, because things have not improved since the old days.

The amount of money passing through the hands of Parliament has increased enormously with all the expense of moving to different places and the greatly increased number of people involved. Unless credibility is built into the whole parliamentary system and the public are assured that matters have been put right and will be kept right, no one will take the European Parliament seriously. Having said that, I believe that Mr. Dankert has done the right thing, and I wish him good luck in what he has undertaken.

Finally, too often there has been disagreement between the Parliament and the Council on the budget. Changes have been made this year which I believe will help to bring agreement at the end of the discussions. The declaration is an important move in that direction. As a result of those changes and agreements, and perhaps because a British member of the European Parliament is rapporteur for the 1983 European budget, I hope that once again we shall be able to reach agreement at the proper time—in December this year.

10.59 am

Mr. Ron Leighton (Newham, North-East)

The Community budget is an extraordinary arrangement. Its effects are wholly perverse and it is completely unsuitable for Great Britain. Its grotesque system of revenue and bizarre use of expenditure are consistently and inevitably anti-British in effect. It is like no other budget I have ever heard of. Indeed, I find it difficult to regard it as a budget at all. I believe that these matters were originally described as the financial regulations, which is a far better description.

Other international bodies, such as the United Nations, are financed on the basis of ability to pay. Countries contribute according to their size and wealth so that there is some equity in the arrangements. In the financial arrangements of the EEC, however, there seems to be no equity or fairness and no reason or logic at all. It is a club of 10, but only two members pay any contributions and the others are beneficiaries. That seems a very strange way to run a club. Some of the richest nations in the world are net beneficiaries under this arrangement. How on earth can that be justified?

When we use the word "budget", we think of our national budgets, which tend to be redistributive. We have progressive taxation. The rich are supposed to contribute according to their ability to pay and expenditure is based on some criteria of need. For example, some areas of the United Kingdom are richer than others and I am sure that a study of these matters would show that there are transfer payments between classes and between areas whereby the rich pay in more and the least well-off get more out.

In the EEC, Britain is seventh in the prosperity league. We are told that we are one of the poorer Common Market countries. So surely, in any sensible, fair, logical or reasonable budget, the United Kingdom would be a substantial net beneficiary. Why should Britain pay any net contributions at all? What is the justification? Where is the logic or reasoning? So crazy and lunatic is the system that we became the largest net contributor. In my opinion, that was quite monstrous. Now, I believe that we are the second largest contributor.

The Prime Minister said in her speech to the European Assembly on 16 December 1981: The problem arose when one of the Member States, my own country, found itself bearing an unacceptable and increasing budgetary burden as a result of the combined effect of Community policies. The words she used were the combined effect of Community policies". She was saying that Community policies together had had this effect on Britain.

How did this situation arise? Basically, there are two reasons. There is the bizarre set of taxes to finance the budget. There are levies on food imports. There are duties on manufactured imports. Then there is a percentage of value added tax. Why was that mix of taxes dreamed up? Presumably, it was to influence the development of the European Community. Presumably, it was to encourage a diversion of trade. Presumably, it was to encourage self-sufficiency in agriculture—to have autarchy in agriculture; to have a siege economy in agriculture within the Community. Presumably, it was to encourage trade between member States and to penalise trade with the outside world. It is somehow thought to be reprehensible and non-communautaire to buy food from outside the Common Market or to import goods from the rest of the world. That seems to be the reasoning behind those taxes.

If countries have the temerity, or are so delinquent or remiss, as to import food from outside, they will be fined—penalised. They will have to pay a levy or a tax for the sin of importing food from outside the Community, and of course, that money does not go to our Exchequer, but straight to Brussels.

Who does the policy hit? It hits us. As my right hon. Friend the Member for Stepney and Poplar (Mr. Shore) said, we are the largest food importer in the world. So the policy directly harms this country. I assume that that was the purpose of the taxes.

Britain, being a mercantile, maritime world trading nation, has found that this EEC straitjacket does not fit us. We still do most of our trade outside the Common Market. It is quite remarkable how the pattern of trade has not changed.

Mr. John H. Osborn (Sheffield, Hallam)

Forty-three per cent. of our exports go to the Common Market, so what the hon. Gentleman is saying does not make sense.

Mr. Leighton

What the hon. Gentleman says underlines what I am saying. If 43 per cent. of our trade—that is, under 50 per cent., if my mathematics are correct—goes to the EEC, it means that 60 per cent. goes to the outside world. I thought that that was what I was saying. Even after a decade in the Common Market, most of our trade is with the rest of the world. We are an internationalist country; we trade on a world-wide basis.

I understand the hon. Member for Sheffield, Hallam (Mr. Osborn) getting a little confused, because sometimes the propagandists juggle with the figures. There is much statistical trickery. Often these professional propagandists do not compare like with like. They compare the EEC Six with the EEC Ten, and then they lump in Lomé, aggregate that, and then come up with a curious figure. So it is remarkable that the pattern of our trade has hardly changed since we joined the Common Market. Most of our trade, as we have all agreed this morning, is outside the Common Market. We are therefore fined and taxed because we trade in that way. That is why we pay more. It is completely inequitable and unfair, and, moreover, it is anti-British.

Mr. Hugh Dykes (Harrow, East)

rose—

Mr. Leighton

No, I shall not give way. The hon. Member for Harrow, East (Mr. Dykes) always refuses to give way, so I hope that he will excuse me if, on this occasion, I continue.

In my view, the mischief is compounded when we turn the penny over and look at what the budget is spent on. It is spent overwhelmingly on the common agriculture policy, financing food surpluses. It so happens that we do not have any—or rarely have any—food surpluses. So although we pay more, when we look at the purpose of the expenditure—financing food surpluses—we do not benefit. We pay more than anyone else and we draw out the least.

We are told by "Europeans" that that is our fault. In other words, we should change and adapt ourselves, stop being internationalists, and stop importing food and goods from the rest of the world. We should seek to break off our relations with the rest of the world and deal only with the Continent. They are saying that if only we would be good Europeans, we would not have to pay as much. They are asking us to change our nature and history, and basically stop being British—to become, perhaps, an imitation of France.

There is an irony here. If the policy were to succeed, and if infra-Community trade were increased, Community revenue would diminish to the extent that it increased, because if we no longer traded internationally there would be no levies or taxes. If we traded only with one another, the revenue would diminish, and the process would be self-defeating.

I quote an article entitled: French doubts about Britain's ability to adjust to Community It appeared in The Times, dated 22 January 1980 and said that When Sir Ian Gilmour, the Lord Privy Seal, meets French Ministers in Paris tomorrow to sound out France's views on what Britain is seeking to obtain from the EEC at the European summit"— he would find— continuing doubt, which the Dublin summit"— this was after the Dublin summit— has done nothing to dispel, as to whether, in the words of a senior official, the EEC corset is not a little too tight for the British Prime Minister and whether a somewhat looser garment would not be more suitable … The fundamental issue is whether British consumer habits, British trade and British industry, based on continued dependence on third countries, which in turn accounts for the huge size of the British contribution, are not incompatible with an economic community as it is organised at present. Those were the worries of the senior officials of the Community and that is what the then Lord Privy Seal was told at that time.

The Continentals want us to change and to become like them. The British want the Community to change. We continually talk of reform. Everyone said that we must get inside the Community and reform it. We have tried to do that for 10 years, but without success. Indeed, I do not see why the Continentals should change. It is their Community and it was established by them without us. Why should we be so arrogant as to think that we ought to change what they are doing, so that it suits us? Despite all the endless talk of reform, restructuring the budget and so on, we must face the fact that the Community has not changed and will not change. It does not suit us.

Our budget problem has not been solved. There is a temporary, patched-up, bodged-up, ad hoc arrangement and the mandate of 30 May 1980 has come to nothing. The Prime Minister said in her speech to the European Assembly: The Community agreed, on 30 May 1980, that the problem should be resolved … 'By means of structural changes'"— but here comes the interesting bit— without infringing basic Community principles.' How can that be done without infringing basic Community principles?

We constantly hear that the CAP is to be reformed. The Foreign Secretary told the European Assembly last year, that the CAP was an expensive and wasteful anomaly that must be corrected"— but, again, there was the qualification— but not so as to undermine the principles of the CAP". How can we reform something without changing it? How much longer must we endure a budget that is dominated by one sector—agriculture—and is clearly detrimental to one nation—Britain?

Is there a solution? We could scrap the taxes that form the budget and go over to a system of paying a percentage of GDP. Another approach that would find favour in some quarters would be to extend the budget and to make it up to 400 per cent. bigger. We would spend as much as we do now on agriculture and hand over even more so that our industrial and social policies are also run from Brussels. I do not believe that that is on. Only a few slightly fanatical Tory Members—a tiny minority—would wish to follow that course.

Mr. Spearing

While only a tiny minority in the Conservative Party wish to follow that course, it is the expressed policy of the right hon. Member for Glasgow, Hillhead (Mr. Jenkins) and, presumably, of Alliance Members. That is their complete policy, but they try to hide it from the British public.

Mr. Leighton

My hon. Friend is correct. It was only in the interests of brevity that I cited the Prime Minister rather than the right hon. Member for Glasgow, Hillhead (Mr. Jenkins) who has not graced our debate. The right hon. Gentleman made a valedictory speech in which he set out the alternatives and explained clearly that the course that I have outlined was favoured by him and presumably, the SDP. That is one of the more persuasive reasons why no one should support the SDP.

The most sensible solution would be to end the common financing of agriculture and the indefensible CAP and to return responsibility for agriculture to the member States. If the French or anyone else want to subsidise their less efficient farmers and to give them a good standard of living by charging high prices to the consumer, let them do so—but not at the expense of the British taxpayer.

We should abolish the CAP. Why is it so important? I have never understood how the security and prosperity of Western Europe can depend on something as lunatic as the CAP.

I have no confidence in attempts to reform the CAP. The Conservative manifesto for the last general election made the clear commitment that prices of goods in structural surplus would not be increased. In real terms, as inflation marched on, as it has under this Government, prices would come down, the laws of supply and demand would work and we would eliminate the structural surpluses That promise has been cynically broken under threats from the Common Market and we have just had another huge increase in CAP prices, which entrenches the policy.

The only way out for us is to pull out of the CAP, to say that it does not suit us and will only cause endless arguments between us and the EEC, and to refuse to pay more than our receipts. It was the announced policy of the Prime Minister that we should break even. If we cannot get international agreement we shall have to take unilateral action.

We should stop writing the cheques. We should intercept "our money"—it is not legally our money—en route to Brussels as a means of putting pressure on the EEC institutions. We were told that the way to exert pressure was to refuse to agree to the farm price settlement, but our veto was overridden. We have another card that could be played; we could refuse to pay the money.

For the long term, I support the Labour Party policy, which had a five-sixths majority at our annual conference. A central point of our next election manifesto should be that we should agree, without recriminations and in an atmosphere of friendship and amity, to Britain's withdrawal from the EEC, which does not suit us and only causes trouble between us and our Continental friends.