HC Deb 14 November 1983 vol 48 cc609-15 3.32 pm
The Secretary of State for Foreign and Commonwealth Affairs (Sir G. Howe)

With permission, Mr. Speaker, I should like to make a statement.

I attended the Special Council in Athens on 9 to 11 November, accompanied by my right hon. Friend the Minister of Agriculture, Fisheries and Food and my hon. Friend the Economic Secretary to the Treasury.

This was the sixth meeting of the Special Council set up by the European Heads of Government to carry forward the work agreed upon in Stuttgart in June. The Special Councils have concentrated on three main topics: measures to ensure greater budgetary discipline and effective control of agricultural and other Community expenditure; measures to ensure more equitable sharing of the burden of financing the Community budget; and the establishment and implementation of new Community policies.

As hon. Members know, Community spending is now up against its revenue ceiling. A number of member states are pressing for an immediate increase in own resources. My right hon. Friend the Prime Minister made it clear at Stuttgart, and I stated again at Athens last week, that we would be prepared to consider this provided that two very important conditions were met: first, that agreement was reached on an effective control of the rate of increase of agricultural and other expenditure; and, secondly, that it was accompanied by an arrangement to ensure a fair sharing of the financial burden.

As far as the first condition is concerned, there is agreement within the Community that the present rate of growth of expenditure on the common agricultural policy cannot be allowed to continue. Early in the negotiation we put forward a proposal for a strict financial guideline which, as part of the Community's budgetary procedure, would ensure that agricultural spending was rigorously controlled. Some of our partners are not yet willing to go nearly far enough to secure effective control of such expenditure, but others are now pressing as strongly as we are for an effective mechanism across the board. Even those who have so far resisted a legally binding guideline, such as the Commission itself, have tightened up their proposals considerably in response to our ideas.

At an equally early stage we tabled a proposal for a safety net which would limit a member state's contribution to the budget in accordance with its relative prosperity and its ability to pay, and so meet our second condition. Here too, a number of other proposals have been tabled, including the ill-advised ideas put forward by the Commission last week which sought to reduce the problem by redefining it in a wholly arbitrary way. Other proposals also fail to measure adequately the true budget burden borne by the United Kingdom. But some of them represent significant movement towards our thinking about the essential elements of an agreement on the budgetary arrangements.

I again emphasised in Athens last week that if there was to be agreement at the Athens European Council in December our two conditions must be met.

Last week's Special Council also took forward discussion of the future development of the Community in other fields. Here, too, we have tabled important proposals for the Council's consideration.

The Special Council will meet again in Brussels on 28 November. It is generally agreed that decisions will be taken only at the European Council on 4 to 6 December and that individual questions will be resolved only as part of an overall agreement.

Mr. Donald Anderson (Swansea, East)

We are bound to ask what is the real point of this interim statement. Is it not just another collection of Euro pieties and an addition to the fine word mountains that we have had since the Stuttgart summit and before? To put it bluntly, the message from Athens surely is that there is no money for us, no long-term formula for the budget and no agreement on key issues. How realistic is it to expect progress on spending on agriculture when the domestic agricultural pressures and the vested interests of our partners are so massive? Surely the only way out of the impasse is to have increased national spending.

In any discussion of the budget and Britain's contribution to it, we have become used to hearing that one swallow does not make a summer when it comes to what in happier days the Prime Minister called "getting our money back". The Foreign Secretary referred to developments in other fields and to new Community policies. Six meetings after the Stuttgart summit, surely the House is entitled to know in what other areas the right hon. and learned Gentleman is discussing progress with our partners. We need the details. For example, have the Foreign Secretary and the Government conceded the principle of extending the coverage of our domestic value added tax to non-rated areas, such as rents and funerals, and to zero-rated areas, such as children's clothes?

It is clear that neither the Prime Minister's megaphone diplomacy nor the Foreign Secretary's studied deep breathing has delivered the goods for this country. Will the right hon. and learned Gentleman recognise the real strengths of our negotiating position with our partners? Those strengths are that the Community is hitting its head against a ceiling on resources and that no further progress can be made in any direction without our agreement. Therefore, we have an effective veto over developments in the Community. Until our justified case is met we should state that clearly and wave our veto before the eyes of our partners. We believe that that is the only language that they will understand.

Sir Geoffrey Howe

The hon. Gentleman began by asking what was the point of the statement. I made the statement to bring the House up to date with the negotiations. I am certain that if I had not made a statement about this important meeting the hon. Gentleman would have been the first to complain.

The hon. Gentleman is right to state, as I did in my statement, that Community resources are running out. It is, therefore, against that background that there is recognition of the essential need to secure agreement, first, on the control of the growth of agriculture and other expenditure—which is one of our two conditions—and, secondly, on the putting in place of a budgetary mechanism that will prevent the recurrence of the repeated arguments over the burden of the budget on different countries and redress the burden that was unfairly placed on Britain by the original arrangements. Those are our two purposes.

The hon. Gentleman asked about our proposals for new policies. There has been no discussion about any increase in the coverage of VAT along the lines that he described. In the supplement to the October edition of the Treasury's economic progress report we have tabled a full report setting out the new policies which we have offered for discussion within the Community, all of which will improve the working of the Common Market, remove barriers to trade, liberalise trading conditions and enhance the prospects of better economic growth throughout the Community.

The hon. Gentleman was right to remind us of the strength of our negotiating position. I am glad to take this opportunity to remind others of it. We have made it quite clear that we will not lay before the House proposals for an increase in own resources unless we are satisfied that such proposals are justified and unless our two conditions are fulfilled.

My right hon. Friend the Prime Minister has made quite clear the determination with which we wall address those questions. That determination is well understood, and had better be well understood for the sake of both the Community and the United Kingdom.

Sir Hugh Fraser (Stafford)

I congratulate my right hon. and learned Friend on his robust statement. As this year's agricultural production in Europe has fallen by 7 per cent. beyond what was anticipated, will not the fundamental agricultural crisis increase rather than be ameliorated? Throughout the negotiations, will my right hon. and learned Friend be even more robust and ensure that there is not an increase in expenditure and that the CAP is improved? He will then carry the House with him.

Sir Geoffrey Howe

I am grateful to my right hon. Friend, who is something of an expert in robustness, for his kind tribute. His point is valid and important. A continuation of the CAP without reform, in the context of the resources being exhausted, has led to a recognition that fundamental reform must be achieved. One part of that is Britain's insistence that such a reform should produce a limitation on the growth of agricultural spending.

Mr. Russell Johnston (Inverness, Nairn and Lochaber)

Although the Foreign Secretary is rightly attempting to work out a fair basis of contribution to the Community budget, will he assure us that he will not argue the case for each country contributing even approximately the same amount as it receives? The juste retour, or our own money argument, would block any possibility of economic convergence within the Community, which is one of its basic objectives.

Sir Geoffrey Howe

I am surprised that the hon. Gentleman has adopted an argument based upon juste retour. The concept embodied in that French phrase is used all too often to denounce the central case that we have made, which is that the Community must be fair and equitable in its budgetary arrangements. That does not imply that each policy should be self-financing for each country in precise mathematical terms, but the argument based on juste retour is too often advanced to reject the essential heart of our case, which is for long-standing, durable arrangements for fairness in the budgetary system.

Mr. Teddy Taylor (Southend, East)

As the Government are rightly using every possible device to contain public spending, would it not be unthinkable to ask the House to contribute even more resources to the Common Market for expenditure which the Court of Auditors for the Community has recently described as showing appalling waste, extravagance and lack of direction? Will my right hon. and learned Friend explain how the Government think that agricultural spending can be reduced or constrained?

Sir Geoffrey Howe

It is quite clear that the case for the effective control of spending, not only on agriculture but throughout all areas of expenditure, must be taken seriously. It is part of the case that we are pressing.

We are adopting several different proposals on agricultural spending. First, there must be a strict and rigorous price regime. Secondly, there must be changes, sometimes by the introduction of quantitative restrictions on the regime for certain products. Thirdly, and most importantly, there must be provisions for a strict and rigorous financial guideline on the growth of agricultural expenditure as a whole.

Mr. Ron Leighton (Newham, North-East)

Does the Foreign Secretary agree with Christopher Tugendhat that the Commission is trying to cook the books and cheat this country? Despite all the reassurances that the House has heard over the years, is it not clear that the Athens summit will be as much a debacle as the summits at Dublin and Stuttgart? As there will be no reform of the CAP, will the right hon. and learned Gentleman take the only sensible course open to him and stop writing the cheques for the excessive payments demanded from this country?

Sir Geoffrey Howe

I doubt that I could say anything that would satisfy the hon. Gentleman in his attitude towards the Community—an attitude that was rejected by the electorate at the last election. I agree with my right hon. Friend the Prime Minister that the proposals announced by the Commission last week are unsound, unhelpful and unacceptable. I made that plain to the Commission and others in Athens last week.

On the hon. Gentleman's last point, it is far more sensible for us to try to seek agreement than to mutter threats.

Mr. Hugh Dykes (Harrow, East)

Does my right hon. and learned Friend agree that any amount of Opposition noise and emotion does not conceal the fact that had they done something about the problem by 1976–77 the United Kingdom deficit would not have become so large chat it must be renegotiated? Is my right hon. and learned Friend optimistic that there will be concessions in other areas that will add up to a total package for the United Kingdom?

Sir Geoffrey Howe

My hon. Friend is right to make his first point. I agree about the importance of other policies. For that reason, we have laid before the House and the negotiators our proposals for policies that should be developed.

Mr. Ioan Evans (Cynon Valley)

As the CAP is working to the disadvantage of consumers in Britain, and as there is a tremendous deficit in manufacturing trade with the EC, what justification is there for Britain being the major financial contributor to the EC? What will the Government do if the EC does not play fair about our contribution?

Sir Geoffrey Howe

We have made it clear that a satisfactory agreement on a fair and lasting budgetary arrangement is one of the key propositions on which we are seeking agreement in Athens. If agreement is not possible on that point and on our other fundamental condition, there will be no scope for agreement on other points.

Mr. Hal Miller (Bromsgrove)

In the light of suggestions that our regional policy is being retained and its coverage extended largely as a means of providing an avenue for rebates from the EC, would it not be more prudent to limit our contributions rather than to rely on rebates, especially as the accession of Spain and Portugal make it probable that there will be far greater demand on the EC regional development fund?

Sir Geoffrey Howe

My hon. Friend is right to point out that the methods adopted so far for meeting our case for reform of the budgetary system have too often, and to too great an extent, consisted of reliance on spending programmes that are not correctly designed. That is why a key part of our case is that change must operate on the revenue side of the budget as well as on the expenditure side. I am glad to say that that case is being increasingly widely accepted.

Mr. Nigel Spearing (Newham, South)

Will the Foreign Secretary confirm that one of the proposals from the Commission currently being canvassed is to increase the VAT contribution by up to 40 per cent.? Even if the agricultural price problem is solved, and, indeed, the problem of burden sharing in the budget also, would not the House and the country have to be prepared to pay up to 40 per cent. more in VAT than at present?

Sir Geoffrey Howe

The arithmetic does not follow in that simple fashion, because all the proposals for reform must be considered alongside one another. If changes to the VAT component of own resources were to be considered, that would have to be done alongside the changes for which we are pressing in the overall budgetary arrangements.

Mr. Spearing

Up to 40 per cent.

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

Does my right hon. and learned Friend accept that for the past four or five years we have been told that common agricultural policy expenditure would be reduced because the Government would stand firm but that each year it has increased inexorably? Why will it be different this year? Why does my right hon. and learned Friend think that we will be successful now, when we have not been successful before?

Sir Geoffrey Howe

The imminence of the exhaustion of the Community's own resources is now much more apparent to everyone concerned. Indeed, it is apparent from some of the decisions which the Commission has recently announced. It puts us in a much stronger position, therefore, to insist on the inclusion of sufficiently strong restraints on the growth of CAP expenditure, to meet the point that my hon. Friend has in mind.

Mr. Jack Straw (Blackburn)

Is the Foreign Secretary aware that, despite the sabre-rattling rhetoric of the Prime Minister, so much has Britain become the soft touch of Europe that our contributions have increased by £100 million a year in real terms under this Government compared with the position under the Labour Government? In view of that, was it not a major tactical error for the Foreign Secretary to contemplate in any circumstances an increase in VAT contributions? Would it not be far better to make it clear to our Common Market partners that unless a fair agreement is forthcoming we will not pay any part of our contribution?

Sir Geoffrey Howe

I have already made it plain that it is far more sensible to work for an agreement that will last than to mutter threats for the sake of it. The hon. Gentleman should remember the determination of this Administration in dealing with the problem. The Government have already secured major reliefs of our budgetary burden. That outcome is to be contrasted with the disastrous failure of the Labour Government in this respect.

Mr. Tony Marlow (Northampton, North)

If the common agricultural policy were to be reformed, would not there be absolutely buckets of money around and therefore it would be unnecessary to increase own resources? Given that Opposition Members will vote against anything European, and given also that Conservative Members are reluctant to increase public expenditure and would certainly not vote for increased European expenditure at a time when we are having to cut public expenditure at home, is it not grossly misleading to allow other European nations to believe that this House would in any event vote for an increase in European resources?

Sir Geoffrey Howe

I have no doubt that it would require a considerable development of evidence to persuade my hon. Friend to vote in that direction. My hon. Friend's question must be taken seriously. It is right that an effective reform of the Community's programmes as a whole will lead to a change in the pattern, size and rate of growth of Community expenditure. That is one reason why we have gone no further than to say that we shall be prepared to consider the case for an increase in own resources provided that our two other conditions are met.

Mr. Robin Corbett (Birmingham, Erdington)

As the Foreign Secretary's predecessors have been singing the song of CAP reform for four years or more, how many more thousands of millions of pounds is the Foreign Secretary prepared to see go down the drain before he will stop signing the cheques?

Sir Geoffrey Howe

We have made plain our willingness to continue the present arrangements, and any reform of them depends on the extent to which we are able to secure the conditions that I have outlined. All those who question the implications of the common agricultural policy must recollect that every industrial society—not just those in Europe—has elaborate and often expensive arrangements for meeting the requirements of farm policy. Pressures of that type are formidable in any system. It is the fact that we now have an opportunity to correct the European arrangement that gives us our strength in the present bargaining position.

Mr. Neil Thorne (Ilford, South)

As this problem seems largely to have arisen as a result of the subsidies that some member countries are demanding to support their inefficient agricultural communities, has my right hon. and learned Friend considered whether it would be more acceptable to Britain if every country was invited to pay 50 per cent. of the subsidy being paid to its producers?

Sir Geoffrey Howe

That approach has been canvassed in some quarters, but the difficulty is that it might well lead to a competitive pattern of subsidies within the Community as well as outside, which could itself lead to even more distortion of agricultural markets around the world.