European Community Budgets

HC Deb 11 December 1984 vol 69 cc942-1001

[Relevant Document: "Developments in the European Community, January—June 1984", Cmnd. 9348.]

5.35 pm

Mr. Teddy Taylor (Southend, East)

On a point of order, Mr. Speaker. Before we proceed with the main debate I seek your guidance on the main document that we shall be considering, which is Cmnd. 9348. I am sure that hon. Members who have studied the document will have found what appears to be a serious arithmetical error on the final page, which will place the House in total confusion in its approach to the debate.

One of the fundamental issues which I am sure will be debated is the trading balance. The figures set out in the final column tell us that exports of £3.6 billion and imports of £12.6 billion produce a balance of minus £3.9 billion. Obviously, that cannot be correct. I do not know the precise figures, but the trade balance and the consequent loss of jobs will be a fundamental issue in the debate. I appreciate that those in the Foreign Office are not always as good at sums as those in the Treasury, but I ask my hon. Friend the Minister to state the real figures. Alternatively, could we adjourn the debate until we know the real position?

Mr. Speaker

The hon. Gentleman has drawn attention to what appears to be a slight error. However, I am not very good at arithmetic either. Perhaps the best thing would be for the Government Front Bench to investigate the matter. I am sure that it will be dealt with during the debate. Perhaps we should now get on with the debate.

5.37 pm

The Minister of State, Foreign and Commonwealth Office (Mr. Malcolm Rifkind)

I beg to move, That this House takes note of European Community Documents Nos. 8322/84, Preliminary draft supplementary and amending budget No. 1 for 1984; 8879/84, Letter of amendment to preliminary draft supplementary and amending budget No. 1 for 1984; the unnumbered document, Draft supplementary and amending budget No. 1 for 1984; Document No. 10222/84, European Parliament's proposed amendments and modifications to the draft supplementary and amending budget No. 1 of the European Communities for 1984; the unnumbered document, Draft general budget of the European Communities for the financial year 1985; Documents Nos. 9482/84, Letter of amendment to preliminary draft budget of the European Communities for 1985; 10690/84, European Parliament's amendments and modifications to the Draft budget of the European Communities for 1985; 8454/84, Amended proposal for a Council decision on the Communities' system of Own Resources; 8445/84, Commission proposal for a Council regulation introducing reserve measures to cover requirements in 1985; 8514/84, Commission's communication on the budgetary requirements of the Community in 1984 and 1985; 5899/84, Amended proposal for a Council regulation amending the Financial Regulation of 21st December 1977 applicable to the general budget of the European Communities; and the unnumbered document, Budgetary discipline: common position of the Council of Ministers; and welcomes the agreement on budgetary discipline providing for the firm control of agricultural and other expenditure.

Mr. Speaker

I have selected the amendment in the names of the hon. Member for Southend, East (Mr. Taylor) and some of his hon. Friends.

Mr. Rifkind

The debate takes place in the aftermath of the Dublin summit, where a number of important matters were considered by the Heads of Government. The Heads of Government discussed and endorsed the annual economic report prepared by the Commission on economic development in the Community. I am sure that both sides of the House will be delighted that the Heads of Government endorsed the report, which showed that the growth expected in the United Kingdom was likely to be greater than that in any other European Community country in the forthcoming year.

It is of interest that the economic policy that was proposed and endorsed by the Heads of Government was one that emphasised the importance of keeping inflation low, controlling public expenditure and pursuing an economic policy very close to that of Her Majesty's Government.

Mr. Nicholas Budgen (Wolverhampton, South-West)

rose—

Mr. Rifkind

I shall give way later to my hon. Friend. I ask him to be patient. I am dealing with matters that are of importance to the House. It was of significance that a summit which dealt with a wide range of issues was able positively to endorse an economic strategy which was identical in all important essentials to that of Her Majesty's Government.

Mr. Robin Cook (Livingston)

I am happy to agree with the Minister that an important document was placed before the Council. I draw his attention to the section on page 31 which observes that programmes of public investment should be strengthened, especially in countries where the construction industry is under-utilised. As one worker in four in Britain's construction industry is idle, how does he square that observation in the report, which he so warmly endorsed, with the simultaneous decision of the Government to lop £500 million off the construction investment?

Mr. Rifkind

That is because the main conclusion of the report to which the hon. Gentleman refers observes that the overriding consideration must be to keep the maximum constraint on expenditure, to reduce it where possible and to concentrate available resources on the reduction of taxation.

I shall concentrate on budgetary discipline, but before doing so I shall make further comments on some of the important issues that were discussed at the Dublin summit. Increasing emphasis is being placed on the completion of the internal market. That is something to which the Government have given enormous importance in recent years. We were delighted when Lord Cockfield was given responsibility in the recent announcement by the President Elect of the Commission to take responsibility for that matter.

In the early 1950s the European Community decided to complete within 10 years the elimination of all tariff barriers within the Community. It succeeded in fulfilling that target. We hope that it will now be possible to achieve by 1990 the completion of the elimination of non-tariff barriers within the Community. That is a short, although not unreasonable, period, especially when we consider . that we are seeking to implement the commitments entered into by the Community when the original treaty was signed.

The proposed enlargement of the Community is important to the House and relevant to budgetary discipline. Enlargement is at a crucial stage and the United Kingdom has some strong views on the matter. The Government have stated their great belief that it would be in the Community's interests to come to an early and successful conclusion on the current negotiations on enlargement, enabling Spain and Portugal to join the Community. A wide range of issues are involved, some of which are of less importance to the United Kingdom than to other countries. The negotiations on fruit and vegetables, olive oil and wine are more significant to existing Community members from the Mediterranean area, for whom the accession of Spain and Portugal will mean important competition, than they are to the United Kingdom.

The United Kingdom considers other parts of the negotiations to be equally crucial; for example, the fisheries' negotiations, which are of particular interest to hon. Members on both sides of the House. We have emphasised that the common fisheries policy, which was agreed only after many years of anxious negotiation, should not be jeopardised by the accession of a country with the largest fishing fleet in Europe. The Community has adopted a negotiating mandate with Spain, and we should insist on the Community protecting the interests of British fishermen and fishermen from other members of the existing Community. That aspect is crucial in the negotiations.

Dr. Norman A. Godman (Greenock and Port Glasgow)

Bearing in mind that there are about 17,000 Spanish fishing vessels — more fishing vessels than Britain has fishermen—is it likely that the negotiations will result in a diminution of that Spanish fishing fleet in the years immediately following accession?

Mr. Rifkind

As I understand it, the bulk of the Spanish fishermen fish in various parts of the world in waters far from Europe. That results from bilateral arrangements between Spain and various other countries, primarily in the Third world. It is primarily for Spain to decide the future size of her fleet. We are determined to ensure that that fishing fleet does not pose a threat to the already precarious livelihood enjoyed by many fishermen in the United Kingdom and other existing member states.

Industrial tariffs are also important to the United Kingdom. We are all conscious of the fact that in recent years there has been a substantial disproportion between the tariff that must be met by British manufacturers on exports to Spain and the tariff enjoyed by Spain when exporting to the United Kingdom.

Mr. Budgen

For how long has this problem existed? How long will it be before the problem is resolved?

Mr. Rifkind

The problem has existed since the conclusion of the agreement in 1970 between Spain and the European Community, at a time when Spain's industrial structure, especially its vehicle industry, was much weaker and smaller than now. It is important and, indeed, essential, when considering the transitional arrangements on industrial tariffs which Spain will properly enjoy, that special attention is given to a form of accelerated reduction of the high tariffs on industry, of which the motor vehicle industry is perhaps the most important category for the United Kingdom. I assure the House that that aspect will pre-occupy the United Kingdom and other Community countries.

I have said that competition from Spanish and Portuguese fruit and vegetables, olive oil and wine is of less direct significance to the United Kingdom, but we are concerned about the financial implications of accession. When the Community is beginning to control the agricultural expenditure of its northern members, it is essential that we should not agree to the accession of new Community members if that will create comparable problems for southern members of the Community. Recent agreements on olive oil and wine will help to safeguard the position.

Much of the discussion has concentrated on economic questions, but I emphasise that the United Kingdom remains convinced that the political dimension of assisting Spain and Portugal, which not long ago emerged from a dictatorial form of government, to entrench their new democratic institutions is important to Spain and Portugal and to western Europe as a whole.

Mr. Eric Forth (Mid-Worcestershire)

I understand, although I do not agree with, the Government's obsession with bringing Spain and Portugal into the Community. Will my hon. Friend assure the House that if we do not obtain satisfactory arrangements on fishing, trade and all the other matters which bear directly on United Kingdom interests we shall not agree to Spain coming into the EEC?

Mr. Rifkind

The Community has taken a long time to come to a decision about Spain, because the United Kingdom and certain other countries with a particular interest in fisheries and the other matters to which my hon. Friend referred have attached great importance to those issues. Having spent so many months reaching a satisfactory Community position, we have no intention of abandoning that stand in the subsequent discussions with Spain. The conclusions must be satisfactory to the interests of those affected by the common fisheries policy.

Mr. Tony Marlow (Northampton, North)

I assume that my hon. Friend the Minister is saying to my hon. Friend the Member for Mid-Worcestershire (Mr. Forth) that the Government are satisfied with the conditions and that the conditions have now been met. Will my hon. Friend assure the House that, if Spain and Portugal come into the Community, there will be no average increase in the cost of the common agricultural policy; in other words, that by bringing Spain and Portugal into the Community, their share of the cost of the agriculture policy will not lead to the cost of that policy overall becoming pro rata greater than it is at the moment?

I believe that the Government's policy was that they would not agree to an increase in Community own resources except in respect of policies which the United Kingdom wished to support. One of those policies concerned the accession of Spain and Portugal. The Government have justified no other policies in terms of an increase in own resources. May we take it as read that, if it is not agreed that Spain and Portugal should join the Community, there will be no requirement to increase own resources?

Mr. Rifkind

My hon. Friend will be aware that I did not intend addressing the matter of own resources during this debate, because it goes beyond the pure question of enlargement. Enlargement is undoubtedly an important component in these discussions. We maintain that, because of the various reforms introduced at the present time, the cost of the CAP will lead to agriculture representing a smaller share of Community expenditure, notwithstanding the enlargement of the Community.

Mr. Budgen

My hon. Friend has made a profound philosophical point. He has said that by entering the Community the nature of the people in both Spain and Portugal will change and that they will have a continued interest in a particular form of internal government. My hon. Friend stated that as though it were a self-evident truth which any sensible person should understand immediately. Will he explain it a little further?

Mr. Rifkind

I did not put it in quite the way so helpfully suggested by my hon. Friend. Having assumed democratic institutions, the Spanish and Portuguese Governments — as did the Greek Government before them—believe it is important for the development of their democratic identity that they acquire membership of a community that is entirely democratic, in the sense hon. Members understand democracy, and consists entirely of parliamentary democracies.

We believe that the full integration of Spain and Portugal within the family of the democratic countries of western Europe will be assisted by their membership of the European Community. That is not just the British view. It is the view held by every Government within the Community as well as the Governments of the applicant countries. I accept the suggestion of my hon. Friend the Member for Wolverhampton, South-West (Mr. Budgen) that that does not necessarily make it the correct view, but it is the view that we hold, and as yet we have heard no convincing reasons to suggest otherwise.

I mentioned the political considerations a few moments ago. It is interesting to note that the country which recently suggested that it would deliberately delay the accession of Spain and Portugal if certain other conditions were not fulfilled was Greece, the most recent member of the Community. Its position has been influenced by its determination to obtain substantial extra resources through the system of what is referred to as the "integrated Mediterranean programmes".

The British Government's view on that is clear. With the other member states of the Community we have endorsed a policy which accepts that those countries which will be most directly affected by enlargement are entitled to some assistance through integrated Mediterranean programmes, but we have insisted that those programmes must be integrated into the structural funds which currently exist.

Mr. Budgen

What does that mean?

Mr. Rifkind

I mean the regional, social and other such funds. It is not acceptable to create a separate new fund for that purpose. We have also said that the sums that can be made available in the foreseeable future can only be modest, taking into account the financial pressures that exist on the Community as a whole.

Mr. Russell Johnston (Inverness, Nairn and Lochaber)

Is the Minister saying that in the view of Her Majesty's Government regional and social funds, for as far ahead as we can see, will be entirely cosmetic?

Mr. Rifkind

No, on the contrary. The regional and social funds already represent substantial sums, and all the Heads of Government have agreed that there should be a significant increase in the size of those funds.

Mr. Budgen

Why? We are reducing them.

Mr. Rifkind

I assure my hon. Friend that I have not suddenly announced a new statement of policy. My hon. Friends have been aware for some months that that is the position which has been agreed by the Community. If my hon. Friends are anxious to see agriculture represent a smaller and smaller share of Community expenditure, it is not unreasonable that other forms of expenditure should increase.

Mr. Marlow

rose—

Mr. Rifkind

I must be allowed to continue. I am sure that my hon. Friend will have an opportunity to intervene in the debate.

Mr. Marlow

rose—

Mr. Deputy Speaker (Mr. Harold Walker)

Order. The Minister is clearly not giving way.

Mr. Marlow

Will my hon. Friend give way?

Mr. Rifkind

I should prefer not to at this stage.

I come to another matter which relates to budgetary discipline. It is the supplementary finance that has been requested for the current year. The House will recall that on 10 July, when asked about the matter in the House, I said that the Government's view would be that only when we were satisfied that the likely overspend during the course of the current year had been reduced to the current minimum would we be prepared to consider whether, and if so to what extent, it was appropriate to produce supplementary finance to assist the Community.

That examination has not been cursory; it has been extremely rigorous. My hon. Friend the Economic Secretary has been fully involved with other Finance Ministers in the Community to ensure that those sums are reduced to the absolute minimum. As a result of their efforts the original sums proposed by the Commission have been reduced by more than half. We believe that they have now reached a level which is the irreducible minimum, given the obligations which the Community has under its existing rules.

We also said earlier this year that our attitude towards supplementary finance would depend upon two further conditions being satisfied. One was the payment of the refund to which the United Kingdom was entitled during the current year, and the House will be aware that that sum has now been released and been paid to the United Kingdom.

Mr. Budgen

We have paid for it.

Mr. Rifkind

We have not paid to receive the refund. My hon. Friend is wrong about that. The refund was provided for in the original budget, and through payments out of the original budget. The supplementary finance about which we are talking is not connected to the refund which the United Kingdom has already received. I can give my hon. Friend a complete assurance on that.

The second matter to which hon. Members will be aware the Government attached considerable importance was satisfactory conclusions on budgetary discipline. I should like to deal with the conclusions on budgetary discipline which were endorsed by the Heads of Government at the Dublin summit.

Mr. Nigel Spearing (Newham, South)

Before the Minister moves on to the disciplinary mechanism, can he reassure us about the repayments of the 1984 reimbursable loan, which is the subject of Cmnd. 9395 and another procedure? Is there provision in the 1985 budget for the repayment of that loan? He may not be able to answer now, but perhaps he could arrange for an answer to be included in the reply to the debate. There is some disagreement about the liability for the loan and the authority under which any such loan is repayable.

Mr. Rifkind

I am sure that my hon. Friend the Economic Secretary has heard the question and will seek to respond to it in due course.

Mr. Robin Cook

I wish to ask a question about procedure, and it may give advance notice to the Economic Secretary. I understand that the final appeal in the case ex parte Smedley will not be heard until tomorrow and that there will be no judgment until Thursday. 'That will make it difficult for the Government to table an order for debate next week. In the event that the House cannot debate and therefore condescend on the order next week, may we have an assurance that no moneys will be paid to the EEC in advance of the House returning from the recess? Where does that leave the EEC budget, which runs out on 31 December?

Mr. Rifkind

The hon. Gentleman is as aware as I am that we do not know when the judgment in the case to which he has referred will be announced. I cannot anticipate the business for next week which my right hon. Friend the Leader of the House may wish to consider. It goes without saying that if we are required to receive the authority of the House before supplementary finance can be provided, until that authority has been obtained we cannot provide it. I hope that the hon. Gentleman can accept that that is the position.

I shall return to the main subject which I wish to raise, which is budgetary discipline and the conclusions which were endorsed by the Heads of Government at the Dublin summit. We must study the background to the subject and realise that for most of the life of the Community there has been nothing that could properly be referred to as budgetary discipline. Over the years that the Community has operated, decisions have been taken on expenditure, and only once they have been reached has it been thought necessary to ensure that the revenue is available to provide for the resulting costs.

It was that provision which the United Kingdom Government first identified as being unacceptable and which we have striven over the past few years — successfully I believe — to persuade our fellow Community Governments to agree was unacceptable as a way in which the Community deals with its economic affairs.

The first important milestone was reached when the Community Heads of Government some months ago endorsed the principle that in future revenue should determine expenditure, and not the other way around. It was crucial that that principle be endorsed, because it was a denial of the Community's recent history. It was appropriate that that should be made clear.

The conclusions that were endorsed by the Heads of Government last week provide for a reference framework that will identify the Community's total expenditure in a given year, and, within that reference framework, provide that there should be a financial guideline which will control agricultural expenditure. It also provides that, should there be growth in agricultural expenditure, that growth must be less than the growth in the own resources base of the Community as a whole. The effect of that when implemented will be that agriculture will increasingly represent a smaller and smaller share of total Community expenditure.

Mr. Forth

Does my hon. Friend share my anxiety that among the budget discipline documents we see such phrases as "exceptional circumstances in article 2"; in article 5 "barring aberrant circumstances"; and in article 6 "amend the reference framework", and that those words can mean—as they usually do in European Community jargon—that while the Community starts out with good intentions, they are infinitely variable afterwards, depending upon those rather ill-defined circumstances?

Mr. Rifkind

My hon. Friend asks a perfectly reasonable question. I shall be coming to the points that he has raised. I have explained the general way in which it is proposed that budgetary discipline should apply.

Essentially, three criticisms have been levelled at the proposals. First, it has been suggested that as the proposals are not in the form of a regulation they are not legally enforceable and are thus of limited value. Secondly, it is argued that because decisions will be taken by a qualified majority United Kingdom interests may not be properly protected. Thirdly, there has been criticism of the provision for exceptional circumstances to alter decisions already reached. Those are reasonable concerns, and I intend to deal with each of them in turn. Before doing so, however, I wish to make two general points.

First, the United Kingdom objective has always been to ensure that Community expenditure is dealt with on more or less the same basis as national expenditure. In other words, we have never sought to suggest that there must be an absolute straitjacket on expenditure, but simply that Community expenditure should not be handled according to rules which no national Government would consider appropriate for their own national circumstances.

Secondly, we have been the initiators, as it were, of most of the concern about this in the Community and I freely accept that the position that we have reached is not perfect in every respect. If it had been left entirely to us, further improvements could have been made, and still could be made, to certain proposals to make budgetary discipline more effective. We see this as a dynamic process. [Interruption.] I wish to be completely honest with the House. We have never suggested that the solution was perfect. As the motion states, it provides for the firm control of agricultural and other expenditure. That is the position to which we adhere. There may well be ways of making that control even more effective in years to come.

Mr. Teddy Taylor

Does my hon. Friend agree that under article 1 of this so-called strict budgetary discipline the Council of Ministers could agree by a majority to spend any amount that it wishes, without any limit at all? In other words, even if we think that the Council of Ministers is crazy and spending money like water, there is nothing to stop it deciding by a majority to spend double the amount that we consider necessary.

Mr. Rifkind

I said that I would deal with the specific criticisms, of which that is one. If my hon. Friend will also allow me to continue, he will have the answer to his question.

First, there was the criticism that the absence of a regulation meant that the proposals were not legally enforceable. If there were a regulation or a treaty amendment there could be no question but that the rules for budgetary discipline would be completely enforceable, but the opposite does not necessarily apply. The mere fact that there is not a regulation does not mean that the European Court would not find the rules to be enforceable.

Mr. Marlow

What is the disadvantage of a regulation? Why not make it a regulation, to be on the safe side?

Mr. Rifkind

For the United Kingdom there would be no disadvantage in a regulation. As I have said, there were proposals which we regarded as preferable. It is no secret that we should have preferred a regulation.

Sir Anthony Meyer (Clywd, North-West)

Is it not a trifle ironic that those now pressing most strongly for enforceable regulations are always the first to demand that we retain a national veto to be used whenever we feel that we are being inconvenienced?

Mr. Rifkind

My hon. Friend is right to emphasise the paradox and inconsistency of some of the interventions.

Mr. Allan Rogers (Rhondda)

Will the Minister give way?

Mr. Rifkind

No. I have been very generous about interventions. Many hon. Members wish to participate in the debate, so perhaps they will keep their comments for their own contributions.

The Council of Ministers itself has identified these conclusions as binding upon it. Whether they are legally enforceable can be determined in the last resort by the European Court. We believe that they are binding, and all the Heads of Government have endorsed them as such. The European Commission, too, has accepted that it will be bound by them in its proposals to the Council.

Mr. Budgen

If all the other countries have the political will to curb excess agricultural expenditure, why did they not agree to a regulation?

Mr. Rifkind

The attractions of budgetary discipline were received by the various states with varying enthusiasm. Some Governments are less enthusiastic than others. Nevertheless, to the best of my recollection, when the Council of Ministers endorsed the proposals only two of the 10 states entered any reservation to the effect that they did not regard the conclusions as binding on the Council as a whole.

The second criticism, that the requirement for a qualified majority constitutes a major flaw in the proposals, does not hold water. First, it ignores the important fact that the Commission has said that it will regard itself as bound to put forward proposals consistent with the rules of budgetary discipline. Under article 149 of the treaty, when the Commission puts forward proposals a decision not to comply with them requires unanimity on the part of the Council. Secondly, even in a situation in which a qualified majority would be relevant, even in the enlarged Community any combination of two large states and one small state could prevent the qualified majority being obtained in the Council.

Mr. Marlow

What security is that?

Mr. Rifkind

My hon. Friend's question implies that only the United Kingdom has any interest in budgetary discipline, but that is not remotely the case. In considering any increases in Community expenditure which may be proposed in years to come we must consider also where the burden of financing them will fall in the light of the Fontainebleau conclusions, which provide for a two thirds refund to the United Kingdom of any new expenditure. That means that the maximum proportion of funding for new expenditure that will fall on this country is not the original 21 per cent., but 7 per cent. For France it will remain 27 per cent., and for Germany 32 per cent.

That being so, the suggestion that Britain will invariably be more concerned about budgetary discipline while France and Germany have no interest in the matter flies in the face of common sense. Indeed, a number of smaller countries have an equal and increasing interest in budgetary discipline and can be expected to support us in rejecting any unreasonable proposals. Therefore, notwithstanding article 149 and the need for unanimity when the Commission puts forward proposals with which certain people disagree, even when a qualified majority is appropriate there is reason to assume that in the vast majority of cases any unreasonable proposal will rightly be dismissed.

The third criticism was about the reference to exceptional circumstances, and related matters. Not just in the Community, but in any national Government, a budget that has been fixed may have to be altered during the year because of exceptional circumstances. That in itself is not an unreasonable proposition. The main safeguard, however, has not been mentioned. Within the conclusions that have been adopted, although exceptional circumstances may result in increased expenditure, the provisions also require that that additional expenditure should be clawed back in the following years. Therefore, the overall requirement to control expenditure is safeguarded.

Mr. Budgen

"May be" clawed back.

Mr. Rifkind

Not "may be". Under the conclusions adopted, additional expenditure is required to be clawed back.

Mr. Forth

Following that line of logic, what would happen if there were three consecutive years of fine harvest?

Mr. Rifkind

The Community cannot in future assume that the interests of the farming community are the only considerations to be borne in mind. In the circumstances envisaged by my hon. Friend, we would have to consider the overall interests of the Community and the expenditure that would have to be incurred to meet that situation.

Given that the overwhelming part — some 93 per cent. — of any new expenditure will not fall on the United Kingdom, it is reasonable to assume that other member Governments would be as concerned as Her Majesty's Government about the implications of such expenditure.

Mr. Teddy Taylor

May I refer my hon. Friend to article 5? He says that the money would be clawed back. Will he tell us what is meant by the reference to "barring aberrant developments"? That phrase seems to me to imply that the money will be clawed back unless the Council considers that there have been what it would call aberrant developments.

Mr. Rifkind

We are seeking to ensure that any proposal to provide for unreasonable increases in expenditure can be blocked in the various ways to which I have referred. We have never sought to impose a rigid straitjacket on Community expenditure. What we have sought to ensure, and what I believe the conclusions adequately represent, is effective control of expenditure.

Mr. Teddy Taylor

What about article 5?

Mr. Rifkind

I refer those who doubt what I have said to various reactions to the proposals and the conclusions on budgetary discipline. Dr. Stoltenberg, the Federal German Finance Minister, stated in a debate on these matters in the Bundestag: I believe that we now have, for the first time, an effective instrument to bring about a sensible control of expenditure". The French Permanent Association of Chambers of Agriculture — a body with a great interest in these matters—said: Heads of State and Government have just decided a real financial straitjacket for the CAP". The president of the Italian farmers association said that the proposals that had been agreed represented a complete change in direction of the CAP.

Hon. Members

What about Mr. Rocard?

Mr. Rifkind

The French Minister of Agriculture was at one stage quoted as being hostile to the proposals, precisely because he was concerned about how effective they would be. The French Government and Mr. Mitterrand have emphasised that their primary objective is to ensure proper budgetary discipline. We welcome the fact that the French Government share with us the belief that that must be the supreme consideration. That is why, despite the no doubt understandable reservations of Mr. Rocard, the French Government remain absolutely committed to the proposals.

Mr. Budgen

Will my hon. Friend give way on one final point? I give an undertaking, binding in Community law, that barring either exceptional circumstances or aberrant developments, this will be my final intervention. Does my hon. Friend agree that the imposition of the milk quota was the first tentative attempt to control agricultural expenditure? Will he tell us how those milk quotas have been applied in each state?

Mr. Rifkind

On the basis that this is to be my hon. Friend's final intervention, I shall be delighted to corriply with his request. As a result of the quotas, the United Kingdom has experienced a significant reduction in milk production. Belgium was required to cut production by 2.7 per cent., but the latest information suggests a cut of 3.7 per cent. Denmark was required to reduce production by 5.6 per cent. but so far has reduced production by 6.3 per cent. Neither Greece nor Ireland, which under the original proposal were permitted an increase, has increased production by anything like the amount proposed.

Mr. Rocard has recently made it clear that French milk production this year is expected to be significantly below the quota.

Mr. Budgen

What about Italy?

Mr. Rifkind

I have given my hon. Friend a certain amount of detailed information. He may be disappointed to hear that most member states are carrying out their obligations. I suspect that that was not the answer that he expected to get and that it was not his intention to assist the Government in their hour of need.

My hon. Friend rightly mentions Italy. Italy is the one country which has not so far made any serious attempt to carry out its obligations under the agreement. In consequence, the European Commission has begun infraction proceedings against Italy in the European Court. The United Kingdom and many other countries have made it clear that it is essential that if any country is expected to carry out its obligations, all countries must do so. That is the only way in which the system can operate effectively.

Mr. John David Taylor (Strangford)

I entirely accept all that the Minister has said about milk quotas. However, he has told us only how the national quota has operated in each nation. Who decided that there should be regional quotas within nations? Was that a national responsibility, or a Community decision? In either case, what is the legal basis for it?

Mr. Rifkind

I cannot answer that specific point in detail. However, our main concern must be to achieve a substantial reduction in overall milk production. We would also expect that the detailed provisions agreed upon by the Heads of Government have to be accepted and implemented according to the details agreed. There would be no basis for a system of implementation different from that orginally endorsed by the Council of Ministers. Nearly all member states have substantially reduced production. Italy is the one main exception to that general principle, and we are pleased that the Commission has begun infraction proceedings.

Mr. John David Taylor

Most nations, including the United Kingdom, are now below their national quotas. However, for some reason, we still have to pay super levies to the EEC. Indeed, our British super levy was seized last night.

Mr. Rifkind

No, that is not quite correct. I understand that as a precautionary measure the Commission has taken a decision which applies to all Community countries, in part because we have made it clear that our attitude towards the payment of the super levy will be influenced by whether other countries also carry out their obligations. However, no specific action such as the right hon. Gentleman has referred to is being taken.

We believe that the proposals on budgetary discipline should commend themselves to the House. As I have sought to explain, they provide effective—

Mr. Marlow

Will my hon. Friend give way?

Mr. Rifkind

I am sorry, I shall not give way. The proposals provide effective and appropriate ways of controlling expenditure within the Community.

Mr. Marlow

Will my hon. Friend give way? I will give the same undertaking as that given by my hon. Friend the Member for Wolverhampton, South-West (Mr. Budgen).

Mr. Rifkind

If my hon. Friend will give that undertaking, I shall be happy to give way.

Mr. Marlow

We are all most grateful to my hon. Friend for his courtesy in answering all our interventions. However, as he has explained the budgetary discipline, it will, in legal terms, hold as much water as a leaky sieve. We are concerned, therefore, about people's intentions.

We understand that next year the Community will spend £1,000 million more than it is entitled to raise. How can we at this stage have any reassurance about the intentions of the nations that make up the Community and that they will behave in this way?

Mr. Rifkind

Precisely because one of the reasons why the Council of Ministers is in conflict with the European Parliament is that the Council of Ministers has insisted on putting a draft budget to the Parliament which is within the 1 per cent. ceiling. If the Council of Ministers had not been determined to insist on that, no doubt my hon. Friend would have complained that that showed a lack of willingness to observe the rules of budgetary discipline.

Way back in 1979, curiously enough also at a Dublin summit, the Government initiated what we believe to be necessary reforms in the EEC. Since then there has been a major transformation in the rules which are applied and in the thinking of all Governments in the Community on this matter. The issue was perhaps best summed up in an article which appeared in the French newspaper Le Figaro on 1 December 1984. It said: It is true that she"— meaning the Prime Minister— has every reason to be pleased with the outstanding diplomatic victory she won this year, after five years of hard struggle. For it was in November, 1979, at the Dublin European Council, that she entered on the battle to obtain a reduction in the British contribution to the EEC budget, a drop in the EEC budgetary expenditure and, in particular, in the Common Agricultural Policy. She has won on all fronts, and it is understandable that yesterday she should have termed 1984 'A very important year' for the Community. I endorse those comments and, on that basis, invite the House to accept the motion.

6.21 pm

Mr. Robin Cook (Livingston)

I wondered for a moment whether I had entered into an agreement with the Minister that, if he gave way to me twice, I should not attempt to speak in the debate. I am relieved that I still reserve the right to speak.

The Minister, in conclusion, painted a glowing picture of the past 18 months as a progress of triumph, suggesting that the EEC has retired to a succession of summits for meditation and negotiation and has emerged from that process strenghtened, purified and with a new commitment to relaunch the Community and its objectives. I find it extremely difficult to recognise that picture in the documents that litter the Table from which I am speaking. Those documents paint a picture of an institution that is in financial shambles. It is stumbling towards the end of 1984 grasping for temporary expedients to keep the cash flow. The expedient on which it has hit to get to the end of this year is a whip-round of member states. It is not clear whether that whip-round is a loan or a grant. When he spoke to the Treasury and Civil Service Select Committee, the Economic Secretary to the Treasury described it as a reimbursable advance. As the Committee elicited from the Economic Secretary, it is an advance, but it is by no means clear whether it is reimbursable. However it is described, it is clear that there is a large gap in the budget for 1984 which has been plugged only by payments from sources outwith the resources of the treaty and by a special arrangement.

It is difficult not to agree with the Court of Auditors' statement that the Commission's estimate of a shortfall of more than £1.6 billion in its original calculations is evidence of the need for greater accuracy in the preparation of original budget estimates". We do not find such "greater accuracy" in the 1985 budget. The draft budget provides sufficient revenue to meet expenditure for the first 10 months of the financial year. A letter, attached to the draft budget, expresses the hope that, on arrival at the last two months of the year, some way will have been found of meeting expenditure. It is extraordinary that a responsible public institution should enter the financial year on such a basis. If Hackney or Islington borough council introduced such a budget for the forthcoming year, Treasury Ministers would be the first to denounce them as introducing an illegal and irresponsible deficit budget.

In these documents we see an institution that is wallowing in a financial crisis that is deeper than anything that it has experienced since the relaunch of the Community in Stuttgart 18 months ago. Against that background we must judge the wider issues, to some of which the Minister addressed himself. The Minister did not address himself to one document. That perplexed me, as the document was before the Government at the summit only last week and it received the attention of the Council when it met in Dublin. As the Minister failed to refer to it, perhaps I can help to redress the balance. I refer, of course, to the document prepared by the Dooge committee. It prepares the way for European unity. It is impossible to take exception to elements of that report. Section 2, for example, has a chapter headed, The Promotion of the Common Values of Civilisation. I do not think that even the hon. Member for Southend, East (Mr. Taylor) would take exception to such a document. However, it is clear that the document tends towards European union. That is made clear in chapter 4, which consists of only two paragraphs and calls on the European Council to agree to an intergovernmental conference to negotiate a draft European union treaty. The report is studded with footnotes bearing the name of the Minister of State, Foreign and Commonwealth Office, who, I understand, is a member of the committee. There is a footnote attached to chapter 4. I looked down the page eagerly to see what reservations the Minister had entered against the proposal, only to discover that his reserve is founded on the ground that the proposal is premature in an interim report. I had expected a more substantive reservation about a provision for European union. I do not know about the Minister, but I am not entirely confident that such a proposal would find a majority in the House. If we were to take a snap vote of those right hon. and hon. Members who are present, the Minister might be in some difficulty.

Mr. Budgen

But what about the Whips?

Mr. Cook

I welcome the insight offered by the hon. Member for Wolverhampton, South-West (Mr. Budgen).

At no stage have Treasury Ministers come to the House to justify entering a European union. If they have no serious intention of entering such a union, they should at the very minimum tell their colleagues on the Dooge committee rather than hide behind the subterfuge that the conclusions are preliminary and that the report is only interim.

Sir Anthony Meyer

It would probably not he worth while taking a snap vote in view of the utter failure of Labour Members, apart from two conscientious exceptions, to attend the debate.

Mr. Cook

The numbers of Labour Members present make up precisely the same proportion of the parliamentary Labour party as do the numbers of Conservative Members present of the parliamentary Conservative party. I should naturally welcome a larger attendance to hear my pearls of wisdom, but we are represented equally.

Other items in this report are worth singling out for the attention of the House. The Dooge report contains a provision to limit the veto and to provide for more majority voting. Again, the Minister has entered a reservation on this item of the text, but he is quoted as having accepted the principle of a more frequent use of majority voting". If that is the case, the House is entitled to know on what issues he is prepared to accept more frequent majority voting. On what issues is he prepared to abandon the use of the British veto?

Similarly, there is a provision for the European Parliament to have control over the revenue side of the budget. At any rate, I believe that is what the committee is recommending, because it is not immediately apparent from the language used. It wants to give the European Parliament responsibility in decisions on revenue as the coping stone of the establishment of a new basic institutional balance"— whatever that means. The Government have entered no reservation on that proposal. Does the Minister accept that the European Parliament should have control over the revenue side of the budget and in what way?

Mr. Rifkind

If the hon. Gentleman has properly read the report, he will see that the United Kingdom reserve, which I introduced, refers to that whole chapter. We have not accepted the recommendations of the majority of the committee to increase the powers of the Parliament. The only point we wished to put forward was that there should be an improved conciliation procedure on the basis that has been discussed by the Council of Ministers, but blocked by one country up to now.

Mr. Cook

I am satisfied with that response and happy to accept the Minister's explanation. However, if he has entered a reservation against the whole of that chapter, it becomes even more meaningless to me why the Government are prepared even to temporise on the question of having an inter-governmental conference to render all this into a treaty of European union.

Mr. Spearing

I am grateful to my hon. Friend both for giving way and for drawing the attention of the House to these proposals which have not yet been to the Scrutiny Committee. These proposals are fundamental and relate to the constitution and treaties of the EEC. Can he say more about the vires and authority of the committee to which he has referred? Was it not formed after the Fontainebleau summit and was not that meeting outside the terms of the treaty? Will he invite the Government to tell us what authority this committee, which is suggesting changes to the treaty, has and with what authority the Minister sits on it?

Mr. Cook

I am not entirely sure that it lies in my mouth to answer for the Government, but my hon. Friend has given me an opportunity to refresh my memory of the text. The reservation to which the Minister referred applies to section B. No reservation has been entered by the British Government to any part of section C which deals with the increased revenue powers of the European Parliament.

Mr. Rifkind

indicated dissent.

Mr. Cook

I am going only by the text which was placed in my hand by the Library. The Minister may, if he wishes, check the text and make appropriate corrections, but the only reservation entered on section C is by the Greek Government.

Mr. Rifkind

indicated dissent.

Mr. Cook

The Minister shakes his head and says that it is not true. I take exception to that observation. I can only go on what is in the text as published, in which—and he is welcome to check it — there is no British reservation.

Mr. Rifkind

The hon. Gentleman implies that the reservation applies to one particular page. It refers not to section C or D, but to the whole chapter dealing with the powers of the European Parliament. As I sat on the committee, I can give the hon. Gentleman a categorical assurance that the reservation applies to the whole section on the powers of the European Parliament, including the proposal to provide it with powers over revenue.

Mr. Cook

I can only suggest that the Minister takes this, matter up with whoever drafted the presentation of the text, because it is quite clear that footnote II refers to section B and that the reservation entered in respect of section C was entered by the Greeks. I should have thought that had the British Government wished to enter a reservation to section C as well as to section B, they would have entered the footnote on both occasions. However, the Minister may wish to consider the matter.

Mr. Budgen

Does the hon. Gentleman agree that in general the powers of the Council are set out in the written constitution of the EEC? Was not the Luxembourg agreement a significant derogation from that, because after France had left for a period it became necessary to introduce the practice of allowing a nation state to exercise a veto when it said that its essential national interests were at stake? What has now happened is a promise to use the Luxembourg veto less generously.

Mr. Cook

It is plain from the text that the British Government appear to have committed themselves to accepting majority voting on more frequent occasions, and that implies a more restrained and less regular use of the British veto. There is a school of thought, of which the hon. Gentleman is a distinguished exponent, which takes the view that that is entirely desirable. If so, that case should be argued in the House by the Government. They should clearly tell us the occasions on which they wish to restrict the use of the veto and the occasions on which they would be happier to see an issue resolved by majority voting.

Mr. Rifkind

The hon. Gentleman is implying that somehow this is a new development. The Government have made clear on numerous previous occasions their belief that, in those areas where the treaty does not require unanimity, all member Governments should ensure that the veto be used only in a genuuine case when vital national interests are affected. Of course there have been occasions when various Governments have applied the veto when it would have been difficult to substantiate the view that a vital national interest was at stake. My right hon. Friend the Prime Minister and other British Ministers have said that we believe that it is in the interests of the Community as a whole for the use of the veto to be kept to a minimum where vital national interests can be said to apply.

Mr. Cook

I am grateful that we have had this exchange, because it is becoming clear that the Government have moved some way down the road of the Dooge committee to an extent that I had not previously observed. It may be remiss of me, but I do not recall the Prime Minister's clear statement that she is willing to contemplate more majority voting.

Mr. Rifkind

I undertake that this will be my last intervention. The hon. Gentleman is remiss. If he looks at the document "Europe—The Future", produced by the Prime Minister for the last summit, and which has since been made available publicly, he will see in it an explicit reference to the need for the veto to be used only as a last resort. There is a suggestion that when it is used, an explanation might be useful as to why the issue is a vital national interest. In that way we could seek to minimise the use of the veto and not allow it to be used unreasonably. Those matters have been aired publicly on many occasions.

Mr. Cook

I accept what the hon. Gentleman says, and I must apologise to the House for having let pass underneath my nose one of the many documents relating to Europe which come before the House. I accept that on this occasion I have been remiss. However, if the Government are willing to entertain a position in which they are more reluctant to use the British veto, it would be nice to know how they define the occasions on which they believe British use to be justified.

There is a considerable amount of merit in the idea of enlargement. I believe that there is something in the Minister's point that, by bringing in Spain and Portugal, enlargement would give added strength to the democratic institutions which are still taking root in those countries. I also believe that enlargement would bring an element of fluidity to the Common Market, which would be welcome to those of us who believe that the Common Market stands in need of substantial change. Yet, if the Community is serious about enlargement, it should put its house in order before inviting the Spaniards and Portuguese to share our present problems and, thus, to complicate them.

The Minister was censorious about the Greeks. It would be unrealistic to imagine that only the Greeks stand in the way of Spain's and Portugal's membership of the Community. If the Greeks had not objected, the French or the Italians would have done. If the Greek objections were met, I should be surprised if one or other of the Mediterranean countries did not raise an objection. Be that as it may, it is now obvious that there are two question marks over enlargement.

Will it happen at all, and will it happen by 1 January 1986? The retiring President of the Commission, Mr. Gaston Thorn, has made it clear that he does not expect enlargement to be completed by 1 January 1986. The Minister did not condescend to speak about the implications of that. What does the shift in enlargement mean for the decision on an increase in own resources? Conservative Back-Bench Members asked the Minister about that, and I wish to press the point.

The Government's position on the increase in own resources has gone through many phases. In February 1983 the Government took the view that there was enough money in the kitty, even if enlargement took place. They now believe that there is not enough money in the kitty, even if enlargement does not take place, and they want an increase in own resources to take place in advance of enlargement. Between them, there was a flitting phase in which the question of the increase in own resources was tied to enlargement of the Community. Even now the Minister still partly justifies an increase in own resources by reference to enlargement.

I invite the Economic Secretary to the Treasury to answer several points when he replies. The House is entitled to greater clarity about where the Government stand should enlargement not take place on 1 January 1986 or should it recede into the indefinite future. If it is not going to take place, is it possible to defer an increase in own resources? If an increase in own resources is required, we are entitled to know how much less that increase need be, if enlargement has not occurred and the increase is required only to pay for the return of our rebate.

What will happen to our rebate for 1984, which is payable next year? The 1985 draft budget made no provision for our rebate. The Strasbourg assembly has included a provision for a rebate on the expenditure side. Its motivation, with which hon. Members will be wearily familiar, is that it wants a rod with which to hit the back of the Council, for reasons which have nothing to do with British contributions. I am sure that the House will be united in resisting that provision.

If we consider the draft budget, even without the amendments of the Strasbourg assembly, we find, curiously, that the Commission has not made provision for the British rebate payable in 1985 on the revenue side either. Will the Economic Secretary tell us where the rebate is? Is he confident that the Government will secure it? How will they do so? If they secure it by means of an abatement, when will he proceed to deduct our refund from our payments to the Community? Will it start in January? How much will he deduct from our contributions to take account of the refund to which we are entitled for 1984?

That naturally and logically brings me to the budgetary discipline package, which is the sister to the rebate agreement, to which the Minister referred at length. We shall presumably have an opportunity to debate the matter again when we eventually debate the order which is at present before the courts. I noted what the Minister said about the objections to the document on budgetary discipline. I noted that he said that, although it had no legal status, it did not necessarily mean that the courts could not found on it. That is doubtless the case, but it does not mean that the courts would necessarily found on it; even less does it mean that the Commission is likely to take any action before the courts in respect of that agreement.

The Minister did not respond adequately to the point raised by Conservative Members about the aberrant developments, in the event of which rebate —. read "clawback" — would not operate. Agriculture, as Conservative Members are fond of reminding the House, is a chancy business. There are many changes with the seasons and with the harvest. It would be difficult to find a year when the CAP operated in which one could not find something to tag as an aberrant development to justify clawback not being stimulated.

A basic reason for not being over-persuaded by the Minister's arguments is the patent fact that he has failed to persuade the farming community that the impositions in the budgetary discipline document will bite. We do not need to search for quotations from the German Parliament or from Italian or French farmers. We need simply look at home. After the text on budget discipline was produced, Farmers Weekly stated: Farmers have nothing to fear from the EEC budget discipline agreement drawn up in Brussels to control the common agricultural policy because it is so full of escape clauses'. Michel Rocard's name has already been taken in vain. After the final agreement, he said that the French had agreed to it because it provided sufficient flexibility for the CAP to continue unimpaired.

There is another reason why we should be sceptical about the extent to which a common position would be sufficient to control expenditure on agriculture in future, and the extent to which we can rely on our Community partners to observe that voluntary undertaking. It is provided by the way our partners have operated recently. The Minister attempted to persuade us that milk levies and quotas were being observed by our partners. Michel Rocard assured the French nation, even if he did not mention this at the Council of Agriculture Ministers: No dairy farmer will have to pay super levy on overproduction in 1984–85. For the removal of doubt, Alain Clauzier, who is a principal agricultural commentator in the French press and a large farmer, said more bluntly: Delaying payment of the super levy didn't make any difference to us in France … We weren't going to pay it anyway, we're not worried about what anyone else in the Community thinks. There is an entertaining footnote to that exchange:,n the dispute between the Strasbourg assembly and the Commission about the 1985 budget. The assembly provided for the insertion in the budget of revenue of 120 million ecu from payment of the milk super levy in November. The Commission has since deleted that insertion on the ground that it does not expect to receive any payments of the super levy. That speaks volumes for its confidence in the system which it set up.

However, we need not found our nervousness about the efficacy of the document on budgetary discipline on the milk quotas alone. Paragraph 11.7 of the White Paper is fascinating. It deals with infraction of Community law and cases referred by the Commission to the European Court. During the past five years, 173 cases have been taken to court, only seven of which involved the United Kingdom. We are almost at the bottom of the league, with only the Danes below us. Italy accounts for no fewer than 61 of the 173 cases, and France accounts for 27. In 1983, there was only one case against the United Kingdom, but 12 each against France and Italy. Some of us believe that it is a bit rich in those circumstances for the French and Italians to lecture the British about being non-communitaire.

What is even more striking is that, although the British are punctilious about agreements made in the Council, our partners take what might charitably be called a more creative attitude. Given their record of imaginative interpretation of Council agreements, one is bound to be sceptical about the extent to which the agreement on budgetary discipline, which does not even have the merit of the legal status that resulted in those infractions being brought before the courts, will bite. Its failure to bite is fairly clear from the 1985 draft budget, because there is a danger that the formula for budget discipline will make things worse next year. It provides that 1985 will be one of the two base years. Therefore, the agricultural community has every incentive to bid up expenditure to establish a high base rate for future years.

The draft budget proposed by the Commission includes a dramatic increase in the agriculture budget. In the draft budget sent to the Strasbourg assembly the proportion of expenditure on agriculture increased from 66 per cent. to 72 per cent. Since then the Strasbourg assembly has added 1.3 billion ecu to agricultural expenditure. I noted that 5 million ecu relate specifically to additional help to beekeepers. The money has been doled out carefully among different agricultural interests.

The Commission responded to the increases by advising the assembly that they were illegal, to which the assembly retorted that the draft budget was illegal anyway as it did not cover the full 12 months. There is some justice in the charge levied by the assembly against the budget, but that was not an elevated set of exchanges between the two bodies. This is not an institution trembling on the verge of relaunch.

It is worth noting what has been cut to make room for the additional agricultural expenditure. The 1985 aid budget has been cut, and the proportion for aid has been reduced from 3.5 per cent. to 3.2 per cent. For the first time, the EEC will be spending less on aid to the Third world than it will spend on the salaries of the bureaucrats in Brussels, who will now swallow 3.4 per cent. of the budget—[Interruption.] Those are the figures provided in the draft budget.

Mr. Robert Jackson (Wantage)

rose—

Mr. Cook

I will happily give way to the hon. Gentleman if he will contain his impatience, but I should tell him that we have not yet reached a position in which hon. Members intervene by means of a megaphone.

The cut in aid is pertinent, because last week we heard a statement, in response to the Dublin summit, in which the Prime Minister referred to the Community's commitment, given at the European Council, to provide 1.2 million tonnes of grain to the countries of north Africa. In their innocence, the Opposition welcomed that commitment, because they imagined that if the European Council was to will the food, it would find the funds to pay for it. We were wrong. We learn now that the food aid budget will remain at a fixed ceiling. Even as we speak, according to The Guardian, Community officials are working against the clock—and in some cases against their own consciences—to divert food aid from countries such as Bangladesh", to Africa. We understand from the report that the Prime Minister was a main opponent of any increase in expenditure. In that she was at least consistent. She is imposing on the Community budget precisely the same strictures as she imposed on the British overseas aid budget, thus requiring any additional aid to Ethiopia to come from our overall aid budget.

Mr. Jackson

I apologise to the hon. Gentleman for interrupting him earlier. He was wrong to say what he did. He should be aware that the Community has a separate budget for overseas aid in relation to the Lome convention. He referred to food aid, which is only a small proportion of our total effort.

Mr. Cook

The hon. Gentleman is correct, but I am referring to the appropriations included in the draft budget, which provides a reduction in the proportion for aid from 3.52 per cent. to 3.2 per cent. of the 1985 draft budget. The aid provision in the draft budget is less than the provision for expenditure on administration in Brussels. An institution that gets its priorities so markedly wrong is in severe need of outside advice to rethink its priorities.

In common with many hon. Members, I receive large volumes of mail from constituents who are deeply moved by what they see on their television screens about Ethiopia. A point that they raise repeatedly, and which plainly distresses them, is a simple equation. They see Europe stuffed to capacity with surplus grain—stuffed so much that the grain is overflowing into barns in Switzerland and Austria because the Community can no longer contain it—and they also see, not too far away from Europe, people perishing from hunger. They then make the reasonable equation that some of the surplus grain could be used to relieve the suffering and deaths that they have witnessed.

The 1.2 million tonnes of grain is not a large amount; it is less than one fifth of our intervention stocks and less than one tenth of the intervention stocks that we are likely to have next spring when they will reach their peak. It is less than the amount of wheat used by the Community for conversion into animal feedstuffs to feed the animals of the Community.

What happened, and what continues to happen, in Ethiopia is an appalling tragedy, but it was also an opportunity for the Community to redeem itself and to prove that there was some purpose, for the good of humanity, in the large surpluses produced by the CAP. The halting response of the European Community until the Dublin summit, and the hypocritical response given there, have knocked what last hope there might have been of the CAP redeeming itself by giving that necessary food aid to north Africa. Instead, the whole episode has sharpened the moral offensiveness of a system that extrudes ever-swelling surpluses in a world where two thirds of mankind go to bed hungry.

We are left with a draft budget for 1985 in which an offensive and extravagant agricultural system absorbs an even higher proportion of the budget than it did this year. Not only that, we have a document on budget discipline that cannot provide us with a guarantee that expenditure will not swell further. In the meantime, the trivial resources allocated to other projects are cut. The communiqu´ after Dublin called upon the European Council to implement without delay its commitment to transport policy. The Commission's draft budget cuts expenditure on transport. The communiqu´ after Dublin called upon the European Council to adopt further measures to strengthen the technological base of the Community. The draft budget presented by the Commission cuts expenditure on science and technology.

Had the Commission set out to confirm our prejudices about the mistaken priorities of the Community, it could not have done better than to present us with the 1985 draft budget. The House does not have the power to alter that budget. That is one of the unsatisfactory features of the position in which we find ourselves. However, we have one power. We can resolve that, in the light of the priorities displayed in this 1985 budget, it is inconceivable that there could be any rational and principled case or any consistent intellectual argument mounted to persuade the House that there is a basis for us to vote an increase in own resources to provide for even larger expenditure on the same priorities in 1986. I hope that the Minister, who is a rational and intellectual man, will take note of that, and will not put the House in the embarrassing position of having to vote down the increase.

7 pm

Mr. Teddy Taylor (Southend, East)

I beg to move, to leave out from "Council of Ministers" to the end of the Question and to add instead thereof: but regrets that the arrangements made at Fontainebleau and Dublin provide for a major increase in public expenditure and that the restraint mechanism on agricultural spending has no legal force and would, even if effective in practice, provide for substantial further increases in this area of spending. My hon. Friend the Minister did not say whether my amendment would be acceptable to the Government, but I thank the Chair for selecting it for debate, because it enables us to focus our attention on the basic issue of budget discipline, the issue on which the Minister concentrated.

Although we have had a bit of fun this afternoon, the whole thing is deeply depressing. It is clear that we shall throw away the one chance that this country has had in over 12 years to achieve reforms in the Common Market, and the only chance that we shall probably ever have to secure budget discipline. My hon. Friend the Minister gave way several times, but whenever there was a specific issue about whether or not there was any substance in the budget discipline, he made it clear that all that we would rely on in the Common Market was the goodwill of those taking part in the meetings of the Council of Ministers. He quoted the paper Le Figaro, which said that it liked what was going on. He quoted Italian farmers, who said that they thought that it was a grand idea and he told us of the French Agriculture Minister who was hopeful that France might, some day, abide by the milk quotas. However, when we come down to the details of the budget discipline, it is obvious that it is nothing more than a sick joke.

I shall go through the specific questions that I put to my hon. Friend the Minister but which, sadly, he was not able to answer. We are told that there are strict financial guidelines. Was there anything in the guidelines that would prevent the Council of Ministers, by a majority, from increasing the total expenditure to any sum that it thought fit, whether by 20 per cent., 30 per cent. or 40 per cent.? Under article 1 of the new so-called budget discipline agreement, there is nothing whatsoever to stop such a thing happening.

Mr. Marlow

If there is a new limit on own resources of 1.4 per cent. VAT, will that not limit what the Council of Ministers may agree?

Mr. Taylor

My hon. Friend may hope that that is the case, but I remind him that there is already a restriction for 1984 and there will be a restriction for 1985, as in both these cases there is a legal limit of 1 per cent. VAT. My hon. Friend is aware that, despite the attempts of that great British democrat Mr. Oliver Smedley to dissuade the Government from apparently abusing the law, we shall be giving more money to the Common Market this year above the legal limit. Next year, there is such a crazy budget that we shall obviously greatly exceed it.

I again put to the Minister and to the Treasury a sirnple question. Is it true that, despite all the talk of strict financial discipline, there is nothing in article 1 that will prevent Ministers from deciding to spend any sum that they might want, whether we like it or not?

There is then the question of the agricultural budget. What has been set as the basis for a major step forward is the principle that the Common Market will be able to increase the amount that it spends on agriculture only by roughly the amount of increase in own resources. There are severe problems here. First, the base on which we are working and on which we shall assess all the percentage increases is actual spending in the year 1984 and the envisaged spending for 1985. Surely Ministers are aware that 1984 was a year of horrendous over-production, a year in which mountains reached the most crazy levels. What is proposed now is that agricultural spending should be based on this year and on a prediction for next year, when agricultural spending is estimated to rise by about 15 per cent.

At the moment, the wheat mountain exceeds 4 million tonnes, the barley mountain is over 1 million tonnes, and the beef mountain, the height of which is continually soaring, is about 500,000 tonnes. We have all-time high mountains of food, expenditure on agricultual dumping and destruction of food. Despite that, the Government are asking us to regard it as an achievement that future agricultural spending will be based on this year and will not increase by more than Community own resources.

Even that has an escape clause, as the Minister is aware. In article 2 of the so-called binding agreement—

Sir John Farr (Harborough)

My hon. Friend refers to horrendous over-production, but he will recognise — I am surprised that he has not done so already—that none of that over-production has been done by British farmers.

Mr. Taylor

How right my hon. Friend is. Britain does not have a problem of over-production, although we over-provide on some things—for example, marginally on dairy and cereals. However, if the Common Market were ever to do anything about the agricultural policy, British farmers would suffer. Sadly, that is why the Government have never proposed a reform of the CAP. We hear my right hon. and hon. Friends talking, year after year and month after month, about the need to reform the CAP, if only these wretched Continentals would agree. As we know, and as my hon. Friend the Member for Harborough (Sir J. Fan) is well aware, at the Stuttgart summit we agreed that we would not seek any reforms in the basic structure or policies of the CAP and seek only modifications or adjustments in the CAP.

The Government have said that they want to persuade the Continentals to reform the CAP but, sadly, there has been no sign, apart from the general broad sentiment, that the Government have any wish to reform the CAP. I do not believe they do, and I am sure that the Minister will accept that. Some people may think that there is a need to reform the CAP, but how do the Government intend to go about it? They have said that they want moderation in prices, but they know that that will not solve the problem and would not be acceptable to our colleagues. They say that change must be gradual, but they do not say in what direction the change will be. We are facing a crisis of overproduction and all that the Government intend to do is to spend more.

Even if we were just to say, "Spend more from the increase in own resources," there is an escape clause in article 2 of the so-called solemn and binding agreement which says that account will be taken of "exceptional circumstances". Is there not something else in this binding agreement? The Minister said that we should not worry, because if the Community overspends one year, we can claw back the money the next. I asked him a specific question which, sadly, he did not answer. That concerns article 5, which says that, if there is overspending, even on top of the increase in own resources, we shall not claw back if there are what are called "aberrant developments". Nobody knows what those are, or what exceptional circumstances are.

Mr. Johnston

Is the hon. Gentleman saying that he wants a solemn and binding agreement so rigid that no exceptional circumstances and no aberrant developments of any kind would affect it?

Mr. Taylor

I am almost a little impatient with the hon. Gentleman. He knows what the score is. There is no control in this so-called budget discipline. The Liberals have talked about the Common Market with much enthusiasm, but if they are that enthusiastic, they would grab the one and only chance that we have to achieve any reform of the CAP and the Common Market. The Community has run out of cash, and all that we shall do is give a lot more money to the Common Market so that it can spend much more on agriculture and other such things. In exchange, we have only a worthless piece of paper, which provides no protection.

These days we are accustomed to talking about the Common Market's great triumphs. The other day we talked about the great achievement of handing over 5 million people to red China with the assurance that the same would not happen to them as happened to the people of Tibet or Zimbabwe. This agreement is not an achievement in any sense. We are talking about a worthless piece of paper which gives no guarantees.

The Minister told us not to worry too much because he is confident that under the arrangement the percentage spent on agriculture will be down a little. That can be achieved only by spending more money on other things. For example, I might tell one of my hon. Friends that I am worried about the percentage of his income that he is spending on gin and whisky. He might come back and say that I should not worry because he was going to spend more on gin and whisky, but so much more on tobacco that the percentage total expenditure on gin and whisky would be reduced. That is what is happening. We are about to spend much more money on agriculture, on dumping and food destruction, and nothing in the agreement can prevent it.

My hon. Friends will have been receiving large numbers of letters from pharmacists and doctors who are worried about the change in the prescribing of drugs. The Government say that the change is vital and that it will save £100 million a year. University students were not happy about something that the Government planned to do and which we were told was vital because it would save £30 million. We hear talk of the need to reduce the pensioners' heating allowance, which could save us about £50 million.

How many of my hon. Friends are aware that every week—not every year—the Common Market spends £100 million on destroying, dumping or storing food? We are experiencing a crisis. What are we doing about it? The Government plan to give more money. The only protection that we have is the goodwill of Community members. We shall have to rely upon their solemn resolve to face up to their responsibilities and to try to reduce spending.

It is difficult for me to go back to my constituents and tell them that it is vital to reduce the pensioners' heating allowance, that it is vital to reduce the percentage of rate support grant and limit a doctor's right to prescribe whatever medicines he thinks fit because we must control public spending, when the Government are providing enormous additional sums which the Common Market will waste. It does not make much sense to cut spending on regional grants in Britain if we put more money into the crazy Common Market regional fund. It does not make much sense to cut out welfare payments if we put more money into the Common Market welfare fund.

Conservatives should unite on this fundamental issue. We should not bury our heads in the sand. The only way to achieve change is to control the money supply, say that there can be no increase in resources and that reform must come from within.

There is a strategic aspect. So long as this crazy spending on agricultural surpluses continues, we are providing a massive boost and subsidy to the Soviet Union and its immediate supporters. I do not think that people are fully aware of the immense boost that we are giving to the Soviet economy and war machine as a direct result of the CAP.

We were talking the other day about sending an extra £19 million to Ethiopia on the strict understanding that we cut aid to Bangladesh. How many people are aware that every week—not every month or every year—we send 164,000 tonnes of cheap, subsidised food from the Common Market to the Soviet Union, Czechoslovakia, Bulgaria and other essential parts of the Soviet bloc. What price do we charge? A recent parliamentary answer gives the information. We are sending beef at the equivalent of 40p a pound, sugar at 7p a pound, flour at 5p a pound and wine at the unbelievable price of 7p a litre. At one time I thought that that was a secret plot by the Common Market's Right wing to spread alcoholism in Russia and so undermine the people's will.

If those prices were reflected in the Russian shops, it would not be so bad, but the Russian housewives, I am sad to say, do not gain advantage. The Soviet state machine shoves up the prices and keeps the difference. We are talking about a massive sum which is a direct aid or subsidy to the Soviet Union and others. I do not mind paying high taxes in Britain to provide an Army, Navy and Air Force to defend ourselves against Russian expansionism, but it is crazy and nutty that I should have to pay additional taxes to subsidise the Soviet Union, Bulgaria and the Soviet war machine.

Despite the ever-growing surpluses, the Common Market has begun a system of super-subsidies. A recent example is the special sale of butter to Russia at Yip a pound in blocks of 50,000 tonnes. Is there anything in the Government's proposals which will reduce those figures? There is not. The figures and the mountains will continue to rise and nothing will be done about it. We know that to be so in our heart of hearts.

If hon. Members are not worried about subsidising Russia they should, for God's sake, worry about what they are doing to the Third world. It makes me sick to hear some of my right hon. and hon. Friends talk all this Brandt nonsense and how they want to help the Third world, when they are the architects of the most vicious policy against the Third world—the common agricultural policy.

Why are Third world countries unable to provide food for themselves? Why are they unable to pay their debts? Why are they unable to buy British machines? The reason is that we are deliberately depriving the Third world of a fair price for its agricultural produce by dumping food on the world market.

If one produces sugar in the ideal place in the world for that purpose, one receives about £90 a tonne. A farmer in Norfolk producing sugar beet receives about £350 a tonne. The world price is so low because we are dumping. It is not just a question of what we dump because everything is comparable—wheat with rice, and so on. We are causing hardship and damage, distress, starvation and misery in the Third world as a direct consequence of the agricultural policy. The Government plan to do nothing about it. That is wrong and shameful.

I have been speaking for just over 15 minutes and many other hon. Members want to speak. I hope that the Government and my hon. Friends will be wary about what they are doing about relations with the United States of America. It is abundantly clear—it was one of my original reservations about the EEC — that if the Common Market is to have any meaning inevitably it will conflict with the United States. We are seeing more and more signs of that. We forget at our peril that the United States pays for most of western Europe's defence. It pays 52 per cent. of the total cost. The Americans are becoming a little fed up. Motions in the Senate stress the need to reduce spending by the United States in western Europe.

What worries me is that the Common Market seems to be going out of its way to make life difficult for America, to be unfair and unreasonable. A good example is the recent Common Market outrage about the export of steel pipes and tubes to the United States. Our friends in the Commission said that the Americans were imposing outrageous and illegal restrictions on Common Market imports. They said they would have to retaliate and impose restrictions on American goods.

The Common Market came to an agreement. In 1982 it was called an exchange of letters. We said that we would restrict our exports of pipes and tubes to the United States to 5.9 per cent. of the US total market. In fact, our exports were not kept to that figure but soared to 14 per cent.—more than double the share that had been agreed. I asked the Government why we did nothing about that. They said that, as the agreement did not establish a binding limit on EEC exports of steel pipes and tubes, there was no question of the Government or any other EEC member seeking to impose a limit. In effect, they were saying that the agreement into which they had entered did not matter a damn.

The Government objected strongly when the Americans stepped in and said, "Sorry, we are going to impose the 5.9 per cent. limit until we obtain an agreement that will work." I am sure that there is some way in which the Government could claim that that was not fair or right. The fact is that we reached what the Americans thought was an agreement on 5.9 per cent., yet we exported 14 per cent. and did nothing about that. Indeed, the Government said in Parliament that they were not prepared to do anything about it, but they then objected like crazy when the Americans wanted to do something about it.

The same applies to the dumping of food. There are informal agreements on which parts of the world countries can dump food in. We are moving into areas that the Americans have traditionally regarded as their dumping grounds. I am concerned that the activities of the Common Market, especially those of the Commission, are deliberately creating a conflict between Britain and the United States, and that that conflict will grow.

Of course, there is also the effect on our country. Let us consider what is happening to Britain's trade. The figures for manufacturing trade in the White Paper are wrong and do not add up. I pointed that out to the Minister during a point of order. The White Paper puts exports at £3.6 billion and imports at £12.6 billion, with the difference being £3.9 billion. That is not even—

The Economic Secretary to the Treasury (Mr. Ian Stewart)

I have been advised that there is an error in the printing. The figure for exports should be £8.7 billion, not £3.6 billion. The figures will then be reconciled.

Mr. Taylor

I am grateful to my hon. Friend. However, I find it difficult to understand how the difference between £3.6 billion and £8.7 billion can be a printing error. I appreciate my hon. Friend's courtesy in intervening on that point.

We must ask ourselves about the implications. My worry has always been for the British economy. We have hooked ourselves on to an area of structural decline and become a peripheral part of it. We are in an area that is destined to have higher unemployment than the remainder of the world, and we are especially vulnerable. The trade factor shows exactly what is happening with the movement of decision-making and investment towards the centre of the Market.

Our amendment is about the budget discipline only. I know that the Minister is one of the most honest Ministers in the Government. He must accept that all we have in the discipline document is a form of words that means absolutely nothing and will give us no security. All we have to rely upon is the word and the goodwill of Ministers in the Common Market who have made spending a total nonsense. They have spent money like water —wastefully and irresponsibly. There is not the slightest sign of any solid common sense in the EEC.

We will do just as well without the discipline document as we will do with it. The real crunch will come when the House must decide whether to vote for more resources. Nothing that has been said today should make the House do anything other than say no on that occasion.

7.24 pm

Mr. Russell Johnston (Inverness, Nairn and Lochaber)

The hon. Member for Southend, East (Mr. Taylor) is a populist doctrinaire. During these debates he repeatedly produces an effective and fluent blend of facts and prejudices which are difficult to tackle in an ordered manner. I wish to take up some of his points, which I have heard not for the first time.

These debates are important—something upon which, at least, the hon. Gentleman and I can agree. It is a great pity that they are conducted again and again before a practically empty Chamber and a virtually empty Press Gallery. That is, perhaps, a measure of the mistaken set of priorities on which we conduct a great deal of our political dialogue. We often ignore that which is of quite great importance in favour of the transient and sensational.

As a pro-Community Member, I admit that I find it depressing that those who consistently oppose the Common Market again and again appear in these debates and express their views. Those of us who do not take that position, who I believe to be the majority, are often absent.

Mr. Marlow

Will the hon. Gentleman give way?

Mr. Johnston

Before I give way, I must tell the hon. Gentleman that in doing so I am not setting a precedent.

Mr. Marlow

I am grateful to the hon. Gentleman. I appreciate that he cannot see everything as it is. Those of us participating in the debate are concerned mainly to reform the Community. Just because we do not believe that the sun shines out of the back of the Community's head does not mean that we want to get out of it.

Mr. Johnston

The hon. Gentleman could have fooled me.

I want to direct my remarks to the Minister. I want to raise questions on a number of important issues. I hope that he can answer some of them when he replies to the debate and will correspond with me on the remainder. One asks questions in many of these debates, but receives no answers.

We did not hear that magic word "Spinelli". We did not hear the less onomatopaeic word Dooje, which was raised by the hon. Member for Livingston (Mr. Cook). There was no reference from the Government to the important development — whether or not we agree with it — in current Community thinking about the institutional change that may be required. When the Minister replies I hope that he will say something about the Government's thoughts: not necessarily that we must accept Spinelli hook line and sinker, but that he will address the basic question whether the Government think that the present treaty is adequate or whether it requires some change, and if so in what direction.

It is evident that the Government would agree with Spinelli on the tearing down of internal trade barriers and on having real freedom of movement. No doubt the Minister has seen the article in The Economist of 24 November, from which I shall quote briefly. It is entitled, "How Europe has failed". The thrust of the argument is not that advanced by the Minister for Southend, East, that the failure is to attempt to get together, but approaches the matter from the other side, namely that we have not got together sufficiently, and consequently our economic performance had been hindered.

The article states: In producing the new generation of digital-telephone switches, North America relies on three companies, Japan on two. In western Europe nearly 10 companies produced these switches, at an R and D cost of $500 million—$1 billion per company, which they then could not sell anywhere in the EEC except their home countries because each government protected its own. I want to know the Government's view on that sort of integration. There is no doubt that if, on a Community-wide level, we want to compete effectively with the United States and Japan, there will be some areas where firms will suffer and go to the wall. That is not an easy matter. It is a difficult issue. Let me quote again from this article: Government procurement accounts for an immense market —equal to some 17 per cent. of European Community GDP. European Governments have wielded their purchasing power for ill in two ways. The first is by discriminating in favour of domestic producers. This has been most flagrant in telecompunications, but it happens with all high-tech products. In October the EEC Commission issued a declaration which feebly 'urged' member states to open 10 per cent. of their telecommunications purchasing to products from other EEC countries. The other discrimination in European public procurement is in favour of big companies. Government contracts can be a lifeline for small firms and new industries. If the Government, as they are continually telling us, are in favour of breaking down all the non-tariff barriers, do they also recognise that the logic of that position means that both in Government support policy and in intergovernmental co-operation within the Community we shall have to look at ways in which competing firms within the different countries of the Community can be integrated in some way? In some cases it will mean that some firms will be forced to -the wall. In forcing them to the wall, a more effectively competitive position will be created. That is not an easy matter, but it is part of the logic. So Spinelli, we would presume, is all right in certain respects.

May I also take the opportunity to remark that in the exchange between the hon. Gentleman the Member for Livingston and the hon. Member for Edinburgh, Pentlands (Mr. Rifkind), who has temporarily left us, about majority voting, it seemed to me that at least on the face of it the Government were moving in the proper direction.

Secondly, I wish to ask a few questions about the Parliament. The hon. Member for Livingston perfectly properly referred to the Dooge committee. It is much to his credit that he did. It is remarkable that the Government made no reference to it at all. The hon. Member for Livingston and the Minister had an exchange of words about what exactly the Government's position was on the potential budgetary powers of the Parliament. After some pressure from the hon. Member for Livingston, I understood the Minister to say that he had more or less reserved the whole chapter on the Parliament. This is very interesting, but it tells us nothing about the Government's view on what kind of changes, if any, there should be in the Parliament.

If there is to be greater integration, and if more is to be done trans-nationally, does this not mean a stronger Parliament? Or is it, contrary-wise, the Government's position—I suspect that it would be the position adopted by the hon. Member for Livingston—that democratic control is exerted, not through the Parliament, but through the Council of Ministers, and that therefore one has a route to the fabulous veto which everybody goes on and on about?

When a Parliament is elected on a Community-wide basis, it develops Community-wide attitudes. The Budget Committee met on 3 and 4 December and was unanimous in rejecting the budget. There was not a single voice, not even an abstention, against its rejection. That means something. [Interruption.] I did not quite catch what the hon. Member for Northampton, North (Mr. Marlow) said. However, few Members of the European Parliament would be able to match the hon. Gentleman in that regard. There is no doubt that in the eyes of many Members of the European Parliament the conciliation procedure is farcical and not at all meaningful. The Council is not operating the treaty as it stands at present while there is any chance of change.

Mr. Robin Cook

I shall not detain the hon. Member for long, but he referred to the exchange that I had with the Minister. For the avoidance of doubt, perhaps I could confirm for him that it would appear that the reservation to which the Minister referred applies to the whole section on the European Parliament. There would appear—the Economic Secretary might wish to refer this to his officials —to be a misprint on page 20, by which footnote 2, which gives effect to this, appears at an earlier point in the text where it clearly intrudes upon section B. It was that which led me to the reasonable assumption that it referred to section B. But since footnote 2 appears to predate footnote 1, which comes later in the section, there has obviously been a misprint, which the Economic Secretary might wish to have corrected.

Mr. Johnston

I am grateful to the hon. Gentleman for his intervention, on which there is really no need to comment any further.

What about the uniform electoral system, for example? Does the Minister envisage any change taking place there before the next European elections in approximately five years' time? We in the Liberal party and our Social Democratic colleagues remain politely bitter about the last result and about the fact that 2,591,652 people voted for the alliance in the United Kingdom and obtained no representation at all, while fewer than double that number voted Labour and obtained 32 seats. Obviously that has affected the political balance within the Parliament and distorted it in a way that is not reflective of the general position in the Community as a whole.

Turning, thirdly, to the Commission, we know that the Prime Minister is in favour of one commissioner per country. I suspect the reason why the Prime Minister agrees to this position, which, on the face of it, looks very fair, reasonable and rational. Why do we have two commissioners for the large countries and one commissioner for the small countries? In a sense, it was to protect the realistic political weight of the large country. If one then proceeds to the argument that Britain should have one commissioner and that Luxembourg should have one commissioner, I suspect that at the back of her mind the Prime Minister is also saying, "We want a weak Commission, anyway, do we not, so it will not make any real difference, will it?" [Interruption.] I did not quite catch what the hon. Member for Livingston said, but I am sure that it was quite helpful.

Do the Government have any views on the reform of the Commission, apart from that which we do know about? What about the idea of the President of the Commission, when he is chosen, having the opportunity or the power to select in some way or another his commissioners, his team, who are to work with him? It does great credit to the diplomatic skills of Mr. Delors that he managed so quickly to sort out the portfolios last weekend. Nevertheless, the power of the President is very much limited. Very often, for various reasons which have nothing to do with any kind of nationalism, he is lumbered with people whom he would not otherwise have chosen.

The staff of the Commission were referred to by the hon. Member for Livingston in various critical comparisons of cost, but it must be said that there is a fair amount of crisis in terms of staff pressure within the Commission. There is the problem of older people who are holding on to fairly key positions which were inherited some time ago. Beyond that, the plain fact is that the Commission is being asked by each member country to do more and more things and does not have any opportunity, through its staff, to be able effectively to do them properly.

My fourth question relates to economic initiative and economic convergence. This point has been touched on in previous exchanges. I had an exchange with the Prime Minister on 5 December, when the right hon. Lady said: The hon. Gentleman mentioned convergent economic policies, but the Community is not meant to be a mechanical redistributive mechanism." — [Official Report, 5 December 1984; Vol. 69, c. 359.] What is it supposed to be? [Interruption.] I thought that the hon. Gentleman was interested in reform and improvement. The Community was established to provide the sort of cauldron within which economic activity could be more effectively pursued, but there was also, undoubtedly, the concept of redistribution. Why else have a regional fund? Why else have a social fund? There was the concept that the poorer countries would be lifted up and that wealth would be shared out, and an attempt was made —idealistic, perhaps too idealistic even, but a good idea—to create opportunity at a roughly equivalent level througout the Community.

Mr. James Hill (Southampton, Test)

The hon. Gentleman is right to say that the original intention was to bring up the peripheral areas of the Community. How does that balance with the argument for enlarging the Community yet again? Spain and Portugal—possibly others — now want to join the Ten. They are poor countries by industrial standards. When will we be able to cope with the peripheral regions of the existing Ten and still enlarge the Community?

Mr. Johnston

The hon. Gentleman was an effective chairman of the Regional Committee of the European Parliament. If he will wait one minute I shall come to his point, which is linked with the social and regional fund.

The hon. Member for Southend, East made much of mis-expenditure in the Community. He referred to the regional fund as a silly fund—or a word to that effect. The regional fund now is so small that it has a limited effect and certainly nothing like the remarkable effect that many of us hoped it would have when the hon. Member for Southampton, Test (Mr. Hill) and I were in the European Parliament, when George Thomson was in charge of establishing that fund.

Mr. Marlow

rose—

Mr. Johnston

If the hon. Gentleman will permit me to finish my point I shall give way, despite what I said earlier about a precedent.

The total EEC budget that we are discussing is about 2 or 3 per cent. of the Community's GNP. The regional and social funds, taken together, are less than 10 per cent.

of that 2 per cent. That is tiny. How can one ever expect any convergence to be achieved using that sort of mechanism? It is not possible in a thousand years. No wonder Mr. Papandreou is making the point that he is making.

What is the Government's view on convergence? On page 18 of "Developments in the European Community January-June 1984" I find that the regional fund had £1,222 million in 1984, of which £1,157 million was what is called quota. In other words, it is already allocated between countries. It has very little to do with the central evaluation. Only £65 million was non-quota. There was a time when it was hoped that a much larger proportion of the regional fund would be non-quota and allocated by the Community according to the guidelines laid down by the Commission and advised upon by the Parliament, rather than simply as a result of a haggle between countries in a way that was most unsatisfactory.

Mr. Marlow

I am grateful to the hon. Gentleman for his courtesy in giving way a second time. I shall give the usual undertaking that, except in exceptional circumstances, I shall not interrupt him again.

The hon. Gentleman is putting the case for a regional fund. One way that he has suggested is that money could be moved from the richer to the poorer parts of the Community. Sadly, we are one of the poorer parts of the Community and are net contributors to the EEC budget. Therefore, the fund has not worked in that direction. I am sure that the hon. Gentleman is as sad about that as I am.

The other way in which the fund could work would be to have a series of policies devised at the European level which would apply throughout the Community. We have a regional fund at the moment and various policies within that regional fund. The main one relates to industrial training. The Government have also said that they want to spend more money on regional policy. Why is money spent on training better allocated at the Brussels or Strasbourg level than by national Government?

Mr. Johnston

There are fairly obvious reasons for that. If guidelines are laid down which are agreed to by all the individual countries, I do not see why that should not be the basis of the distribution. In fact, it must be the basis of the distribution if one is to have a Community-wide policy.

I come next to the question of enlargement. I should have liked to see the date of 1 January 1986 achieved. I agree with what was said by the hon. Member for Livingston. He quoted Gaston Thorn. I spoke to him last weekend and he repeated that he was very doubtful whether it was possible, particularly as it was unlikely that Papandreou would withdraw his veto.

Why is Papandreou pressing that? It must seem to him that this is the last opportunity that he will have. He is using the same sort of tools to bring pressure to bear as the British Prime Minister used. The British Prime Minister used those tools to achieve budgetary discipline and a rebate for the United Kingdom. Papandreou is doing so in order to achieve greater expenditure from the regional and social funds within Greece. He knows that if he does not get it now it is unlikely that he will get it after enlargement. It would not be possible to deal effectively with the problem, not so much of Spain, but certainly of Portugal and Greece, unless there was a considerable increase of own resources. There is no balking that question.

I hope that everyone remembers that if Spain fails to get in that will have an effect not just on Gibraltar and negotiations there, but a direct effect on the referendum on Spain's membership of NATO. Therefore, those matters cannot just be put into compartments.

The question of political co-operation is dealt with in section IX. On Iran and Iraq it says: The Ten noted with concern the continuing conflict … They appealed to the two parties to look for a peaceful solution". It is not a particularly good example of co-operation if Britain has so increased its trade with Iran that it is thereby able to obtain the necessary income to purchase weapons, as I suspect it in part does, and to obtain from Britain motor parts and vehicles which can be used in the war effort, while on the other hand France directly supplies weapons to Iraq. That is not a good example of political co-operation within the EC.

The paragraph on the Arab-Israeli dispute says: They called upon the Government of Israel to put an end to its policy of establishing settlements in the Occupied Territories. Good. That is an essential pre-requisite to a settlement in the middle east. What pressure, as a consequence of that, has the Community put on the United States? UNESCO is not mentioned, but one wonders what the logic is when the Government argue in favour of political co-operation and yet refuse to observe the unanimous request of all the other members of the Community that we should not withdraw from UNESCO. Indeed, the Minister knows their views.

In conclusion, let me quote the Minister of State. As I noted it, he said that "of course there are certain proposals which, if we had been left to ourselves, we could have made better." There is a certain arrogance in that which is perhaps not typical of the Minister. He does have glimmerings of open-mindedness. However, it is rather redolent of speeches of the hon. Member for Southend, East. As the Americans and the Japanese streak ahead of us and our unemployment queues lengthen, I find it extraordinary that the House spends its time lauding itself and endlessly going on about the virtues of the British veto, irrespective of whether it is applied by a Right-wing Conservative Government with Right-wing views or a Left-wing Labour Government with Left-wing views. I sometimes feel that instead of being in the Chamber of the House of Commons I am in a neolithic political tomb.

Mr. Teddy Taylor

rose—

Mr. Johnston

If the Community is to proceed, it must set aside national prejudices and develop a coherent, common will.

7.50 pm

Mr. Robert Jackson (Wantage)

This debate will be the last for some time in the long series which we have had on the reform of the framework of the European budget. It is an opportunity for us to take stock of what has been achieved and to consider future prospects.

There can be no doubt about the cost to Britain of the long dispute that we have had with our partners about the framework of the budget. I emphasise that the quarrel was not of our making. The problems flow from the budgetary arrangements which were agreed among the Six before we joined the Community, and they were anticipated by Britain in the negotiations for accession in 1972 and 1973, when we obtained assurances from the Community. Nevertheless, the cost of our efforts to get the Community to honour the commitments which it made in 1972 and 1973 has been high. There has been the disillusion among the British people, which is amply reflected in these debates. There has been the disillusion also of some of Britain's friends on the continent, who have never really understood what we have been worrying about. There has been the narrowing of the focus of our national vision of Europe. Perhaps most important of all, a series of concessions have been made and British interests have not pressed because of the overriding importance which the Government have rightly attached to making progress on the reform of the budget. Have we reached the end of this painful and debilitating argument, or will there be more to come? I must tell the House that in my opinion the answer to the question must be no.

In logic there are three possible solutions to the problem of imbalances in Britain,'s net contribution to the Community budget. First, there might be a corrective mechanism to reduce the gap between contributions and receipts. Second, there might be a reduction of spending on agriculture in the Community's budget. This is criminal because such spending falls most heavily on the United Kingdom with its relatively low share in European agriculture. Third, there is the idea of increasing Community spending on non-agricultural policies from which we are net beneficiaries. These three solutions are not mutually exclusive. Indeed, we have heard Ministers saying over the years that they expect all of them to play their part.

I wish to consider the implications of the Fontainebleau agreement and of the new text on budgetary discipline for those three solutions. Take first the Fontainebleau agreement, the essential feature of which is its provision of a new corrective mechanism to replace the temporary agreement of May 1980 and the failed mechanism negotiated at the Dublin summit in December 1974.

The Fontainebleau mechanism has been hailed as a permanent solution. Is it? Part of the agreement specifies: The corrective formulas will form part of the decision to increase the VAT ceiling to 1.4 per cent., their durations being linked. There is no doubt that, from the British point of view, that formula represents a real achievement. We have obtained an abatement of two thirds of our net contribution over the period of the 1.4 per cent. ceiling, and we have succeeded in getting those arrangements embodied in new legal institutions and procedures which will become vested facts and will give us acquired rights. So much on the positive side. But what happens when the 1.4 per cent. ceiling is reached? Will the British abatement continue at two thirds of out net contribution at that time? Will we be able to retain that abatement while insisting on no increase in the 1.4 per cent. ceiling? If there is an increase over the ceiling, will our two thirds abatement be able to continue without challenge?

The answer to these questions is that no one knows. We are told that the abatement formula and the increase in own resources are linked. That is the phrase in the agreement. However, the character of the link is not specified. From close observation of the subject for some years, it is my belief that when the time comes there will be several different views about the nature of the link. We shall have the advantage of the principle of special treatment for Britain having been conceded and of the practice having become established, so I doubt whether we shall once again have to face fundamental arguments about whether or not we should have any rebates at all. However, I have no doubt that the idea of a two thirds reimbursement will come under heavy pressure in future.

In view of this prospect, Britain continues to have a special interest in the level of the Community's farm spending, which is the root cause of our special problem, and in the balance between that farm spending and spending on other policies.

What will be the impact on that balance of the new agreement on budgetary disciplines? Let us consider, first, the new discipline on farm spending. I do not quarrel with the Government for having been driven back from them original position that budget disciplines must be written into the treaty. Nor do I complain especially that it is envisaged that spending on agriculture will grow at a. rate that is "no greater than" the rate of increase of own resources rather than the initial British phrase which called for a rate "markedly below" the growth of own resources.

However, nothing in the budget discipline agreement has changed the fact that the Community's spending on agriculture is determined essentially by external factors, especially by the state of harvests around the world and the movement of currency rates of exchange. Essentially, the new agreement introduces a new element into the Community's procedures for making decisions about agriculture. It provides that if there is evidence that, the Commission is satisfied that the Agriculture Ministers are contemplating decisions that will cost more than is provided by the so-called "reference framework", Finance Ministers will be called in before any decision is made.

I have no doubt that this is a valuable innovation, and I am sure that the Finance Ministers, and my hon. Friend especially, will breathe heavily over the shoulders of their agriculture colleagues. But how likely is it that they will take a view that is radically different from that of colleagues in the same Governments who face the same political pressures? In my view, the physical presence of Finance Ministers around the Council table will constitute a factor of restraint, but no more. Therefore, I predict that until we have terminated the open-ended nature of CAP price supports—as we have now done in the milk sector — we shall continue to see spending on agriculture overshoot regularly. I must say that I find somewhat unconvincing the reasoning of my hon. Friend the Minister about the effect of majority voting.

What is to happen to the third possible solution to the British problem—that element in Community spending from which we might hope to make a net benefit? I refer to the non-farm spending — the so-called "non-obligatory" expenditure. My first fears were that the Government would lock Britain into a straitjacket in which non-farm spending would be bound to be as restrained as spending on agriculture. Happily, those fears have turned out to be mistaken. The budget discipline agreed for non-. farm spending is essentially no different from the arrangements which already exist, by which the Council has sought always to stay within the maximum rate.

Mr. Teddy Taylor

Why does my hon. Friend think it is good for the Common Market to increase its expenditure on non-agricultural items?

Mr. Jackson

I was about to explain that, because I expected that point. Briefly, I believe that it is in this area that we shall find a long-term solution to our problem of long-term imbalance.

Because the budget discipline for non-agricultural spending is no different from what we already have, the possibility remains that, from time to time, the Council may agree to spend more on non-agricultural policies than the amount prescribed by the maximum rate—although I note with regret that the Council will be able to do so only on the basis of unanimity. Therefore, in spite of my gloomy prognosis for the continuing growth of farm spending, the possibility remains that non-farm spending will grow just as fast, so the overall balance between farm spending and non-farm spending will not worsen —indeed, it may even get better. But if farm spending regularly overshoots, as I fear it will, that balance will turn ever further against us.

Where will that non-farm spending go? That is the $64,000 question. If I am right in saying that the Fontainebleau agreement does not solve our problem in perpetuity, and that the growth of agricultural spending is unlikely to be as constrained as we would like, the third solution—the growth of non-farm spending—will be very important to us in the long term. That is the answer to the question asked by my hon. Friend the Member for Southend, East (Mr. Taylor). We know that heavy claims will be made by other member states, especially after enlargement. Will the British Government be in there fighting for the share of that new spending that we will need if we are to turn the balance of our net contributions permanently on to a more favourable basis? I must confess that I am concerned that the Government have not yet come fully to terms with the problem.

So great is our concern with budget discipline that we run the risk of overlooking opportunities for doing ourselves a good turn through Community spending. I shall give a simple and topical example. It is now becoming apparent that Britain is almost isolated on the exceedingly sensitive issue of acid rain. We face the possibility that we may be outvoted on this question, and the probability that, in due course, we shall have to find the money needed to deal with the problem.

If we were not so worried about budget discipline that we had almost given up ways of spending Community money to Britain's advantage, we might have anticipated that position, saying, "All right, we shall go along with the majority on acid rain, but, since there are so many coal-fired power stations in Britain, and because this is so self-evidently a Community-wide transfrontier problem, we are looking for substantial support from the Community budget for the adaptation of our power stations." I have no doubt that, if such a programme were agreed, it would involve spending well beyond the limits of the budget discipline agreement. I would not worry about that. My concern is rather that it would worry the Government. Indeed, I fear that that consideration would be uppermost in their mind. With regret, I must say that such an attitude could be simply described as cutting off one's nose to spite one's face.

8.3 pm

Dr. Norman A. Godman (Greenock and Port Glasgow)

My remarks will be confined to the sections in the draft budget and the White Paper on the fishing industry. I should like to concentrate on the issues of maritime inspection and controls, Community education and vocational training and the adjustments of capacity in the fisheries sector.

The fishing industries in the Community operate within the framework of a common fisheries policy. That framework may be altered, following the accession of Spain to the Community. Earlier this evening, the Minister assured the House that the outcome of the negotiations would be satisfactory to the British fishing industry, and I hope that events bear that out.

The EEC's fish police inspectors are beginning to make their weight felt. There have not yet been any convictions, but fishermen are certainly aware of their presence. The problems of foreign overfishing have been with us for many years, especially in the case of the fleets from Denmark, Holland and the Republic of Ireland. Where such vessels are involved, excess captures have reached absurdly high levels — so high that one can say that orders placed with Dutch yards for new and large vessels have been made on the basis of illegal fishing. That is absurd. It looks as though the EEC will take legal action following a report drawn up by the EEC's fisheries inspectorate. Similarly, the Danish Government have decided, at long last, to take action against the owners of some 70 vessels for illegal fishing.

In Lloyds List of Friday last week, Ian Strutt said: The Danes were thought to have caught 150,000 tonnes of juvenile herring last year which would have matured into an adult stock of around 1 m tonnes.

Catching of juvenile fish was thought to be continuing this year until the Danish Government decided, for the first time, to take mass action against the fleet. The policing of the Community's fishing effort has had partial success, but much more needs to be done. I still believe that we need an expansion in the EEC's fisheries inspectorate. I should like to hear the Government's view on that matter.

Item 4300 in section III B of the draft budget refers to Measures establishing a Community education and vocational training policy in the fisheries sector. Yet the sum of money to be committed to achieving that commendable objective is about £80,000. To say the least, that is a derisory figure. If the aim is to move towards a common training and educational programme for EEC fishermen, we shall not progress far on that pittance. One essential feature of such a programme is, or should be, the interchange of those directly involved in the training of fishermen. How on earth can that be achieved, given the miserly sum of £80,000? At the very least, that sum should be trebled.

Training programmes and financial assistance should not be confined to the established educational and training bodies. They do a good job training fishermen, but we must not lose sight of the fact that many of our fishermen, especially in Scotland, live in remote communities far removed from the technical and nautical colleges that provide that training. In those circumstances, the group training associations play an important role, and I hope that they are here to stay. They were created by the sea fisheries training council, which is now defunct, and I hope that they will continue to flourish under the umbrella of the Sea Fish Industries Authority.

I am bitterly disappointed that the draft budget contains no proposals for the payment of compensation for those fishermen made redundant by the EEC's fisheries policies. I refer to the document that mentioned the adjustment of capacity in the fisheries sector. No mention is made of the fishermen displaced by the pursuit of this policy. We must remember that many of those fishermen were placed in the nasty, brutal front line of the fisheries dispute in the 1970s between the United Kingdom and Iceland. Those fishermen have been badly served by both Conservative and Labour Governments. I go further, and say that they have been betrayed by successive Governments.

While for many of those fishermen it is desperately late in the day, natural justice demands that they be given some compensation. The EEC should examine forthwith the means by which redundancy payments could equate with the financial assistance offered to those vessel owners who tie up, scrap or effect a change in the use of their vessels.

The Commission should devise a financial scheme of income guarantees for redundant fishermen in line with some aspects of the provisions available to coal and steel workers. I do not believe that such payments should be derived from a levy on each tonne of fish landed at United Kingdom ports. Some other means will have to be found. Other means have been found to compensate vessel owners so why not for the fishermen who crew those vessels?

The Commission should also investigate the possibility of a common state retirement and pension policy for all fishermen aged 55. Fishing is the most dangerous industrial occupation in Britain today. It is far more dangerous and causes more injuries and death than coal mining. No fisherman in his late fifties should be forced to go to sea. We should be talking about compensation for fishermen along the lines of that offered to redundant steel workers.

I remind the House, if it needs such a reminder, that fishermen are almost always denied redundancy payments by their employers and the state. I can give an example of that from my family. A brother of mine was given the princely sum of £385 by his firm after 19 years of service with it. The firm received £400 per gross registered tonne for each vessel that it decommissioned. It seems that the European Community believes that GRT is more important than fishermen.

Many of the vessels for which decommissioning compensation is being given were built with the aid of generous grants and loans from the Treasury. In terms of employment rights, fishermen are second-class citizens. I can give an example of that. At a recent industrial tribunal hearing in Hull, when several fishermen were claiming redundancy payments because their firms had accepted decommissioning grants and tied up their vessels—case numbers 4227/84, 7760/84, 14443/84 and 2792/84 of 24, 25, 26 and 27 September 1984—the chairman said: These men were on individual contracts and when they finished the voyage, and settled up, and were off articles and off pay, they were not employed, they knew they were not employed, they knew they were unemployed when they signed on as being 'available to work'; for their own reasons the applicants chose to stay loyal to their firm and for their own reasons they chose not to work elsewhere, they chose to remain with this employer and did not seek to go elsewhere or leave the trade". The chairman found that, as a result, those claimants could not be offered redundancy. I find that disgraceful. I only wish that those fishermen could be offered a measure of hope, but reality precludes that. The Community's recalcitrance on the important issue of compensation to the crews of fishing vessels is a matter of deep regret. It is a disgraceful state of affairs.

I believe that much more could and should be done for the fishermen who catch the fish that are so vital to our maritime communities.

8.14 pm

Sir John Farr (Harborough)

I am sorry that my hon. Friend the Member for Southend, East (Mr. Taylor) is not here because I wanted to refer to his remarks about the large surpluses of some products that are built up in the Community. Surpluses are bad, unwelcome and expensive. The two fashionable surpluses — wine and butter—are not produced by British agriculture. It is almost impossible to run farming anywhere in the world as an exact science because of the vagaries of the weather, which can make one year's surplus into a deficit the following year.

The point that my hon. Friend was making—it was a fair one—is that it is expensive to have large surpluses produced by the CAP. Homes have to be found for the surpluses. He cited the example of outrageously cheap butter and other commodities being sent to Russia. The EEC countries and others will not always be in surplus. Famine in Ethiopia has caught the headlines, hut only three or four years ago central and south central Africa suffered from famine. There are now countries in Africa, including Ethiopia, that are importing food but which for years were net exporters.

We must look sensibly at surpluses and not condemn them out of hand as my hon. Friend would have us do. We need sensible surpluses. The excess must be available for despatch wherever in the world it is needed. Until a few weeks ago, that happened to be Russia. I am glad to see that large supplies of food are now reaching Ethiopia. In December, 100,000 tonnes of food, including 30,000 tonnes of corn from the EEC and 8,000 tonnes of corn from Britain, are going there. Next month, 150,000 tonnes of food will go to Ethiopia.

I should like to see the CAP, with all its imperfections, geared to maintaining—as far as the weather permits—the reasonable, healthy food surpluses that may be needed in other parts of the world. I do not regard as immoral or wrong a reasonable surplus of commodities that can be made available to countries which may be in need of food today and which are likely to be in need of food in the future.

My hon. Friend mentioned the enlargement of the EEC and the accession of Spain and Portugal. That was designed to be agreed by the end of this year. It has now been slightly postponed. We in Great Britain have a great deal to fear from the expansion of the Community. Its enlargement poses a threat to British horticulture. Hundreds of horticulturists in this country are likely to face the chop once Spain becomes a member of the Community unless long transitional arrangements for its membership are made.

Portugal and Spain are substantial manufacturers of footwear, and Portugal is also a substantial manufacturer of knitwear. The House may not realise—I hope that when it realises this it will care about it—that last year Portugal exported no fewer than 48 million pairs of ladies' tights to Britain. Exports of knitwear to this country are also increasing, resulting in substantial job losses in the British knitwear industry. In the past couple of years, between 5,000 and 6,000 jobs have been lost. In five categories alone, between 1982 and 1984, Portugal's exports of knitwear to Britain increased by 100 per cent. In the last year for which figures are available, 48 million garments were imported from Portugal, equivalent to the loss of about 2,400 jobs. The United Kingdom knitwear industry is now losing 50 jobs per week. We must face those facts and recognise that, unless proper safeguards are established, the accession of countries such as Portugal to the EEC will greatly accelerate the loss of jobs in areas such as mine in the east midlands.

What kind of European Commission will be running our affairs in the future? We hear that there has been a big change and that we now have one of the most Leftward-looking as well as one of the most inexperienced Commissions in recent years. I believe that it includes two British Commissioners. In view of the inexperience and certainly the Socialist inclinations of the Commission, the Government should consider carefully several times any recommendation that it may make.

In the things that matter to my constituents the EEC seems to do its best to make itself unpopular. My constituents are neither anti-EEC nor pro-EEC, but they are not impressed by the ridiculous suggestions from the Commission that the Government and both sides of the House have to resist. The recent proposal for standardisation of the clock throughout the EEC was, I am glad to say, rejected by the Government, the Opposition, all the big unions and the CBI. Trivial suggestions of that kind to achieve some federal idealist dream help to bring the EEC into disrepute as a sensible and serious unit.

My constituents like their British passports and do not want mauve EEC passports. They also see no reason why we should join the European monetary system. We have managed very well without it for many years. My hon. Friend the Minister did not mention that, although pundits say that a decision is to be made very soon. I hope that before deciding whether Britain should join the EMS the Government will take careful soundings so that there is no repeat of what happened last week in relation to education. Although sterling is now of limited international consequence, many Members on both sides still believe that it has a role to play which is far better performed outside the EMS.

Another row is blowing up about milk quotas. Last spring, all member countries except Ireland agreed to reduce milk output. As Members on both sides have pointed out, however, some countries have implemented that agreement far more energetically than others. Strangely enough, a country that we have learned not to trust in international affairs —France — seems to have offered no sign of any intention to comply with the reduction in quotas. When this matter is next discussed in the Council of Agriculture Ministers, I hope that my right hon. Friend the Minister of Agriculture, Fisheries and Food will insist that a clear performance chart for member countries be made available and that countries which have fallen by the wayside and virtually ignored the reduction in quotas must be dealt with through the special penal levy to which my hon. Friend the Minister of State referred.

My constituents are also angered at the apparent decision by the outgoing Commission to take Britain to the international court in an attempt to dismantle our ban on imports of fresh milk. In the many debates on the subject at the time, it was clear that this was essential not only for the British dairy industry but to ensure continued doorstep deliveries of fresh, wholesome milk. Our overall trading deficit with the EEC is about £2.4 billion per annum, of which £2.1 billion is due to our deficiency in food, beverage and tobacco trading. Imports of fresh milk on top of that would not only threaten doorstep sales but cause many more redundancies in our industry as well as making it even more difficult for our farmers to meet their milk quotas, as they now do.

What about the future? I believe that the projected increase in VAT contribution to 1.4 per cent. in 1986 and 1.6 per cent. in 1988 is to be deplored and when the House debates that I shall seek to intervene to register my protest. I hope that the Government will comment on whether Britain's reservation about increasing our percentage quota has been raised energetically enough at EEC meetings.

It is transparently obvious to some of my hon. Friends that Britain is the largest net contributor to the EEC, and has the most to lose. The rest of the member states are, by and large, net beneficiaries—France, Greece and Italy, for instance — and they have the most to gain. We should have retained the 1 per cent. of VAT. Otherwise, it is so easy in the bottomless pit of European money for our hard-earned contributions to sink without trace. All that we will have left to remind us of what we have paid may be a European anthem and a common European currency with which to pay for it.

I suppose that, for the future, one must stay in.

Mr. J. Enoch Powell (South Down)

Why?

Sir John Farr

That is a good question. Perhaps the right hon. Gentleman will seek to catch your eye, Mr. Deputy Speaker, and develop that point.

My own view is that we must be much more selective. We must stay in only if we can see that to do so clearly benefits Britain and our electors. So far, our membership of the EEC has had some very unfortunate results. For instance, my constituents fail to understand why a student from the EEC should be allowed a privileged position compared with a student from the old Commonwealth. They fail to understand why a relation or friend from a Commonwealth country such as New Zealand or Australia cannot come here to stay or may have great difficulty in obtaining a work permit, while foreigners from the nine countries can walk in on privileged terms. Such matters make the EEC very unpopular with my constituents.

Britain pays a big levy in order to belong to this club. One of the arguments on which it was sold to us was that in unity there is strength. However, those who sold the package to us forgot to add that, in order to obtain that strength from unity, we would have to pay a very large annual subscription. My constituents have yet to be convinced that that subscription is worth while.

8.32 pm

Mr. John David Taylor (Strangford)

The Order Paper shows that in this debate we are discussing many aspects of the EEC. We are discussing the details of the 1984 budget, the various stages of the 1985 budget, the Fontainebleau agreement, the White Paper and budgetary control—a wide variety of issues. That may be why the debate has become somewhat fragmented. It may also explain why so few hon. Members attend such debates. It is regrettable that we do not direct our attention to a specific EEC issue.

I wish to concentrate my mind on a crisis within the EEC which will be with us within 48 hours. I refer of ** course to the probable rejection of the 1985 budget by the European Assembly in Strasbourg on Thursday. We already know from this morning's newspapers that the budget committee of the European Parliament last night almost unanimously rejected the 1985 budget. Only two members voted against that decision—two memberss from Denmark who, it is said, oppose the Common Market. All the other members of the committee voted to reject the 1985 budget. Among them were British Labour Members of the European Parliament, and British Conservative Members. They all united to reject the budget approved by the members of the Council of Ministers, including our Government's representative. We know why that has happened. The meeting at Fontainebleau, to which the Minister referred in his excellent opening speech, has played a part.

The Minister concluded by praising the efforts of our Prime Minister at Fontainebleau. I should like to associate myself with his commendation of the role played by the Prime Minister in the past few years. The European Economic Community has treated the United Kingdom badly in budgetary affairs. We have had an unfair burden to carry. The Prime Minister has been in a difficult negotiating position but, for standing firm for our rights, she deserves our support.

However, we must also pay attention to the speech made by the hon. Member for Wantage (Mr. Jackson). The hon. Gentleman and I have worked together in Strasbourg and later in this place for some six years. He is one of the great optimists of the European Community. Never until now has he been critical of the EEC. Never until now has he displayed pessimism. We must, therefore, now take his opinions seriously. As a former rapporteur of the EEC budget committee in Strasbourg, he knows what he is talking about. The hon. Gentleman says that the Fontainebleau agreement is not a long-term settlement, and that there is no real budgetary control. His speech will be well worth reading tomorrow in the Official Report.

The 1985 budget is likely to be rejected for various reasons. British Labour MEP's will vote against it because they wish to undermine the achievements of our Prime Minister at Fontainebleau. They wish to undo the settlement of the British rebate. They dislike that settlement. They wish to bring it back to the floor of the European Parliament.

Why do the Conservative MEP's also oppose the budget? Why do other Members from other countries oppose it? They do so because of the issue of the powers of the European Assembly. That is the kernel of the problem—the contest between the national Parliaments and the European Assembly. Until that key issue is clarified, there will be crisis after crisis over European bugetary affairs.

The situation is chronic. Under article 201 of the treaty of Rome, only the Council of Ministers has power to raise revenue. However, under article 203 of the treaty, responsibility for expenditure is shared by the Council of Ministers and the European Assembly. When there is an assembly with no responsibility for the raising of revenue which yet shares responsibility for expenditure, there is a chronic problem which will continue to breed political irresponsibility. That is the situation today.

The European Assembly Members are rejecting the 1985 budget in pique. They are piqued, first, because they were not involved in the settlement of the British rebate at the Council meeting at Fontainbleau and, secondly, because they wish to bring that matter back into the 1985 budget. There is another reason for their annoyance. They recognise that the budget as proposed by the Council of Ministers will not cover expenditure for 1985. Within the 1 per cent. own resources limit, the budget is legal.; but the Members who reject the 1985 draft budget wish to proceed to exceed the 1 per cent. VAT limit and to go straight to the 1.4 per cent. figure for own resources.

Such a move would be illegal. It would pre-empt the general understanding that there would be discipline before we adopted the 1.4 per cent. VAT figure. That is the key issue—Members of the European Assembly are determined to rush the community into 1.4 per cent. before discipline in the budget has been created. That can happen in two ways. Either the budget can be rejected or it can be amended, at which point it becomes a disputed budget. However, whether it is disputed or rejected, there will be no budget within a few weeks on 31 December.

Some of us know what all that means because, as Members of the European Parliament, we lived through such an experience years ago. It means the one-twelfth system by which the Commission is limited from 1 January to spend one twelfth per month of what it spent this year or of the draft budget for 1985, whichever is the smaller. The effect of that is serious for the United Kingdom. It must be spelled out that those who are opposing the 1985 budget are acting in pique because they have limited power and in support of an expanded budget which would be illegal because it would be over the 1 per cent. VAT limit. It would also be against the interests of the citizens of the United Kingdom because the one-twelfth system will result in reduced expenditure through the guarantee fund for the agriculture industry. That is serious for our farmers.

The United Kingdom has benefited more than any other country from the expansion of the European social fund, money from which goes to areas of high unemployment to provide training. The 50 per cent. of the fund which may be used by the end of March will not be available if the 1985 budget is thrown out. Moreover, there will be a reduction in EEC development aid to Third world countries if the budget is not accepted. That, too, will not be popular in the United Kingdom, where there has been much public interest in African countries, especially Ethiopia. The effect of rejecting the budget on fishing areas is more than likely a stop on FEOGA grants to the fishery section so that the money can be used in other ways.

Such limited expenditure, which would affect the United Kingdom as I have just described, could continue for many months. Last time, it nearly took until 12 July —an appropriate date for us in Northern Ireland—before the issue was resolved. The problem might not be resolved until 12 July 1985. By then, the United Kingdom will be suffering in many ways. However, United Kingdom people and United Kingdom interests will not be all that suffer. The European Parliament will be damaged. That Parliament has not caught the imagination of the United Kingdom electorate and many of its Members are elected by less than 10 per cent. of the electorate. That is not a tribute to democracy and it does nothing to enhance the status of the European Parliament. By next summer, the Strasbourg Parliament might have to crawl back and accept what the Council of Ministers has suggested. That happened last time. If that happens, far from strengthening the European Parliament and increasing its credibility, its standing will have been damaged even further.

It would be in the interests of the people of the United Kingdom and that of furthering the cause of the European Parliament for that Parliament to sit back and reflect on what it is doing and to decide to support the Government and the 1985 budget.

8.45 pm

Sir Anthony Meyer (Clwyd, North-West)

These debates are usually rather depressing affairs in which we rehearse familiar arguments and make the same speeches. The right hon. Member for Strangford (Mr. Taylor) went a long way to bringing a sense of reality into our proceedings. He did well to draw attention to the imminence of the crisis in regard to the future of the European Parliament. He put his finger unerringly on the central issue.

It might surprise my hon. Friend the Member for Southend, East (Mr. Taylor) to learn that I have always believed that there is great danger in the form and functions of the European Parliament as it was conceived. It has the power to spend money, but no responsibility for raising it. That is why I was so ferociously opposed to the Labour Government's proposals for devolution in Scotland and Wales. I do not oppose devolution, but their proposals were disastrous.

The Frankenstein is well and truly out of the bottle, if I have not mixed my metaphors too much, and we are now faced with a Parliament which is determined to assert its authority as a directly elected body, however slim that authority might be in view of the small turnouts for European elections. Moreover, it is on a collision course with the British and other European Governments. I have little doubt that one of the results will be a growing demand in Britain and elsewhere to do away with the European Parliament, although that means rewriting the treaty. Such pressure will not be easy to resist.

However small my enthusiasm for the European Parliament and however grave my misgivings about the form in which it was set up, I must utter a solemn warning. In order to abolish it, we shall have to rewrite the treaty. I am convinced that it will turn out to be impossible to conclude a new treaty which gives us even part of the satisfaction that we derive from the imperfect operations of the present Community. The outlook of the statesman who concluded the original treaties in 1957, to which we acceded many years later, meant that they were prepared to see the wood and not be blinded by the trees. They were prepared to subordinate the short-term interests of their countries to secure advantages which could be achieved only by a pooling of effort. I find no evidence of any such readiness among leaders of any of the countries that constitute the present Community. Much as I deplore the weaknesses of the present Community and regret the wrong functions given to the European Parliament, we must live with the present treaty and try to make it work.

By the same token, I share many of the pertinent criticisms of my hon. Friend the Member for Southend, East of a CAP which piles up ludicrous surpluses and seeks ways of funding ever larger surpluses.

I must also reflect that had we followed the policies advocated by the Labour party and a few Conservative Members—it is not unfair to include my hon. Friend the Member for Southend, East among them—and bought our food in he cheapest markets, we would today be bidding against those countries stricken by famine for the world's limited supplies of cereal. I do not believe for a moment that that would place us in a better situation.

I have never made any secret of my view that the European Community is unsatisfactory. However, it is the best Community we have, even though it is just not good enough. The Community in which we presently live is rapidly losing out to the rest of the world in industrial innovation, the creation of new jobs and raising the living standards of its people. It is failing to do the job it was set up to do. It is not even a Common Market. We shall not get even half of what the Community should be providing unless we are prepared to go forward rather than backward. We should not go backward by saying that the only things we want from the Community are those which advantage us. Frankly, we cannot run any kind of alliance, let alone a community, on that basis. We must go forward and strengthen the decision-making processes of the Community. Therefore, we must take seriously the proposals circulating in the European Parliament in respect of institutional reform. I believe that the Parliament is out of its depth on financial matters, but on institutional matters I believe that it may have a lot to teach us.

Nothing alarms me more than the gap which is now opening up between the common thinking within the European Parliament among parties of all nationalities—not, perhaps, among the British Labour group, but that group is all alone in the world — on the need for institutional change and more effective ways of taking decisions, and the total refusal on both sides of this House even to consider those ideas, let alone to consider accepting them seriously. We must move towards a system in which the use of the veto is altogether exceptional. No one is suggesting that we should give up the veto where vital national interests are at stake, but unless the nations which comprise the EEC are prepared to reconcile themselves to the fact that normally they will accept majority decisions and resort to the veto only in cases of acute national need, not much progress will take place.

The best that can be hoped for under the present system is the acceptance of what is familiarly known as two-speed Europe. That is frequently described as a great tragedy. I am not sure that it is, given the limitations of the present situation. We could possibly go along with a system under which, for example, the seven nations constituting WEU agree to co-operate more closely in providing a European pillar for the North Atlantic Alliance. Equally, those nations which are getting together to build up a European aviation industry could go ahead and build the aircraft, even if British Airways, for reasons of its own, prefers to buy inferior American aircraft rather than the superior European aircraft which are available.

The founder states have formed and operated a European monetary system that provides an element of stability to their exchange rates, but, for reasons best known to the Treasury, we prefer to remain outside that system. I believe that we would do very much better within it. We can operate that type of two-speed Europe for a certain time, but even that will not work without better decision-making processes. It is notable that among the institutions of the Community which do work — the European monetary system and the Airbus consortium are two examples—there are institutions which are able to take effective and swift decisions.

8.54 pm

Mr. Nigel Spearing (Newham, South)

The hon. Member for Clwyd, North-West (Sir A. Meyer), who is sincere in all his contributions, has called for realism. I shall attempt to be realistic and shall echo some of the points made by the right hon. Member for Strangford (Mr. Taylor) who made a distinguished and fundamental contribution.

The ambit of our debate is extremely wide. In fact, the motion contains four debates. There is a debate on the arrangements for finances for 1984, another on the draft budget for 1985 and its various appendices, yet another on the preliminary document on own resources — an important document arising out of Fontainebleau's success or otherwise — and a fourth on the disciplinary document. If that were not enough, we have in the italicised sentence of the Order Paper consideration of Cmnd. 9348, with its 122 paragraphs. In my capacity as Chairman of the Scrutiny Committee, I wonder whether the House has taken on too large a meal.

The main purpose of my speech is to draw the attention of the House to the reports of the Scrutiny Committee on some of the documents referred to in the motion. It would be wrong of me to try to deal with all of them—the debate is too wide for that—but I want to emphasise some of the current practical points that have been mentioned so far. We are now talking about financial control in the Community. The long-awaited crunch has happened. The Community has run out of money, and its various institutions and member states are asking, "What will happen next?" In the midst of this, as the right hon. Member for Strangford reminded us, the Assembly is attempting to increase its own power and, perhaps, credibility.

We must remember that the power of this House over its own Executive is through the control of money, but the mere fact that we are asked to debate instruments which relate to running out of money in 1984, and the fact that there is also Cmnd. 9395—named as the Undertaking, but we are not discussing it now—tells us that the hoop has been burst, provided that it is possible for the House to approve that document in view of proceedings elsewhere.

If the House approves that document, the increased expenditure for 1984 will be approved. It may be a relatively small amount—a matter of 1,000 million ecu —but that is the principle, as can be seen from the 34th report from the Select Committee on European Legislation. The Committee, of which the right hon. Member for Strangford and I are members, owes a great deal to the assistance we get from our clerks. Among the batch of documents on which we reported-they were largely financial — was a consultative document, No. 8514/84, and a letter signed by Mr. Andriessen. He more or less told member states, "The Community will run out of money in 1984. Please see what you can do about it". Paragraph 7 of the document refers to raising money for the current year. It states: Similarly, the Council cannot, if it is to respect in full all its obligations under the Treaty, advocate an upheaval of those policies which are financed by non-obligatory expenditure. The transfer of a major volume of non-obligatory credits to EAGGF Guarantee would mean a decimation of the Community's structural and sectoral policies. It then states that the Commission will not cut those to maintain the obligatory expenditure of the Community. That is a major statement of policy. We must be under no illusion that Cmnd. 9395 merely maintains the obligatory expenditure of the Community. It also maintains the non-obligatory expenditure, which is nevertheless above the 1 per cent. limit.

The right hon. Member for Strangford referred to the 1985 budget. The Scrutiny Committee summarised the proposals in House of Commons 78-xxxv. On page 10 we set out a schedule of the draft budget for 1985 and the preliminary draft budget for 1985. The original preliminary draft budget came to a total of 28,000 million ecu. The present budget is 2,000 million ecu less, which makes a total of 26,000 million ecu. The reason for the reduction was to keep within the 1 per cent. The Council makes it clear that expenditure will exceed that. It states: In deciding on a budget appropriation for the 1985 EAGGF of 18,000 million ecu, i.e. a reduction of 1,315 million ecu by comparison with the figure considered necessary by the Commission in the preliminary draft Budget, the Council for its part, while emphasising the need for rigorous market management, undertakes to meet by 1 October 1985 the additional budgetary requirements which will arise in 1985. The 1985 budget is not realistic in the eyes of the Commission. The Council, in keeping with its legal obligations, has cut it to inside the 1 per cent. limit. However, at the same time it is saying that by October 1985 it will need more propping up. The Government may return to the House to ask us to approve yet another undertaking to fill the kitty, which may be empty sooner next year than it was this year. That is assuming that the own resources mechanism is not in place by then. It may be. We hope that own resources will provide repayments for 1984 and 1985, if they go through.

I turn to a change in the financial regulations. We commented on this in our report, House of Commons 78-xxxiii. It states that the Commission proposes that greater flexibility be given to the Commission to transfer funds between lines in this section. In effect, that changes the appropriation. A reason why we have an appropriation Act is to maintain rigidly what the Government can spend between different votes. In the EEC it is not a budget but an estimate of expected expenditure. The financial regulation will give greater flexibility for transfer of appropriation between one heading and another. There is already a lot of that.

I turn to the question of monetary discipline. In our report, House of Commons 85-ii, the Scrutiny Committee draws the following conclusion: The Committee do not perceive any legal implications in the Conclusions as presented in this document but have already commented on the unusual nature of its status, and the fact that it does not have legislative form. They note that the text will arise for discussion between the Council and a delegation of the European Parliament scheduled for 21 November 1984 and will be presented for adoption thereafter.

I mention this because it is clear, not only from the report but from a letter which I received in the nick of time from the Economic Secretary, that before the disciplinary document was discussed and agreed by the Council of Ministers, a delegation from the European Parliament talked to the Council about it. That was before the House talked about it. I received a letter from the Economic Secretary today telling me that, as a result of the Dublin summit, the Council adopted the following conclusions: Firstly, to invite the Commission and the European Parliament to examine with it ways in which the co-operation necessary for a budgetary discipline common to all three institutions may be brought about. Secondly, to invite a delegation of the Parliament to meet it shortly before the meetings at which the Council is due to fix the reference framework for the year. There will now be regular consultation between the Council and members of the Strasbourg Assembly in respect of budgetary discipline. The points made by the right hon. Member for Strangford have been fulfilled completely, because the budgetary procedures will now include consultation with the Strasbourg assembly, but there will be no similar consultation with the House.

The present struggle — financial control over an executive not in Whitehall but in Brussels—is critical. I suggest that the same constitutional rules apply there as applied here hundreds of years ago and as still apply today.

9.6 pm

Mr. Bill Walker (Tayside, North)

In the few minutes available to me, I shall concentrate on a fairly narrow area, although I hope that Ministers will realise that I wished to say much more.

My hon. Friends will agree that when the Scottish National Farmers Union has met Ministers it has introduced sensible and realistic proposals. That body was the first to suggest to the Minister that quotas were the way to deal with the milk problem. The NFU accepted quotas, because it suggested them, but Scottish farmers are now unhappy because the super-levy is not working. They oppose the super-levy because they believe that, although they have honoured their side of the agreement, farmers in other parts of the Community have not.

The Scottish NFU believes that the way to deal with the over-production of cereals is to allow the price to dictate the market, but it qualifies that by saying, "We are prepared to promote the idea but we want the Government to be realistic. If the rest of the Community behaves as it has done with milk quotas, we want our backs to be protected."

I represent a constituency of 2,000 square miles which are largely agricultural. The vast majority of it is mountainous agricultural land, and some parts of my constituency include the most rugged agricultural land in Scotland. When I went to school, Scotland was split into three parts—the highlands, the central lowlands and the southern uplands—but some years ago we introduced a new animal called the Highlands and Islands Development Board. It would be hard to find a more misnamed organisation, because it does not represent all the highlands of Scotland. Indeed, a substantial part of the highlands of Scotland are completely outwith the board's responsibilities.

Unfortunately, the Europeans, hearing us describe an area of Scotland as the highlands and islands, naturally think that we are talking about all the highlands. There are communications problems, not only because of the language differences but because we cannot draw lines on the map to represent the mountain areas accurately, which causes problems. The constituency of the hon. Member for Inverness, Nairn and Lochaber (Mr. Johnston) adjoins mine. He will know that the northern stretch of the A9 that normally gets blocked in the winter months is in my constituency. However, that is not recognised and accepted as being as difficult for farming as the Inverness area. There is something wrong with this, and something should be done about it.

Areas such as Glen Lyon, Rannoch, Drumochter, which is next to Inverness, Glen Shee, Strathadle, Glen Prosen and Glen Clova are without doubt some of the most difficult farming areas in Scotland. Therefore, they should be treated as are the rest of the highland areas. [Laughter.] This is not a laughing matter. Labour Members would not laugh if they had to face the problems of farmers living in these difficult areas. They see their neighbours being treated differently because we have drawn a line on the map that does not represent the highlands of Scotland.

I make it clear that this is not a plea for more European spending. My farmers and I take the view that budgetary disciplines are essential if Europe is ever to work, but it must be seen to be fair and responsible, and at the moment it is neither.

9.11 pm

Mr. Ron Leighton (Newham, North-East)

Once again we are discussing the payment of more money to the Common Market, and for what? Primarily, it is for the dubious privilege of buying dearer food. It is difficult to understand why the serried ranks on the Conservative Benches want to vote for this. I am struck by the painful and glaring contrast between the Government's stringency at home and their largesse abroad in the EEC. Recently we had the statement by the Secretary of State for Education and Science. After some arm-twisting, he had to climb down. To pay for that, he took a couple of million from university furniture and a couple of million from science. On these matters we get meticulous, penny-pinching economies, but just mention the EEC or the CAP and the Government open up their coffers and money is spent with gay abandon. They spend money like a drunken sailor with eight arms.

Why is a dash of monetarism not applied to the EEC? Instead, rather like the good fairy in a pantomime, the Prime Minister rushes in to play Lady Bountiful with our money. Gone are the days when she spoke of achieving a broad balance of our payments into the budget and about getting our money back, or when she went to the Dublin summit and claimed that she was not prepared to settle for half a loaf. Gone are the days when the present Chancellor of the Exchequer, when he was Financial Secretary, came to the Scrutiny Committee and said that our position must be that of the French and we must be roughly in balance. Gone are the days of resolute statements and firm intentions. All hopes have disappeared. We have been let down and strung along. We have been kidded and conned, and Agriculture Ministers are still coming along with their tree-grown theory of money supply.

There are two questions that have never been answered. First, why are we paying net any money to the budget? We are one of the poorer members of the Community, so why are we not a beneficiary? The bulk of this money goes to incentives for farmers to produce more food that cannot be consumed, so the second question is: why should there be any more money for agriculture? People keep going on about reforming the CAP, but if it were reformed it would not need any more money.

We should let the countries which produce the surpluses pay for them. Not only are we denied cheap food from overseas and forced to pay the higher EEC prices, but we pay for the surpluses of other member states, which are caused by the higher prices. We are doing violence to our national interest. The policy is anti-British.

The higher prices are a type of danegeld paid by Governments on the continent to assuage their agricultural populations and lobbies. I am not against such bribes, but I do not see why we have to pay them. It would make more sense to make deficiency payments to our own farmers to keep prices low and give us cheap food.

The Foreign Secretary said that the Government had no intention of introducing legislation to increase own resources until the Finance Ministers had agreed on precise measures to guarantee the effective implementation of budget discipline. On the same day the right hon. Member for Worthing (Mr. Higgins) said that it was wrong to proceed on the basis of fudge and hope—fudge the issues and hope that the outcome will be all right."—[Official Report, 10 July 1984; Vol 63. c. 894–907.] Having read the documents, I am bound to say that the European political fudge-making industry has never been in better shape. We are in the ludicrous position of trying to persuade the EEC to spend less by offering it more money.

While farmers are encouraged to produce more, the budget will always push against the own resources ceiling. In the meantime, we continue to be Europe's major paymasters on a continuing and escalating basis. The truth is that the Prime Minister was out-manoeuvred at Fontainebleau. She conceded a 40 per cent. increase in tax contributions, without achieving the budgetary discipline and control of agricultural spending, in return for a refund mechanism the complexities of which serve only to conceal its imperfections. Had that mechanism been in operation from 1980 to 1983, our refunds would have been much less than they were.

Fotainebleau has provided no lasting solution to budgetary discipline and agricultural extravagance. When the EEC runs out of money again, as it will, we shall be asked to pay yet again even more. The threat is that VAT contributions will go up even further to 1.6 per cent. The prosperous farmers of West Germany were given a remission of 5 per cent. VAT, resulting in even higher prices and so even bigger surpluses. That is hardly a sign that the situation will improve.

Instead of resources determining expenditure, we have agreed to contribute £120 million to an inter-governmental whipround. Why is that? It is to bail out the CAP, to keep it going and to encourage its wasteful rake's progress. On the condition that we pay the extra £120 million, the EEC has agreed to pay us our 1983 rebate, which was agreed at Stuttgart.

The Government's "victory", or "diplomatic achievement", is that we can have some of our own money back if we pay in even more. The agreement on increasing our VAT contribution was to be conditional on the reform of the CAP. A requisite was the Council adopting measures guaranteeing budget discipline acceptable to Britain and the House.

The document is pathetic and hopelessly inadequate. It is not a regulation like the existing regulations that govern the budgetary procedure. Instead, it has the status of "Conclusions". What does that mean? I do not understand. It has no legislative force.

The sixth report for the 1983 Session of the Select Committee over which my hon. Friend the Member for Newham, South (Mr. Spearing) presides with such distinction states: The result of any such controls would clearly depend upon…the extent to which it was enshrined in legislative form. It has not been, and why not? The answer was given by the Prime Minister on 5 December. I do not know why the hon. Member for Fife, North-East (Mr. Henderson) is making funny faces. I hope he understands that the debate can continue until 11.30 pm. The Prime Minister said: The text on financial budgetary discipline is binding on the Council itself, but is not being embodied into a treaty or technically—legally—into the budgetary process.—[HON. MEMBERS: "Why not?"] Because one simply cannot get agreement from all 10 countries."—[Official Report, 5 December 1984; Vol. 69, column 354.] We could not reach agreement, which is why it is not enshrined in legislation. Are the member states likely to agree in future? I do not believe that they will do so. Therefore, we have absolutely no guarantee, yet despite that we are increasing our tax contribution to the EEC.

In article 1 of the so-called "Conclusions" it is stipulated that the EEC will act by a qualified majority. Again, that gives the veto to other countries to stop a satisfactory position. It is in no way binding-it is as watertight as a sieve. Articles 2, 3 and 4 refer to account being taken of "exceptional circumstances". What are they? From my experience of the Common Market, there are always exceptional circumstances.

Article 5 provides for a clawback of any excess expenditure over the following two years, barring "aberrant developments". What is the EEC except an aberration? It is an institutionalised aberration. We have absolutely no guarantee in any shape or form.

Once again, we have been led up the garden path—and not only on this count, but on every count, whether trade, jobs, food prices, taxation, investment in or out or fishing. Whatever the count, this country—like the Scandanavian countries—would be better off not being a member of the EEC.

9.23 pm

Dr. Oonagh McDonald (Thurrock)

The Minister made an heroic effort at the beginning of the debate to prove to the House—[Interruption.] It was an heroic effort. I shall give the reasons for its failure later. He tried to convince the House that firm budget discipline had been achieved. As we listened to the debate, it became clear that with one or two notable and unconvincing exceptions—those sitting on the Liberal Benches—the Minister manifestly failed to achieve his aim. Even the hon. Member for Wantage (Mr. Jackson), on whose support the Minister could generally rely, was critical of the current position in the EEC.

Perhaps it is not surprising that the Minister's efforts failed. After all, it was only a short time ago—last July—that the Government told us that they were determined to bring this year's budget into balance and that there would be no question of any supplementary budget. However, by September it appeared that their resolve had weakened. Perhaps the Minister of State can blame his hon. Friend the Economic Secretary for that and move the blame for failure slightly away from himself, for it was then that the Economic Secretary agreed to the supplementary budget that is the subject of the undertaking that is now being considered before the courts and that may be considered by us before the end of this month. However, the Economic Secretary takes an opimistic view of the supplementary budget—this extra payment of £120 million—since he described it as a reimbursable advance. Drawing upon his experience as a banker, he said that this is a payment made to the borrower in advance of the receipt of his own funds. Presumably he expects that next year the Commission will have sufficient funds to pay back to us what he is pleased to call an advance.

Perhaps another reason for the failure of the Minister of State to convince the House is that the Prime Minister cast doubt upon the firmness of the budgetary discipline which had been obtained at the Dublin summit. When my hon. Friend the Member for Newham, South (Mr. Spearing) questioned the Prime Minister on 5 December he said: The Prime Minister has said that the Council has bound itself in respect of budgetary discipline. If that were to be so, would that not need financial regulations?"—[Official Report, 5 December 1984; Vol. 69, c. 355.] The Prime Minister said that she would have preferred financial regulations, but that she regarded the conclusions as binding upon the council. Even if the Government had achieved the kind of regulations that were wanted, that would still not have dealt with the fundamental problem facing the EEC with regard to its budget. Even if regulations had been obtained setting a ceiling on agricultural spending, we would have been left with a self-contradictory set of regulations. Some of the regulations already in operation in the EEC allow open-ended price guarantees and commitments in terms of agricultural spending. All that the financial disciplinary regulations would have done would have been to try to hold that down. There would have been a contradiction. Indeed, the notion of imposing firm discipline upon farm spending is like trying to hold down the lid on a pot of boiling water. Sooner of later, the lid blows off, and out comes the boiling water.

The Minister of State failed to convince the House because it is recognised that the Government have failed to achieve the original objective that they set themselves—the radical reform of the common aricultural policy. That is why, quite rightly, hon. Members on both sides of the House have continued their sustained criticism of the common agricultural policy. The CAP is responsible for the budget overspending. Unless the CAP is reformed, we can talk about firm discipline until the cows come home—an appropriate metaphor, perhaps—but we shall not get control of the EEC budget.

What we have been offered in terms of the conclusions reached by the Council are, as one senior EEC official described it, not worth the paper they are written on. Its legal status is doubtful and it is full of holes.

Even if, as the Minister of State suggested, the Commission were to take one or other member country to the European Court and try to apply the strictures of the Council to it—let us grant to the Minister of State that supposition—what I fail to understand is how there could be any success in the European Court if what one is trying to apply is a set of guidelines with such gaping holes in their application. Obviously, even in that situation, there would be every opportunity for the country allegedly in breach of the conclusions of the Council to wriggle out of any charge that the Commission wanted to bring against it. It is no good saying that people can be taken to court. They have to be taken to court with a watertight case. Without that it would be pointless.

Many points have already been well made during the debate. The references to "exceptional circumstances" and "unusual circumstances" in the various articles show that the rules cannot possibly apply. As my hon. Friend the Member for Newham, North-East (Mr. Leighton) rightly asked, when do we find a situation in the EEC which does not have exceptional circumstances for the farming community? When can farmers not plead in their cause a gamut of conditions that they can pull into play, ranging from what is happening to the dollar to what is happening to world food markets whether in grain, sugar or whatever? Any of those situations can be used to justify whatever claim they wish to make.

We are left with a document whose legal status is unclear and whose guidelines cannot be binding because of the loopholes that they contain. We are also left with a series of conclusions that have as their major weakness that they set too high a ceiling on any future agricultural spending. That is because of the way in which the rules have been drawn.

Any of the major rules of the system can be breached or altered by a qualified majority vote in the Council. The way in which future calculations for agricultural spending are to be carried out will allow agricultural spending to rise both as a proportion of future budgets in 1985 and in the years thereafter and in volume terms. That is why the conclusions that have been adopted at Dublin cannot possibly prevent overspending in future. That is why the Minister of State completely failed to convince the House that we shall have firm control on agricultural spending.

Let us take one or two examples from what is happening now and see what confidence that will give us for the future. Look, for example, at what is happening with regard to milk production. The quota system that was introduced this year aimed at cutting EEC milk production by 7 per cent. Last Saturday the Financial Times pointed out that seven months after its introduction not one penny of the super levies have been paid and three delays to payments have already been agreed by the Commission. In October and on 1 December the Financial Times reported that the Commission had to take four EEC states to court over the milk super levy, and apparently those cases are still under consideration.

On 1 December the Financial Times commented: So complex are the rules that most member states are nowhere near completing the administrative arrangements to carry them out. Where they are reasonably well advanced, a number have tried strategems which the European Commission suspects are designed to soften the blow of quotas or enable their farmers to sell more milk. West Germany is quoted as an example. It seems that it is defying the super levy regulations by exempting thousands of small farmers from more than half the reduction that is required. Although a reduced rate of cuts for small producers may be compensated for by the greater cuts that are made by large dairy farmers, the German move is believed by Commission experts to ignore both the letter and the spirit of the regulations and it has not been officially sanctioned.

We usually complain about the attitude of France towards Community regulations and Germany usually claims the virtue of wanting stringent spending controls. In this instance it appears that even West Germany, one of the more virtuous members of the Community, is bending and twisting the milk quota rules to ensure that many of its dairy farmers are exempt from Community strictures.

It is claimed that the milk quota rules show that the Community is moving towards stricter budget discipine and is prepared to accept quotas. It is said that the Community is prepared to restrict production and thus to reduce spending on agriculture. After the best part of a year following the introduction of the regulations, we find that member states are not observing them. They are busy adapting, avoiding and evading the regulations. Italy is a notorious example. One of the documents before us tells us that there are 61 cases against Italy in the European Court. Italy is flouting the rules.

If we are asked to believe that the Council's conclusions will take us forward into the future, that the EEC will present us with a balanced budget year-on-year and fulfil the Community ideal in that way and that farm spending cuts will take place, we must realise that there is little evidence for that in what has been going on so far.

The Government are trying to con us into believing that farm spending is under control and that they have obtained everything for which they have asked. Ministers return regularly from Brussels, Strasbourg, Stuttgart, Fontainebleau, or wherever the latest summit happens to be, and say, "We have won again. We have obtained everything for which we asked. Everything in the garden will be lovely." It is the greatest con job in history. They do nothing of the sort.

Mr. Hugh Dykes (Harrow, East)

rose—

Mr. Budgen

rose—

Dr. McDonald

I give way to the hon. Member for Wolverhampton, South-West (Mr. Budgen).

Mr. Budgen

Is the hon. Lady not being grossly unfair to the Government? It may have been a con job for the first time they tried it, but it cons no one now.

Mr. Dykes

rose—

Dr. McDonald

I shall not give way to the hon. Gentleman, because he was absent for most of the debate. As I understand it, he is not in the Chamber to reply on behalf of the Government. If he is, he is sitting in the wrong place.

I take the point of the hon. Member for Wolverhampton, South-West. He is not deceived. Having read with interest the way in which he cuts through Ministers' condescending verbiage in Select Committee, I know that he is not conned by them. However, many members of the public believe the Prime Minister when she returns from a summit and tells us that she obtained everything for which she asked. It is our job in Parliament to make it clear that she has obtained very little of that for which she asked. In this instance she has returned with a 1985 budget—

Mr. Dykes

What did the previous Labour Government obtain?

Dr. McDonald

I shall educate the hon. Gentleman with a little history. One of the things that Conservative Members must understand—[Interruption.] The hon. Gentleman must not get over-excited. I heard his piece from a sedentary position.

The transitional arrangements did not end until 1978, so the problems with which we are now faced did not arise. They have arisen since 1979 and worsened. We are now left with the 1985 budget. The proportion of that draft budget spent on agriculture will increase to 72 per cent., and in the real budget the proportion will increase to 73 per cent. As a type of palliative, the regional and social funds have been marginally increased, although, once inflation is taken into account, they probably have only stood still.

My hon. Friend the Member for Livingston (Mr. Cook) described in detail the cuts in aid which appal people in this country and other member countries—cuts in transport, science, technology, industry and other social measures. Those services are the immediate victims. Yet more and more money will be paid out next year to farmers. The laughable aspect of the whole business is that the budget will cope not with 12 months but with 10 months of a year and will immediately bring us into conflict with the European Parliament as it rejects a draft budget that is too stupid for words.

The Government, having come back for more money this year, once the court case is cleared up in the way they hope, will return next year with their begging bowl asking for yet more money from the suffering British taxpayer. In the following year, they will run into a further crisis, because the 1986 budget will also fail to meet the demands made on us. The Government will start talking about an increase in own resources from 1.4 per cent. No doubt by then the Government will have run out of goods. which have already been zero-rated, on which to oppose the imposition of VAT.

Ministers talk about firm controls on spending. Nothing they have said proves the point they wish to make. Next year's budget shows that nothing like that aim will be achieved. This year's budget shows that the whole of the Minister's work in Brussels has been a total failure. The British taxpayer pays the price, and it is up to him to realise whose fault that is.

9.42 pm

The Economic Secretary to the Treasury (Mr. Ian Stewart)

As the hon. Member for Newham, South (Mr. Spearing) said, this has been a wide-ranging debate covering a large number of documents and a great many more Community topics. I do not have the time to enter into some of the wider considerations discussed by my hon. Friend the Minister of State. I shall have to leave it to the hon. Member for Inverness, Nairn and Lochaber (Mr. Johnston) to debate with my hon. Friend the Member for Clwyd, North-West (Sir A. Meyer) whether changes in the treaty are needed. I believe that a great deal could be done within the existing treaty, and that is where the priority lies.

I note the comments of the hon. Member for Greenock and Port Glasgow (Dr. Godman) about fisheries. I shall report what he said to my right hon. Friend the Minister of Agriculture, Fisheries and Food.

The right hon. Member for Strangford (Mr. Taylor) asked about the subdivision within the United Kingdom which results in Northern Ireland having a problem with the super levy. I understand that that has happened, because national quotas are divided into separate sections according to what is technically the organisation of dairies —in this case, the milk marketing boards—and, because there is a separate milk marketing board for Northern Ireland, that board is a separate entity.

General points have been mentioned in the debate. The hon. Members for Livingston (Mr. Cook) and for Thurrock (Dr. McDonald) have displayed a fundamental misunderstanding. They spoke as if the budgetary problems in 1984 and 1985 were somehow a condemnation of budget discipline. The point is that the difficulties of constraining expenditure this year and next have occurred because we did not have effective budget discipline. Had we had budget discipline, I have no doubt that many of the difficulties that we face would have been avoided.

The hon. Member for Newham, South asked whether supplementary financing would be reimbursable and what the provisions were in the 1985 budget. The 1985 budget was drafted and brought forward before the agreement on the supplementary finance was reached, and the proposals are that the advances should be reimbursable, starting in 1986. They do not appear in the documents before us today.

On the question of the overrun this year, the hon. Member for Thurrock sought to chide me for being reluctant to concede in July of this year that we should make a substantial payment for supplementary finance. I wonder what type of negotiations she thinks Ministers conduct if they do not try all along the line to ensure that they obtain the best deal. In this case, the amount of overspending was reduced to the irreducible minimum and the amount of supplementary finance required was also as low as possible. I should have thought that that was self-evidently in our national interest. Getting the figure down from well over 2 billion ecu in the original proposals to 1.35 billion ecu in the July Budget Council without conceding that we would agree to any supplementary finance was an achievement which the hon. Lady should be glad British Ministers could deliver.

Dr. McDonald

rose—

Mr. Stewart

When we managed to agree a figure on 1,003 million ecu in September, that was less than half the original amount proposed. I should have thought that the hon. Lady would welcome the efforts that had been made on behalf of the United Kingdom.

Dr. McDonald

The Minister has misunderstood much of what has been said. On 10 July the Foreign Secretary said that we shall be pressing in the Budget Council next week for savings that will bring into balance the 1984 budget".—[Official Report, 10 July 1984; Vol. 63, c. 897.] That is fine as an intention. No one quarrels with that, but we are saying that the Government did not succeed.

Mr. Stewart

The Government succeeded in reducing the figures substantially. We forced the Commission to make savings in its market management, and we forced the Commission and Council to agree to offsetting amounts against agricultural expenditure so that we were left with a much smaller figure to finance. The fact that there was a residual figure shows that budget discipline has not applied until now. I and most hon. Members must wish that budget discipline had been in place at least two or three years ago. It would have prevented many of the problems that we have had to face in the past two years. They are still with us, because the Fontainebleau agreement was not put in place until the middle of this year, and the post-Fontainebleau package—of which budget discipline is a part—is only now being put in place.

The right hon. Member for Strangford said that it would be undesirable if the European Parliament were to reject the 1985 budget, because that would be flat against the interests of all member states, and the agricultural sector in particular. I entirely agree with what he said in a thoughtful and impressive contribution. I hope that before members of the European Parliament seek to reject the 1985 draft budget they will realise that the consequences for the people whom they represent and who elected them to serve there would be entirely adverse and would not assist the reputation of the European Parliament or its claim for a greater part in the affairs of the Community.

Mr. Marlow

In his brilliant introductory speech my hon. Friend the Minister of State unfortunately did not have time to touch on the proposal to increase the Community's own resources. I hope that my hon. Friend the Economic Secretary will deal with that. The increase in own resources means that the Community will be spending more taxpayers' money. Will my hon. Friend tell us where that will substitute for current United Kingdom policy so that we know what the Community will be taking over from us? If there are to be new Community policies, will he tell us what they are? If not, which of the current policies are to cost more in the future? The sum must add up somewhere, and I know that my hon. Friend the Economic Secretary is very good at arithmetic.

Mr. Stewart

If I had not given way to my hon. Friend the Member for Northampton, North (Mr. Marlow), I should have had more time to deal with the points that he has raised and which have been covered many times in the debate. I shall be coming to the question of own resources.

Mr. Marlow

On a point of order, Mr. Speaker. Am I correct in supposing that this debate can go on until 11.30 pm?

Mr. Speaker

That is certainly true.

Mr. Stewart

I think that I should also take the wishes of the House into account in measuring the length of my speech.

The hon. Member for Livingston asked how the United Kingdom would get its 1,000 million ecu refund next year. We intend that the own resources decision should be brought into play before the end of 1985 and that we should receive the 1,000 million ecu by way of abatement. We have also arranged, and the Council has agreed, a general undertaking attached to the 1985 budget guaranteeing that the United Kingdom refund will be paid without specifying the means whereby that is to happen. The actual decisions are for the future, but the Council has recognised the unreserved right of the United Kingdom to the 1,000 million ecu compensation in respect of 1984, to be paid next year in that way.

The European Parliament wished to place our compensation on the expenditure side, but we were able to resist that. It also wanted to go above the 1 per cent. ceiling for the 1985 budget, and we were able to resist that, too. Nevertheless, we must face the fact that this year and next year there are temporary pressures on the budget because of the lack of a budgetary discipline system in the past.

Mr. Robin Cook

The Economic Secretary has just made a very important statement and I should like to press him a little further on it. The Fontainebleau agreement provided that the refund in 1985 in respect of 1984 would be payable by means of an abatement. If I understand the hon. Gentleman correctly, he does not envisage the refund coming into operation until the decision on the increase in own resources is taken. He will be aware that the date of that increase is a matter of contention in the Community and that the Germans are still holding out for 1 January 1986 so as to coincide with enlargement. Is the Economic Secretary saying that the agreement on our refund does not come into play if the date for the increase in own resources is not in 1985? More important, is he saying that the Treasury will not deduct the abatement from our payment to the EEC until the decision on own resources is reached? As I understand the Fontainebleau agreement, there is no reason why the abatement should not start running from January 1985.

Mr. Stewart

As I have said, it is our assumption and intention that the own resources decision should be implemented within the calendar year 1985 and that our abatement would come into play at that time. As it is possible that the own resources decision will not be implemented in 1985, however, the Council has agreed that the United Kingdom will be due to receive its compensation next year in any event.

I must move on to the question of budgetary discipline. My hon. Friend the Member for Southend, East (Mr. Taylor), who tabled the amendment, spoke of the budgetary discipline text as a worthless piece of paper. I take the strongest possible issue with my hon. Friend over that view. We undertook to arrange that measures necessary to guarantee the effective application of budgetary discipline would be put in place. The component parts of those measures are an overall reference framework covering all expenditure, separate provisions for an agricultural guideline and a maximum rate of expenditure covering non-obligatory expenditure.

My hon. Friend raised the question whether there was any limit on the reference framework which the Council could fix. The Council, being bound by the conclusions, will not fix a reference framework higher than that of the agricultural guideline and the maximum rate. It is limited in that way.

Mr. Teddy Taylor

I suggested that article 1 imposes no limit and that the Ministers can sit down and, by a majority vote, fix any ceiling that they wish. My hon. Friend now says that there is a restriction at the 1.4 per cent. figure. If the 1.4 per cent. limit is there anyway, what does article 1 provide which would not have been provided if that article did not exist?

Mr. Stewart

Article 1 refers to the reference framework itself and also to the agricultural guideline, but the reference framework is the total amount within which the budget must be set. The component parts of the budget are the agricultural expenditure and the non-obligatory expenditure within the maximum rate. As the budgetary discipline text provides for both those elements, that constitutes the reference framework.

Mr. Forth

Does not article 6 provide for the reference framework itself to be changed, and does that not render it meaningless?

Mr. Stewart

Article 6 provides that the Council of Economic and Finance Ministers may alter the reference framework, but that would be a matter of changing one of the elements within it. As the Council has bound itself in relation to the maximum rate, it would be able to alter the agriculture guidelines under the circumstances described in some of the clauses of the budgetary discipline text.

It has been said that because there is flexibility in the text it is useless, meaningless or full of holes. That is not the case.

Mr. Teddy Taylor

Why?

Mr. Stewart

I shall explain why, if I am given a chance to do so.

The purpose of the budgetary discipline is to move away from a system where price and the price-fixing of agriculture settlements in the early part of the year determined the cost of the programme to a system in which an acceptable cost works back to the establishment of the prices. No one can say, with something as erratic as agricultural expenditure, that one can always predict in March the exact outcome later in the year. That is why neither this country nor other member states could have accepted an absolutely rigid system. That would not have been realistic.

Comments have been made about the legal nature of the budgetary discipline text. The consequences are binding on the Council. That is the important factor. They are incorporated in the budgetary procedures of the Community.

On the question of own resources, it has been suggested that we would have a 40 per cent. increase in expenditure. There will be no step change, because the base is fixed on 1984–85, and therefore increases will be related to that. The increase will be much lower—probably less than 20 per cent.—because Britain will pay less than 1 per cent. in own resources for the next few years even if the VAT ceiling is increased to 1.4 per cent.

We now have a satisfactory arrangement on budgetary discipline and I commend the motion to the House.

Mr. Teddy Taylor

I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Main Question put and agreed to.

Resolved, That this House takes note of European Community Documents Nos 8322/84, Preliminary draft supplementary and amending budget No. 1 for 1984; 8879/84, Letter of amendment to preliminary draft supplementary and amending budget No. 1 for 1984; the unnumbered document, Draft supplementary and amending budget No. 1 for 1984; Document No. 10222/84, European Parliament's proposed amendments and modifications to the draft supplementary and amending budget No. 1 of the European Communities for 1984; the unnumbered document, Draft general budget of the European Communities for the financial year 1985; Documents Nos 9482/84, Letter of amendment to preliminary draft budget of the European Communities for 1985; 10690/84, European Parliament's amendments and modifications to the Draft budget of the European Communities for 1985; 8454/84, Amended proposal for a Council decision on the Communities' system of Own Resources; 8445/84, Commission proposal for a Council regulation introducing reserve measures to cover requirements in 1985; 8514/84, Commission's communication on the budgetary requirements of the Community in 1984 and 1985; 5899/84, Amended proposal for a Council regulation amending the Financial Regulation of 21st December 1977 applicable to the general budget of the European Communities; and the unnumbered document, Budgetary discipline; common position of the Council of Ministers; and welcomes the agreement on budgetary discipline providing for the firm control of agricultural and other expenditure.