European Communities (Budget)

HC Deb 20 February 1984 vol 54 cc573-660

Mr. Speaker

I have selected the amendment in the name of the Leader of the Opposition.

3.54 pm

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

I beg to move, That this House takes note of the Preliminary Draft General Budget of the European Communities for 1984, of the Draft General Budget for 1984, of the Letter of Amendment to the 1984 Budget, of European Community Documents Nos. 10447/83, 10105/83, the Modifications and Amendments by the European Parliament to the 1984 Budget, of the Decisions by the Council on modifications and amendments by the European Parliament to the 1984 Budget, of European Community Document No. 11094/83, financial compensation for the United Kingdom and Germany for 1983, and of Official Journal C 357, the Annual Report of the Court of Auditors for 1982; and supports the Government's efforts to secure budgetary procedures and control which are in the best interests of the United Kingdom and of the Community. These days the European Community figures large in the proceedings of the House. We all recognise that the Community has reached a crossroads and must take important decisions about its future. Decisions on financial reform, on the CAP, on enlargement by the accession of Spain and Portugal, would have far-reaching effects. Unfortunately, although these are decisions about the future, they have to be taken alongside the now customary annual dispute about refunds due to Britain in respect of an earlier period. Today's debate covers a series of documents related to the Community budget recommended by the Scrutiny Community for consideration by the House, and provides a further opportunity for us to discuss many aspects of the Community and our membership of it.

In each of the past two months, we have had major debates on European matters. We discussed various proposals relating to the Community's future financing arrangements and the CAP on 1 December, just before the Athens summit, and again on 26 January, in the context of the White Paper covering developments in the Community during the first six months of 1983.

The documents under review today cover the past and the present, as well as the future. The Court of Auditors report considers the implementation of the 1982 budget. The documents on the refunds regulation relate to the mitigation of our net contribution to the 1983 budget. The 1984 budget documents, covering the whole of the budget timetable between June 1983 and the eventual adoption of the 1984 budget by the President of the European Parliament on 20 December, set out the arrangements for the year ahead.

Taking the documents in chronological order, I welcome—as I hope, will the House—the inclusion of the annual report of the Court of Auditors on the 1982 budget in the motion today. In the past two years, we have considered these reports separately in short debates, but I hope that by incorporating this year's report in today's debate hon. Members will have a further opportunity to comment on this important document, if they wish. Last year, my right hon. Friend the then Financial Secretary sent copies of the debate on the court's report to Mr. Christopher Tugendhat, the Budget Commissioner, as well as to the chairman of the European Parliament's Budgetary Control Committee. I shall be happy to do the same this year.

Perhaps I should first remind the House about the procedures governing the Court of Auditors reports. In June each year, the court audits the Commission's accounts for the previous financial year. It then presents its comments to the Community institutions by 15 July. The institutions must reply by the end of October, so that the court can formally send its report to the Council and the Parliament by 30 November. The Council's Budget Committee then considers the report in detail. This is the stage that we have now reached on the 1982 report.

Our objective when examining the Court of Auditor's report is to ensure that the management of the Community's finances is no less efficient than we would expect in the United Kingdom and other individual member states. The court does a valuable job in scrutinising financial procedures and exposing waste or irregularity within the Community budget and administration. We do not believe that the court's activities should be limited to this, however, since it also has an important role to play in assessing value for money from Community expenditure more generally.

In this context, I draw the House's attention to the court's report on financial management within the Community, which was considered by the European Council at Stuttgart last summer. The court's report, which was issued last October, contained strong criticism of the CAP and the own-resources system, much of which we would endorse. On the own-resources system, for example, the court argued that it had not led to sufficient assessment of the effectiveness of the Community's expenditure policies, because the Community's automatic revenue was not so directly seen as a charge on taxpayers as in the case of national taxes. Partly for this reason, the Community budget has continued to be largely expenditure-determined. We aim to change that so that revenue available governs expenditure, and not vice versa.

Mr. Teddy Taylor (Southend, East)

How?

Mr. Stewart

If my hon. Friend the Member for Southend, East (Mr. Taylor) will be patient, I shall come later in my speech to the proposals that we have put to our European colleagues.

Mr. Tony Marlow (Northampton, North)

There was a rather distasteful caterwauling at the back of the Chamber just then, and I say to my hon. Friend the Minister that I was not participating in it. However, I have an important question for him. He is talking about the control of Community expenditure. As he knows, there was a debate last week in the European Assembly concerned with the national veto. There is, in June, an election to that European Assembly. Will my hon. Friend say what the Government's policy is with regard to that veto, because if that veto is abolished, the powers of this House will be removed, bit by bit, piecemeal, and taken across the Channel to Europe? As this is a very important democratic process, and as constituencies are about to select and adopt their candidates for the European election, will my hon. Friend be very careful to tell the House so that the whole country will know what is the Conservative party's policy on the veto in the European Assembly?

Mr. Stewart

I hope that the House and the country already know that the Government's view is that no such change should be made. We shall oppose any proposals to do so. Indeed, they could not be introduced without the approval of individual member states.

Mr. Nicholas Budgen (Wolverhampton, South-West)

I understand that 22 members of— I believe it is not called the Conservative party but the Democratic party —voted for the abolition of the veto. Although a lot of money is spent by the European institutions on publicising their activities, I have so far, sadly, found it impossible to discover the names of those 22 members. I am sure that my hon. Friend has excellent relations with the European institutions and I wonder whether, through them, he could suggest that the names of those individuals should be published so that those who wish to uphold the European ideal at its highest level may know whom to congratulate.

Mr. Stewart

I shall have to leave my hon. Friend to do his own research. The Government and, I hope, Conservative Members would be strongly against the suggestion of my hon. Friend the Member for Northampton, North (Mr. Marlow).

On the court's report on the 1982 Budget, we agree with many, though not all, of its criticisms and recommendations and will be pressing the Commission to implement them. But we could not agree with its criticisms of the Commission's action in implementing the agreement on 1982 refunds. In establishing a special account into which the refunds were paid the Commission was simply acting in proper accordance with the conclusions of a Council decision.

Meanwhile in 1983 Community expenditure continued its relentless increase. Agricultural guarantee expenditure rose by more than 25 per cent. to over £9 billion or nearly 16 billion ecu. Britain therefore again faced the prospect of a heavy net contribution. It was against this background that my right hon. Friend the Prime Minister sought and obtained agreement at the European Council in Stuttgart last June to a refund for 1983. The net figure agreed for the United Kingdom for 1983 was 750 million ecu or about £430 million. The refund documents in the motion are the regulations to allow these refunds to be paid.

In the Commission's preliminary draft budget there had been no provision for the British and German refunds in respect of our 1983 contributions. These, therefore, had to be entered in the budget by the Budget Council last July. The Council decided that the refunds should be spent on energy, employment and transport measures in the United Kingdom. The Council agreed that the refunds should be entered "on the Budget line", which had the effect of allowing them to be paid as soon as the regulations were approved; and also that they should be classified as obligatory expenditure, so that the Council and not the Parliament should have the last say. The House will know that in adopting the budget the European Parliament has moved our refunds to the reserve chapter 100 of the budget and has re-classified them as "non-obligatory", thereby giving the Parliament the final say on their repayment. At the Budget Council in December I was supported by other delegates in an attempt to restore our position. But agreement with the Parliament could not be reached and the budget was then adopted with our refunds in the reserve chapter and classed as non-obligatory. The Council has recorded its objection to this outcome. But it means that for the bulk of our refunds to be paid before the end of March—and that is our firm aim—not only must the Council approve the regulations and the Commission propose a transfer of the refunds out of the reserve chapter, but this transfer proposal must also be approved both by the Council and the Parliament.

Mr. Roland Boyes (Houghton and Washington)

Will the Economic Secretary comment on last week's press reports that the Government might ask the European Parliament to hold a special sitting to obtain approval for the measures to go through in time? Is it not ludicrous that the Government should have to beg the European Parliament to hold a special sitting?

Mr. Stewart

As I hope to say later in my speech, the current arrangements between the Community's institutions for dealing with the Budget process are unsatisfactory. However, my right hon. and learned Friend the Foreign Secretary is today at a meeting of the Foreign Affairs Council where that process will be discussed. No doubt the hon. Gentleman's question will be considered in that forum.

I shall say a word about the regulations themselves. The employment measures regulation, under which we would receive about £158 million, or nearly £280 million ecu, will enable us to help the unemployed. The principal programme to benefit is likely to be the job release scheme which—as hon. Members know—creates opportunities for unemployed people by encouraging employees nearing retirement age to give up work earlier than they would otherwise have done.

Under the transport regulations we are due to receive some £265 million and we are submitting projects to ease traffic bottlenecks and to improve routes that are important for the movement of people and goods within the Community. Projects that we are putting forward range from the A9 in Scotland to the M25 motorway and the outer London ring-road.

Mr. Marlow

Surely the job release scheme and what happens to roads within the United Kingdom, particularly round London and in Scotland, are matters that are wholly within the interest and competence of the United Kingdom Government. Is it not nonsense to receive handouts from Brussels on such issues? Should we not retain the money in advance and not pass it to Brussels to be laundered and returned, havind had a severe fraction taken off on the way?

Mr. Stewart

Decisions on road building are for the Government to make, and will remain so. However, I hope that my hon. Friend will welcome, as much as I do, any Community funds that are available to assist with the financing of such roads and to solve the problem of our refunds.

Under the energy regulations, we are putting forward a number of large-scale power station construction projects by the CEGB and various smaller projects throughout the United Kingdom which are of considerable practical and technological interests both here and in the Community, such as the cross-Channel power link. We should receive about £150 million under this regulation.

These regulations, which enable public expenditure programmes in the United Kingdom to be sustained at levels higher than we could otherwise afford, have now been sent to the European Parliament and the Court of Auditors for a formal "opinion". The Parliament considered the regulations last week but declined to issue an opinion after some of its proposed amendments for the regulations had been found unacceptable by the Commission. There is no doubt that these amendments would make it more difficult for the United Kingdom to receive the bulk of our funds by the end of March.

For instance, the Parliament has proposed that the refunds should finance only projects initiated after 1 January 1983. This can be regarded only as a wrecking amendment—[Laughter.] I do not know why that is a matter of so much amusement to the House. I should have thought it important that we try to safeguard our interests in this area. There are simply not enough major new infrastructure projects to allow us to receive our refunds in full. Moreover, even those projects started since January 1983 have relatively small expenditure implications in the early years. Furthermore, the Parliament, with the shameful support of British Labour members, is seeking to reduce the rate of grant on eligible projects from 70 per cent. to 50 per cent. Seventy per cent. has been used in all the special measure regulations for refunds since 1980 and there is no reason why it should be reduced now.

Acceptance of the 50 per cent. rate would make it very difficult to secure our full refunds. Instead of tabling an amendment urging the Government to withhold contributions to the Community budget today, the Opposition would do better to prevent their representatives in Europe from voting to make it harder to obtain our refunds in time. We have repeatedly made it clear that we expect to receive the bulk of our refunds by the end of March. If we do not do so, we shall have to take whatever steps are necessary to safeguard our position, but I have no doubt that to withhold payments today, as the Opposition amendment proposes, would be premature and counter-productive.

Mr. Budgen

Does the principle of additionality apply to such projects, or is the money to replace money which would have come from our domestic resources in any event?

Mr. Stewart

I thought that I had made it clear earlier that the refunds which we have obtained, amounting to about £2½ billion over the last four years, have enabled public expenditure in the United Kingdom to be maintained at levels which could not otherwise have been reached. In that sense my hon. Friend's question has already been answered.

The obstacles that we currently face in obtaining our 1983 refunds from various expenditure programmes and the similar problems that we have had in the past confirm the Government's view that the solution to the problem of budget imbalances must be implemented, not by expenditure, but on the revenue side of the budget. It is simply not realistic to expect that new expenditure can be implemented on a scale which would sufficiently reduce our net budget contributions.

Mr. Teddy Taylor

rose—

Mr. Stewart

I have already answered my hon. Friend the Member for Southend, East and there have been many other interventions.

We were told throughout the 1970s that this was how the problem of the British net contribution would be solved, but the opposite has happened. Indeed, to achieve the same effect as our refunds in the last four years, the regional fund for example would have had to be increased by about 30-fold. Clearly, this is not practicable and we must therefore have an automatic arrangement—like the safety net which we have proposed—designed to correct inequitable burdens on any net contributor. The solution must also be a long-term one that lasts as long as the problem. I hope that no one in Europe is under any illusions about that.

Mr. Teddy Taylor

I am sure that all hon. Members on both sides of the House will be delighted that the Government—my right hon. Friend the Chancellor of the Exchequer, my right hon. and learned Friend the Foreign Secretary and my right hon. Friend the Prime Minister—should say that terrible things will happen if the continentals, or the Common Market, default on 31 March. We have heard that strong action will be taken, although we do not know what it is.

What will be done about the default of £42 million which happened on 31 December in relation to the 1982 rebate? The Minister kindly told me that my right hon. and learned Friend the Secretary of State for Foreign and Commonwealth Affairs sent a letter to the Commission on 3 January. When I asked about it last week I was told that no reply had yet been received. How can the continentals accept that the Government are firm, because when they defaulted by £42 million all that we did was to send them a letter to which we have not yet had a reply?

Mr. Stewart

My right hon. and learned Friend the Foreign Secretary wrote to the Commission. I understand that he received a reply over the weekend, although I have not yet seen it. I have no doubt that the reply will be considered and that we shall take whatever steps are necessary over the 1982 risk-sharing refund. The document before the House today—

Mr. Teddy Taylor

rose—

Mr. Stewart

If my hon. Friend does not want to hear the answer to his question I do not propose to comment further on what he said.

Dr. Oonagh McDonald (Thurrock)

The hon. Member for Southend, East (Mr. Taylor) has rightly questioned the Minister about the letter. It is astonishing that the Minister has not seen a copy of the reply. Since the debate will continue until 10 o'clock, will the Minister send a message so that the letter is brought here and read out since it is an important part of the debate?

Mr. Stewart

I am sure that my hon. Friend the Minister of State has heard that request. I understand that the letter is addressed to my right hon. and learned Friend who is in Brussels— [Interruption.] That might be a matter for mirth to Opposition Members, but fortunately the Government treat such communications seriously and do not deliver judgments before they have had time to consider them.

Mr. Marlow

On a point of order, Mr. Speaker. As the letter is obviously of importance to the debate. is it possible to ensure that somehow a copy of it is put on the Table of the House so that hon. Members who wish to participate in the debate may be made aware of its contents?

Mr. Teddy Taylor

Further to that point of order, Mr. Speaker. We are talking about a vital document containing the Community's response to a default issue. Would it not be sensible to adjourn the debate and to meet again tomorrow when we may know the response now received to a letter that my right hon. and learned Friend the Foreign Secretary sent on 3 January? Could we adjourn the debate and meet again tomorrow?

Mr. Speaker

That would be possible, but I do not think that I can accept such a motion. Laying the letter on the Table of the House is a matter for the Government. The letter has not been quoted in the House and therefore has no official status.

Mr. Stewart

Further to that point of order, Mr. Speaker. The 1982 risk-sharing refunds are not among the matters being considered in today's motion.

Mr. Robin Cook (Livingston)

Even if that issue is not formally before the House, matters involving significant sums are the subject of debates on such occasions. The Economic Secretary cannot expect the House to accept that, because the only copy is in the Foreign Secretary's vanity case in Brussels, it is not possible to produce the letter. There are such things as photocopies and telex. We are not still living in the days of the pigeon post. May we have an undertaking that by the end of the debate the letter will be produced, because it may have a bearing on the way in which some Government Back Benchers vote in the Division?

Mr. Stewart

If my hon. Friends were influenced by it they would be misguided because it is not included in today's motion. There is a difference between the 1982 risk-sharing refunds and the 1983 refunds, in that the risk-sharing refunds are -the subject of disagreement between the Government and the Commission and the Council, whereas the 1983 refunds which we are discussing today are supported by the Commission and the Council who agree that we should receive them.

We believe that a system such as the safety net would provide a lasting solution to the budget imbalances problem in a simple and fair manner, and that it does not conflict with either the principles or the objectives of the Community. Indeed, to the extent that it would encourage economic convergence it would significantly further one of its main objectives. There is a further point about the current system. At the moment, it works in such a way as to encourage member states to look at every policy primarily in terms of what they get out of it against what they have to pay towards it. But with a proper arrangement to ensure that individual members are not placed in an unacceptable position overall, coupled with effective control of agricultural and other expenditure, this problem should diminish. National Governments could more readily assess items of Community expenditure on their intrinsic merits. Our proposals are therefore in the interest not only of the United Kingdom but of the Community as a whole.

Although our 1983 refunds have dominated much of the discussion of the 1984 budget, they are in total a relatively small part of the budget as a whole. Of the documents under review today the first in the budgetary process is the Commission's preliminary draft budget which was sent to the Council in June last year. In this the Commission proposed a Budget totalling nearly £15 billion. This would have used up almost all the Community's resources under the 1 per cent. VAT ceiling.

The Council of Ministers was concerned about going so close to the ceiling without leaving any margin for error. In July it therefore established a draft budget for 1984 which reduced the Commission's spending plans by about £400 million. The Council sent its draft budget to the Parliament last autumn, and the Parliament, which has the final say on non-obligatory expenditure, then reinstated most of the reduction.

The main reason why the Community budget has now reached the 1 per cent. ceiling is that expenditure, particularly on agriculture, has consistently risen faster than the revenues of the Community. The own resources of the Community grow more or less in line with the economies of member states through the link with VAT expenditure and levies and duties on imports. But the Community expenditure has far outstripped this. Agricultural expenditure in 1983 took nearly two thirds of the whole Budget, and there is no doubt that had it not been for the 1 per cent. VAT ceiling, the 1984 guarantee provision would have been even higher.

As it is, this year's farm price-fixing exercise is, for the first time, being conducted against the painful reality that the money is running out. The CAP problem is not, however, just a financial one. It makes no sense to leave unreformed a policy that results in increasing surpluses for which there is no market at economic prices.

This experience reinforces our conviction that a strict and effective financial guideline for agricultural expenditure must be established. We have proposed that the rate of increase in CAP guarantee expenditure in any year should be lower than the increase in the Community's budget overall. Although all member states agree in theory that agricultural expenditure should be contained this involves difficult decisions for us all and there has been no agreement so far on how it should be done. This is one of the key items on the agenda for the European Council in March.

It is not enough, however, to control agricultural expenditure alone. The Community budget should be subject to no less discipline than public expenditure in individual member states. Various proposals have been put forward, notably by the Commission, by the Dutch and by Mr. Delors, the French Finance Minister. We need a system that is binding and effective in practice, and I believe that the Delors proposal could form the basis of such an agreement.

The 1984 budget adopted by the European Parliament contained a number of features which are not agreed by the council, such as the level of commitment appropriations; the classification of certain budget lines, including in particular those for British refunds; the Parliament's additions to the revenue side of the budget; and the inclusion of a new special category of commitment appropriations for the Parliament's proposed European industrial policy.

Mr. Marlow

Will my hon. Friend explain the Delors proposals?

Mr. Stewart

The Delors proposals are at present confidential to the negotiations — [Interruption] —and again, I fail to see why that should be a subject of such amusement to Opposition Members. I should have thought that if the representatives of members states were not able to negotiate these difficult matters in confidence, it would be much harder for them to reach agreement.

Current arrangements for resolving disputes between the council and the European Parliament are not satisfactory. Reform of the budgetary processes is, therefore, another central element on the Brussels agenda.

Whatever mechanism is adopted, it must be firmly and formally embodied in the budgetary procedure of the Community.

Control of the budget and the CAP would give scope for the Community to consider other worthwhile and more cost-effective projects. To take the 1984 budget as an example, expenditure under the common fisheries policy and the regional development fund—two categories of expenditure from which the United Kingdom benefits—have both been increased. Spending on fisheries is up by almost 45 per cent. on 1983, while regional fund expenditure in 1984 has been increased to over £800 million. Provision for the social fund, from which we are also net beneficiaries, is now over £700 million, and spending on transport, industry and research and investment all show increases. But the development of all of these programmes has been hampered by excessive expenditure on the common agricultural policy.

I conclude my remarks on the budget documents for 1982–83 by looking further to the future. Unlike the Opposition, the Government are committed to the Community and to making a success of our membership of it. We want, and intend, to play a constructive role in the development of Europe. Many of our proposals need not impose burdens on the taxpayer. We are anxious to see the creation of a true common market both in goods and services, which was meant to be the foundation stone of the Treaty of Rome.

The practice has fallen well below those aspirations. British traders, manufacturers and business men are daily confronted by a range of non-tariff barriers and administrative restrictions. We want to see simplification of frontier controls, the liberalisation of air services and lorry movements, a free market for financial services, particularly insurance, among many others.

Until the financial and budget problems are resolved, it is difficult to make progress in other ways. The Community faces momentous decisions in the coming weeks, but I believe that our partners are coming to acknowledge the strength of the case that we have put forward. We are determined to see the present negotiations reach a successful conclusion, but as for the budget, it must be a conclusion which recognises the interests of those who pay for the Community as well as those who gain from it.

I commend the motion to the House.

4.25 pm

Mr. Robin Cook (Livingston)

I beg to move, in line 11, to leave out from "and" to the end of the Question and to add instead thereof: urges Her Majesty's Government to withhold from the United Kingdom's contributions to the 1984 Budget a sum equivalent to the unpaid rebate for 1983. If the speech of the Economic Secretary served any clear purpose, it was to demonstrate the importance of this House having another opportunity to debate the wider issues relating to European affairs before the summit in March. The hon. Gentleman referred to a reply—a copy of which is not, apparently, available anywhere in Whitehall or in London—and to Mr. Delors' proposal, which apparently the Government find satisfactory but dare not tell the House in case hon. Members should find it slightly less satisfactory.

They may all be matters which at present cannot be shared with the House, but I assure the Economic Secretary that hon. Members would take a dim view of the matter if the leading representatives of the Government were to disappear to Brussels in March without the House having had the opportunity to give its view on whether it finds the Delors' proposals satisfactory.

Before we could do that, we should need an assurance that the Delors' proposals went rather further than the proposals attributed to Mr. Delors. They were trailed in the press just before the Athens summit in a way which suggested that all that Mr. Delors had in mind was a new mechanical relationship between the Finance Council and the Agriculture Council so as to give Finance Ministers a say in the agricultural farm price review.

That may be desirable and an advance, but it certainly does not add up to reform of the CAP. I assure the Economic Secretary that there can be no question of the official Opposition agreeing to an increase in own resources on such a cosmetic change in the CAP regime as was proposed by Mr. Delors in December.

Every time we have debated this matter in the past three months we have been greeted with evidence of further movement in the Government's position in relation to own resources. Last week's report of Europe Agence Internationale quoted Mr. Mitterrand at the Hague as saying that an increase in own resources was essential and adding that most of the Heads of government have already spoken along the same lines.

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

Most.

Mr. Cook

The quotation continues: Mrs. Thatcher confirmed that she will not oppose this increase, if agricultural expenditure is controlled and the present imbalances corrected. Those who have followed these debates closely in the last two months will detect in that yet another movement. The previous position adopted by the Prime Minister was that, if agricultural expenditure was controlled and the present imbalances corrected, she would be prepared to consider an increase in own resources, but to consider it on its merits. If she is being correctly quoted in her conversations with Mr. Mitterrand, then, according to what Mr. Mitterrand has been sharing with his audience at the Hague, the Prime Minister has now gone one stage further and on condition that her two requirements are met, she has already given an undertaking not to oppose the increase in own resources.

I do not expect the Economic Secretary to confirm such a statement; doubtless these statements are all confidential and the only copies of what was said are in Brussels. However, it is clear from what is seeping out from the holes and cracks in briefcases as they go across the Channel to Brussels and elsewhere that another movement is going on in the British position.

If the Economic Secretary is really genuine in the view that revenue should determine expenditure, rather than expenditure determine revenue, there is no better way of ensuring that than by resisting pressure for the increase in own resources. No hon. Member can be under any illusion that if more revenue were available we should, for instance, be witnessing even more expenditure in the farm price review this year.

In the negotiations that are going on in confidential places with confidential documents, the figure that is now being proposed for the increase in own resources is no longer 1.4 per cent. in VAT, as we understood in December, but now represents a target of 2 per cent. of VAT from each member state, a higher target precisely to free the Commission and the EEC from the awkward necessity to go back to national Parliaments at a future date to get further increases beyond 1.4 per cent. I am sure that if such a figure is laid before the House it will meet with opposition in all quarters.

Mr. Marlow

The hon. Gentleman is obviously concerned about what the Government might do, what changes there might be in Government policy, and whether the Government will give in or will not give in on the subject of own resources, but is this not a major constitutional issue as to whether we give more resources and whether we surrender even more sovereignty to the European Community? It is not the Government who decide that, and it is not the Government who dispose. Those responsibilities lie with the House of Commons. Does the hon. Gentleman not have faith in the House of Commons and the decision that it will reach in those circumstances?

Mr. Cook

I have already made it clear in what I have said today and in previous debates that unless there is an unprecedented breakthrough, for which the Government have given us no grounds for belief, the official Labour Opposition—I cannot answer for all parties who sit on the Opposition Benches, and one Opposition party has already said that there is a case for caving in now—will oppose an increase in own resources. I am sure that we shall be supported by other parties.

The hon. Member for Northampton, North (Mr. Marlow) asked whether I have faith in the House. The answer to that question depends entirely on how many Conservative Members have the strength of their convictions and the courage to put their votes where they have already put their voices. I am sure that the hon. Member for Northampton, North will vote with the Opposition. I look to him to let me know whether I can have faith in an adequate number of his hon. Friends joining him.

Mr. Rifkind

Does the hon. Gentleman accept that the outcome will depend in part on how many of his right hon. and hon. Friends bother to vote in the Division? On the previous occasion when there was a vote at the end of an EC debate — that event was not so long ago — the Opposition were defeated by 312 votes to 69. Does he have any confidence that more than 69 of his colleagues will turn up on that evening?

Mr. Cook

I can happily assure the Minister that there will be more than 69 of my colleagues with me in the lobby that evening.

Mr. Rifkind

How many? Will there be 71, for example?

Mr. Cook

I live in hope — perhaps the hon. Member for Northampton, North can assist me —that even 69 Conservative Members will vote with the Opposition.

Mr. Hugh Dykes (Harrow, East)

rose—

Mr. Cook

With great respect to the hon. Gentleman, I wish to proceed with my speech. I have no doubt that he will find something with which he disagrees in a later part of my speech, and he may wish to intervene at that stage.

I trust that the House will not regard me as eccentric if I make some initial comments directed to the expenditure side of the budget. After all, there are two sides to a balance sheet. The purpose of raising revenue is to meet the commitments on the expenditure side. This year's budget opens with the startling statement that it is the first step in translating into reality the commitment by President Thorn to double the structural funds. Although that statement is contained in the text, I find in the tables that it is by no means certain that the process of doubling the structure of the funds in five years is likely to be achieved.

The Economic Secretary to the Treasury claimed that there had been an increase in expenditure on the regional fund. That is true, but expenditure overall on regional policy will fall by 20 per cent., instead of doubling over five years. Expenditure on industrial policy will fall by 7 per cent. The budget is very much the same as previous budgets and contains the same major imbalance. It is dominated by expenditure on agriculture.

In the draft preliminary budget, the proportion of resources to be spent on agriculture rises from 64.2 per cent. in 1983 to 67.4 per cent. in 1984. President Thorn has been obliged to revise his own bold objective of doubling expenditure on the structural funds. He said last week in Strasbourg to the European Parliament: If there is no solution to the Community's financial crisis very soon, either member states will have to reach a unanimous agreement to foot the extra bill themselves or cuts will have to be made in, say, the social fund, or the regional fund, to make more money available for agriculture.

There we have it. As bankruptcy approaches over the horizon, it is the 5 or 6 per cent. of the budget that goes to the regional fund, the social fund or the industrial fund, which will be expected to absorb financial constraints to protect the agriculture lobby, which will continue to receive the lion's share of the budget. In the present year the draft preliminary budget provides for a increase in agricultural expenditure of 17.4 per cent. That will take place in a year in which the Commission expects the rate of inflation throughout the EC to be 7 per cent. I concede that there is no reason why the rate of inflation in agriculture should be precisely the same as the standard rate of inflation. Equally, it is implausible that the rate of inflation in agriculture will be 250 per cent. of the standard rate of inflation.

The increase cannot be explained away by referring to the need for support to be given to support small marginal farmers, a laudable objective which we are always told is at the heart of the CAP. Paragraph 32 relates to structural measures for less favoured areas, and we find that it provides for only a 3.5 per cent. rise. In other words, after inflation, expenditure on small marginal farms will fall rather than increase.

We are confronted with a general increase in support expenditure because, yet again, more products will be produced than will be needed, there will be larger surpluses and we shall pay higher prices for some commodities. Once again there will be a widening of the disparity between the incomes of large and small farmers and a widening of the disparity between the incomes of those who produce commodities that are favoured by the CAP, such as milk and cereals, and the incomes of those who are in the sectors that are neglected by the CAP, such as poultry and pigmeat.

The increased expenditure on agriculture will be 250 per cent. in excess of the rate of inflation. That is being proposed in precisely the same year in which we are assured that the Commission is likely to go bust. Against that background, we can well understand the exasperation of Mr. Dalsager, the Commissioner with responsibility for agriculture, when he complained that some seemed to think that reform of the CAP means ordering smaller oysters and cheaper brands of champagne. The Government cannot escape complicity in the crisis that we face. During their first three years in office they were happy to order the most expensive champagne on the menu. For the first three years they supported increases in farm prices which were even greater than those requested by the Commission.

We are now assured that the Government are of reformed character and that they are committed to the reform of the CAP. However, we have noted as the debates have proceeded over the past few months that what the Government mean by reform of the CAP, instead of gaining in clarity and precision, has gained imprecision. It reached a new depth of vacuity last month when the Economic Secretary, in reply to my question on what was meant by reform of CAP, said: The hon. Member for Livingston discussed reform. I believe that the changes needed to deal with Community expenditure and with the CAP amount to a need for reform. We can see only as negotiations develop and as new decisions are taken what that means." — [Official Report, 26 January 1984; Vol. 52, c. 1139.] When I first heard that, I assumed that it would be one of the instances in which a private secretary would rush to Hansard to rescue sense from the rubble of the Minster's syntax. When I received my copy of Hansard, I was delighted to discover that the gem had been preserved on the record.

The Economic Secretary came close to saying that we can ascertain what the Government mean by reform of the CAP once they have discovered what they have got out of the negotiations. That will not do. If the Government are sincere in their desire to obtain reform of the CAP, one test of their resolve is coming up in the immediate future, and may even be presented to them before the Brussels summit.

The test will come when the Government make their decision on the farm price review. Although the review has its weaknesses, it is more realistic than anything we have seen yet. I cannot resist referring to a speech by Commissioner Tugendhat while in Britain only a week after our previous EC debate. He said: It is not surprising that the agricultural lobbies throughout the Community have criticised these proposals"— or the farm price review— they are simply doing their job. What does surprise me is the eerie silence of leading politicians from those Governments who are on record as deploring the excesses of the CAP and urging the need for lower prices". About whom could he have been thinking? I hope that he did not care to make that speech in Britain because he was thinking of the British Government. I hope that the British Government will not only speak out in support of the Commission's proposals, but will ensure that there are no increases above those proposed by the Commission. I warn the Economic Secretary that the Government's commitment to reform of the CAP will ring hollow if they permit any increases above those already on the table.

There is one other test which the Economic Secretary might turn over in his mind when he returns to the Treasury, because it is a matter wholly within the gift of the Treasury and the Ministry of Agriculture, Fisheries and Food. This matter was referred to also in Commissioner Tugendhat's speech. Unless any hon. Member suspects that Commissioner Tugendhat may be a partial witness in these matters, I put it on the record, since legions of new Conservative Members of Parliament have joined us since Commissioner Tugendhat left us, that he once sat on the Government Benches, and, I believe, is still a Conservative party member.

A fortnight ago Commissioner Tugendhat said that it is now nearly four years"— my arithmetic tells me that that does not put it within the period of this Government— since the positive monetary compensatory amounts —a tax on imports which effectively raises the price of food—have been applied in the UK. In everyday terms this means that prices paid by processors, and ultimately by consumers, have been higher. generally by at least 5 per cent. and often by much more, than the Community level. This is tantamount to an additional tax which is in no way imposed on the UK by the Community. It is a self imposed food tax". The reality, as I am sure that the Economic Secretary would be the first to confirm, is that not even this Government would dare to come to the House and ask for 5 per cent. VAT on food prices. Yet it is precisely that effect that the Government are achieving by the way in which they operate MCAs. If the Government are serious about reforming the CAP and genuine in their claim that they are not the party of the farm lobby, let them show it by acting — this does not require further negotiation, further confidential proposals from Mr. Delors or further exchanges of letters — to eliminate the positive MCAs and abolish the iniquitous 5 per cent. tax on food.

Mr. Robert Jackson (Wantage)

If the hon. Gentleman is so keen to find a minimum definition of the reform of CAP, perhaps, instead of asking the Government for their views, he might help them by enlightening them what he would regard as a mimimum definition of reform of CAP.

Mr. Cook

I am surprised that the hon. Gentleman needs to ask me about that point. He will recall that during the period when MCAs were in operation under the previous Labour Government matters were so arranged that the MCAs were negative rather than positive, which ensured that food prices were lower than they would otherwise have been. The Conservative party came to power in 1979 with a commitment to realign MCAs with the exchange rate over the lifetime of a full Parliament. They did so within nine months, and since then have deliberately kept MCAs below the level of the exchange rate. That is where the contrast lies. So long as we are to have MCAs, let us keep them above, rather than below, the exchange rates.

Mr. Jackson

rose—

Mr. Cook

I hope that the hon. Gentleman will forgive me, but I wish to make progress in my speech.

We find a major imbalance also on the revenue side of the budget. That imbalance must be even more disturbing to the House than the imbalance on the revenue side. The imbalance is clearly represented in the report by the Court of Auditors, which shows that in 1982 Britain paid 29 per cent. of agricultural levies and received in return 11 per cent. of the CAP expenditure. We find in those two contrasting figures the structural deficit in which Britain finds itself in relation to the budget. Had it not been for the accession of Britain in 1972, the EEC would have entered upon its financial crisis at least one year earlier than it has done.

We enter upon the year of this budget with no agreement on a rebate for this year and with no agreement even that there should be a rebate this year. We enter the year also without payment of the rebate for 1983. It is with respect to the 1983 rebate that the Labour party has tailored its amendment to recommend to the Government that they withhold payment from the 1984 budget in respect of that 1983 rebate. We do so in a spirit of being helpful to the Government.

There are three reasons for the amendment. The first reason is equity. Britain is one of only two net contributors to the EEC budget, yet it is one of the four poorest member states. Only Italy, Ireland and Greece have a lower per capita GNP than Britain. Italy contains two separate distinct economies, and it is arguable that per capita GNP in northern industrial Italy is now higher than in Britain.

Officially, Britain is now a less prosperous country. If we are in the position of being designated by the EEC as a less prosperous country, why should the EEC continue to regard us as the milch cow of the EEC? Against that background, the demand that we achieve a broad balance in contribution to expenditure is one of stunning moderation. It is not clear why a nation as poor as Britain should have as its highest ambition the wish to get back as much as we put in when much wealthier nations get more than they put in. The present method of financing the EEC budget resembles only too closely the inequity of the Government's domestic taxation policy, in which the heaviest burden is put on the poorest while only the wealthiest pay less.

The second reason for the amendment is one of common prudence. We are assured, by the Government themselves, that o the EC is running out of money. Last autumn the commission ran out of money for a while and for a short period suspended agricultural payments. One can be certain that when the EC suspends agricultural payments, it must have its back to the wall. It might, therefore, be simple prudence to anticipate and avoid the outcome in which we do not receive a rebate because the money is not available.

Thirdly—we come to the nub of the reason why we urge the amendment on the Government—in so far as we can understand the Government's strategy, it is to rely on the imminence of bankruptcy and the threat of the bailiffs to oblige the EEC to mend its ways and to come to terms. Let us do what we can to hasten that happy moment. Let us make a deduction from the monthly receipts from the second largest net contributor to concentrate minds on the required reforms. If we do so, it may be possible to reach settlement at the March summit, rather than twiddle our thumbs waiting until the June summit, hoping that, by then, the bank manager will have sent for the Commission.

I listened carefully to the Economic Secretary. If I picked up correctly what he was suggesting to the House, it was that the Government do not propose to accept the Labour party's modest amendment. In so far as I could find a reason for the Government's resisting our modest amendment, it was that they believed that action before 31 March would be premature and that we should wait until 31 March to find out whether we shall be paid our 1983 rebate. That attitude is hilariously out of touch with reality. If there were anyone sufficiently complacent to imagine that our rebate might have been paid by 31 March, that person would surely have had his dreams shattered by last week's meeting of the European Parliament. The European Parliament is now on record not only on insisting on a permanent solution to the financing of the budget, which, as far as that Parliament is concerned, means an increase in own resources, but in demanding a greater say on how that rebate is spent in Britain and suggesting—this suggestion must have caused palpitations among Treasury officials when they heard of it — that expenditure of the EC's rebate on Britain should be matched by equivalent sums from the British Government. Having imposed all those conditions, the European Parliament then announced that it would not finalise the precise details of the controls until it met again on 12 March, only a fortnight away from the deadline.

It should be noted in passing that that motion was carried in the European Parliament in the same week in which it debated and adopted the Spinelli report on European union. The report recommends a federal structure for Europe that is akin to the constitution of the United States of America, if I could use an analogy which the Minister of State, Foreign and Commonwealth Office unhappily stumbled on in our last debate. That report was voted on last week in Strasbourg, the same week in which the same Parliament took a stand hostile to the British interest. Yet a majority of Conservative Members of the European Parliament who cast a vote in that debate voted for the Spinelli report on European union. Of the 30 present, 23 voted for European union.

I do not know where the rest of the Conservative Members of the European Parliament were, but I know where the most distinguished was. The leader of the group of Conservative Members was not present to give them resolute leadership on that issue, nor even to let us know what he felt about the Spinelli report. Sir Henry Plumb had returned to Britain on the night of the vote. The engagement to which he returned is revealing with regard to the priorities of the Conservative group of European Members of Parliament and lobbies that are influential on them. Sir Henry Plumb missed the vital vote on European union so that he might attend the annual dinner of the National Farmers Union.

Mr. Marlow

Perhaps I can reassure the hon. Gentleman yet again. He has heard forthright statements of the Government's policy from my hon. Friend the Economic Secretary to the Treasury with regard to the veto. The Government's policy is that the veto must remain in the foreseeable and far future. It is obvious that the Members of the European Assembly who were so bold as to vote against the veto last week will either not put themselves forward for election at the forthcoming European elections, or, if they do, will not be selected in Conservative constituencies.

Mr. Cook

I fear that what the hon. Gentleman has said will be taken down and used in evidence, if not against him, against some of his colleagues. I note what he says. It is a matter of passing interest to us in the Opposition, as we move towards the completion of the process of adoption of candidates, that the Conservatives are still only at the early stages of the process. I am delighted at the hon. Gentleman's comments. We shall watch carefully which existing Conservative Members of the European Parliament are adopted in the constituencies and make sure that the hon. Gentleman's remarks are shared with Labour candidates standing against them.

Mr. Russell Johnston (Inverness, Nairn and Lochaber)

The House will recall that when the hon. Gentleman became a spokesman on this matter he took time to go to Strasbourg and talk to his Socialist colleagues. Is it not a matter of political concern to him that, when he talks about the European Parliament taking a specific attitude, he is talking about Members of the European Parliament right across the spectrum, notably his own apparent political colleagues?

Mr. Cook

Representatives of all groups voted for the Spinelli report. However, I am happy to assure the House and the hon. Gentleman that no member of the British Labour group voted for the Spinelli report. I do not believe that any responsible leading politician in the United Kingdom, given our historic experience of the EEC over the past decade, could, while the fate of the issues that have given us that unfortunate and unsatisfactory experience hangs in the balance, responsibly advocate further union through the various institutions which have imposed upon us the handicaps of recent years. Presumably, had the hon. Gentleman had the opportunity to be in Strasbourg for the vote, he, too, would have voted for the Spinelli report on European union along with the massed ranks of the European Liberal group, which supports it. I am sure that that commitment will be noted with interest by electors throughout the highlands and islands of Scotland, where the hon. Gentleman is standing. I shall make sure that his view on the matter is also conveyed to the Labour candidate who will stand in that constituency.

Mr. Eric Forth (Mid-Worcestershire)

Will the hon. Gentleman comment on the position of the bulk of the Socialist group in the European Parliament and its attitude to the Spinelli vote, because it will be relevant for the electorate to know how the British Labour group has influenced the Socialist group and how in future the British Labour group might fit into the Socialist group, in view of that group's voting on Spinelli?

Mr. Cook

We have made it clear that those elected as Labour Members of the European Parliament in Strasbourg will take a place in the Socialist group and will seek to influence the views of that group, and to reach a common view, whenever that is possible. However, at the same time we shall of course reserve the right to defend our national interest when we differ from our colleagues, as they differ from us in turn. We are not afraid of entering into a joint group and having a debate with our colleagues of a similar political persuasion. We do not propose, like the Conservative group, to rope ourselves off into a separate clique with only a few hangers on from independent reactionary parties in Europe.

I am disappointed, but not surprised, at the priorities of Sir Henry Plumb, but I am both disappointed and surprised that the Government have not chosen to accept our amendment. After all, the Government have hinted that they will stop at nothing to make sure that they get a fair deal in the EEC and will even withhold their contributions to do so. When 31 March comes, no doubt we shall be told that a letter of complaint is on its way. No doubt when we meet to debate the matter in April we shall be told that the reply has been received and is in Brussels with the Foreign Secretary.

We have put to the test the Government's bluster. They shrink from matching bold action to their resolute rhetoric. I am disappointed that they will not accept our amendment, but I have the satisfaction of having called their bluff. There may be something in the jest that part of the payments of the United Kingdom for the variable sheepmeat premiums are in respect of our Foreign Secretary.

There is another reason why I am disappointed that we shall not be able to make progress on the matter tonight. It is that, as long as this undignified debate on the budget continues, the whole of Europe will be distracted from the much more fundamental problems facing us, which are at present being wholly ignored. While we are fixated with how we pay to support 8 million farmers, we drop into a memory hole the 12 million unemployed or the 30 million or more citizens in Europe who experience unemployment in any one year. If there is a challenge to Europe, that is the challenge that should be taken up. Instead, all the exciting work on pan-European co-operation in the economy is taking place outside the EEC, on projects such as the "out of crisis" project of voluntary economists gathered together in ad hoc bodies, or in the OECD. which revealed in a study last week that, for any additional public investment expenditure, the stimulus in any one state is doubled and the adverse effect on its fiscal deficit and trade balance is halved if its neighbours make the same increase in public investment at the same time.

The challenge facing us is whether we can break out of the sterile stagnation imposed upon us by competitive deflation, in which we each vie in vain to grow strong by beggaring our neighbour. We should substitute in its place a programme of co-ordinated reflation in which we can expand together out of this slump. That is the true perspective in which to view the budget. The true perspective in which the budget must rest is the billions of pounds worth of production that has been destroyed by the monetarist dogma now in the saddle of so many capitals in Europe.

Mr. Rifkind

What about France?

Mr. Cook

The hon. Gentleman refers to France. The mistake that the French Government made when they first came to power and started making a dash for growth was that they assumed that the rest of Europe would behave rationally. They were wrong. The rest of Europe responded irrationally. One of the strongest advocates of co-ordinated reflation is the French Socialist party, because the difficulties of any one country breaking out of the slump on its own have been exposed to it. It is on that experience that we can found the case for co-ordinated reflation, so that we can all get out of the slump together. If we try to get out together, the cost for any one member state will be halved. That is what we should be concentrating our minds on.

Mr. Rifkind

Spinelli.

Mr. Cook

The hon. Gentleman must get this right. It is not Spinelli. It would involve co-ordination and cooperation which might well transcend the EEC and bring in other countries.

Mr. Rifkind

The hon. Gentleman has just made the remarkable statement that the French Socialist experiment failed because it was unable to get the support of the rest of the European Community. Does that mean that the Labour party will call for a single economic policy in the EC, and greater economic integration?

Mr. Cook

If we are to say that the French Government's economic policy has failed, we will be unable to find terms of abuse sufficient to describe the economic record of the present Government of this country.

Mr. Dykes

The hon. Gentleman is changing the topic.

Mr. Cook

No, I shall take up the Minister of State's point in a moment. I wish first to make it clear that we do not accept his entirely false premise. [Interruption.] If the hon. Member for Harrow, East (Mr. Dykes) will be kind to his hon. Friend the Minister, I will give the Minister an answer. I presume that the question was intended to elicit a reply from me. [Interruption.] It is disappointing for me to have said nothing in the past half hour with which the hon. Gentleman disagrees sufficiently to intervene from a standing posture.

The record of the French Government's economic policy is better than that of any other member of the EEC. The increase in unemployment in France is lower than it is anywhere else in Europe. Unemployment fell for most of the first two years of the French Socialist party's period in office, while during the first two years of the hon. Gentleman's Government unemployment nearly doubled.

It is not a matter of economic integration. It is a question of arranging together to carry out domestic policies which reinforce and support each other, rather than following domestic policies which deflate competitively against each other. I assure the hon. Gentleman that the Socialist parties of Europe are indeed discussing apace a co-ordinated programme which we could offer Europe in place of the stagnant sterility and barreness which they are offered by the monetarism that rules from here to Bonn.

Mr. Forth

rose—

Mr. Cook

No, if the hon. Gentleman will forgive me, I have been generous in giving way and I am concluding my speech.

It is for these reasons that we must put behind us the arguments over the budget and resolve the deficit of the millions of pounds by which we are out of pocket because of it. This budget is both irrelevant to the real economic problems of Europe and perverse in the way in which it is financed. Above all, it offers no hope to the 12 million unemployed in Europe who should be our first priority.

5.3 pm

Mr. Geoffrey Rippon (Hexham)

We are all very grateful to the Economic Secretary for the lucid way in which he introduced the weighty documents before the House, even though he was not helped on his way by some of the interruptions. I agree with the hon. Member for Livingston (Mr. Cook) on at least one point. He is right to say that we must put some of these budgetary issues in a much wider perspective. We all know that the Athens summit was a failure, but it was not necessarily a disaster. I believe that the Prime Minister was right in rejecting yet another botched-up compromise—another communiqué in the same old terms leaving all the issues that face us to become even more acute and more difficult to resolve in the years ahead.

On the other hand, we know that genuine solutions to the major issues of budgetary policy and effective control of agriculture and other expenditure are the precondition of the Community's future development, and that, in that regard, time is running out. Judging from the press reports, we cannot be particularly encouraged by what has been happening over the weekend, at yet another meeting of the Council of Foreign Ministers. Clearly we must give the highest priority to negotiating a settlement that strikes a fair balance to the mutual advantage of all member states. That must be our purpose, because if we fail to reach that agreement we shall all suffer. Some right hon. and hon. Members are a little unfair in asking my hon. Friend the Economic Secretary exactly how those negotiations are being conducted. They must be conducted at every level, and particularly at the diplomatic level, because the last thing that we want is another frustrating summit where Heads of State are asked to resolve issues that ought to be dealt with at ministerial level long before strategic decisions have to be made.

As the Prime Minister has said, we are not half-hearted members of the Community. We are in, and we are in to stay. I welcome what my hon. Friend the Economic Secretary said about the Government's constructive approach. We must defend British interests as others defend theirs, but British interests are indissolubly and inevitably linked to European interests. We all have complementary interests, and they go far beyond either the existing budget proposals or the common agricultural policy.

I welcome the Government's willingness—provided that the immediate issues are resolved—to consider an increase in the total resources of the Community. That is the only way to carry out the proposals that the British Government have themselves made concerning transport and energy policy, the environment, innovation and advanced technology.

Many criticisms are made of the CAP but we should not forget its contribution to the interests both of the British farmer and of the British consumer by putting the source and the price of our food on a stable economic basis. Milk and other surpluses have got out of hand, but since we joined the Community our farmers' home food production has increased from 60 per cent. to 75 per cent. of our needs and that has certainly been in our national interest. We will be glad of that import saving when North sea oil runs out. While agriculture expenditure must be contained, we would be wrong to ignore the effect on farmers' incomes, and so on farm workers' wages, of savage cuts in support prices or an excessive devaluation of the green pound. We should not forget that, as we are not members of the European monetary system, the pound sterling is liable to fluctuate much more violently than the currencies of our partners.

With the budget it is a case of the chicken and the egg, and the members of the Community may be playing at brinkmanship. It must be in the interests of the Community as well as of Britain to change the size and shape of the budget, as the hon. Member for Livingston has hinted. Our criticisms of the present budget and its impact on financial flows between members states can be solved ultimately only by developing common policies on a scale which will put the budget and CAP into a much truer perspective. I entirely agree with the hon. Member for Livingston—and I assume that his view is the view of the Labour party —that the biggest challenge to the Community lies in the industrial sector, with an overriding need to deal with the rising levels of unemployment.

As the hon. Member for Livingston pointed out, more than 12 million people in the EC are unemployed. That represents 11 per cent. of all adults. Worse is the fact that among the under-25s the level of unemployment is between 25 per cent. and 27 per cent. According to commissioner Mr. Ivor Richard who is responsible for these matters, if we do nothing about that we can expect unemployment of 15 million by 1985–86 with the same horrifying 25 per cent. to 27 per cent. youth unemployment. The social and political consequences of unemployment continuing at that level makes the budgetary dispute relatively insignificant. We must revitalise and modernise European industry. We know that it is falling behind the United States and Japan in nearly every aspect of technology and innovation. That is why the ESPRIT programme, for example, which the British Government fully support, must be implemented without undue delay. The ESPRIT programme will not close the growing technological gap between Europe and the United States and Japan, but without it we shall have little chance of catching up. It is only through such measures on a Community scale that we can create jobs to the desired extent.

McKinsey's, the consultants, have estimated that if information technology is developed in Europe as it has been in the United States, 2 million new jobs could be created by the end of the decade. However, it points out that if we continue to fall behind we shall lose 2 million more jobs in that sector alone. In information technology alone about 4 million jobs are at stake.

I agree with my hon. Friend the Minister and the hon. Member for Livingston that British interest in the EC is not confined to those matters which are or ought to be covered by the budget. As has been said, there is a major interest in policies which do not involve substantial spending, notably the dismantling of trade barriers and bottlenecks at frontiers.

When it is finally agreed, our budget contribution could be much more easily justified and acceptable if our Community partners made a real effort to create a genuine free market in goods and services which is provided for in the treaties to which they rightly attach such importance. We all know that freedom of trade in services hardly exists. Customs officials are as numerous as ever and some customs regulations have recently become more rather than less stringent as protectionist policies have developed.

Mr. Forth

In this context would my right hon. and learned Friend say that we should make the relaxation of the restrictions on freedom of movement a quid pro quo of any increases in the Community's resources, or would he rather that there was a maintenance of a ceiling in the resources until we get guarantees on that vital aspect of the Community — abolition of internal markets for goods and services?

Mr. Rippon

It is a fair negotiating point. It is sometimes a mistake to express these matters in terms of a quid pro quo. Our position would be easier and more acceptable — and it would be in the interests of the Community—if progress were made on these matters. I should like our partners to show more willingness to meet us on this point. Perhaps my hon. Friend the Minister will say in his winding-up speech whether the French Presidency has in mind meetings of the internal market council in the next few months. I would be happier about some of the French Foreign Minister's remarks if he could show some willingness to make progress in this regard. We might make common cause with the French lorry drivers, one of whose grievances is frontier delays.

Some reference must be made to the European Parliament, as we describe it by courtesy. It might have shown itself to be more constructive and have a more realistic approach. Although we give the European Parliament that courtesy title, it should remember that it is constitutionally only an Assembly and that its best hope of acquiring more authority and influence lies in its acting reasonably and responsibly. It has not helped the cause of European unity by blocking he budgetary refund to which the United Kingdom is entitled or by pursuing a will o' the wisp of a new treaty on European unity which is highly unlikely to materialise. There is no great objection to the Spinelli resolution and initiative. It is a vision of the future to which people may legitimately aspire but I should have thought that we must make a greater success of the treaties that we have already signed before contemplating entering new ones.

Members of the European Parliament would do better to hold the Heads of State and Government to the terms of the solemn declaration on European union which they adopted and signed at Stuttgart last year. Our Prime Minister was one of the signatories. The declaration provides a basis on which we can hope to move forward —as President Pompidou used to say—step by step with realism. The Stuttgart declaration declares the signatories' will to move towards a European union, however that may be defined, and sets out at considerable length the way in which the Heads of State and Government are determined to deal with many matters which should be reflected in the Community budget — social, regional, industrial, technological and cultural.

There is no reason why we should hold up the proposals made by Heads of State and Government for culture. They could be implemented at little cost and in areas on which we all agree. At Stuttgart the Heads of State and Government decided, among other things, to develop the activities of the European Foundation and the European Institute of Florence. They also decided to increase exchanges of students and teachers, to promote joint action to protect, promote and safeguard cultural heritage and generally to intensify exchanges of experience, especially among young people — trade unionists as well as academics. The European Parliament would do better to press the Heads of State and Government to implement the decisions that have been made.

Britain is not always the laggard. We are the only country so far to have ratified the treaty which establishes the European Foundation. That treaty was agreed in Rome to mark the 20th anniversary of the signing of the Treaty of Rome, and was signed in Brussels to mark the 25th anniversary of that treaty. I wish to declare an interest in that I am a member of the preparatory committee for the establishment of the European Foundation. I am afraid that the powers-that-be have failed to agree after 18 months on the appointment of the co-ordinator for whom the Heads of State and Government called. If we are having so much difficulty getting ratification and implementation of a treaty which simply involves a few million pounds a year spread among all the members of the Community, it seems a little unrealistic to believe that we can carry forward the Spinelli proposals within a reasonable period. We should do better to concentrate on matters in which there is a reasonable hope of progress.

The documents which we are debating are interesting and detailed. You, Mr. Deputy Speaker, will no doubt have studied them carefully to ensure that no right hon. or hon. Member strays beyond their confines. They cover almost every human endeavour. Some of our debates on them are rather trivial in the context of the circumstances in which Europe finds itself today.

Everyone in the House must recognise that a European Community divided and disorganised will exercise no influence in the world; it will continue to fall steadily behind its competitors—notably the United States and Japan; unemployment will rise and social policies will be increasingly threatened. The political dangers of disunity are even greater.

I am glad that my right hon. Friend the Prime Minister has pledged that she and her Ministers will work for the unity of Europe as a force for peace, freedom and democracy. That must remain the firm purpose of us all because it is a common European interest. It has been well said that dogs in a kennel snarl at each other, but when a wolf comes along they become allies. If we in Western Europe are not careful we may be too late.

5.21 pm

Mr. Russell Johnston (Inverness, Nairn and Lochaber)

It is a pleasure to follow the right hon. and learned Member for Hexham (Mr. Rippon), to whom I have listened on many such occasions. One of the sad aspects of these debates is that so few Members attend —and those who do are always the same Members.

Mr. Robin Cook

The hon. Gentleman was not present at the last debate.

Mr. Johnston

The whole pattern of the debates becomes predictable. The right hon. and learned Gentleman said that the solution to the budgetary problem must be a fair balance of mutual advantage. I could not agree with him more. In the end, the solution must be a package. There is no getting around that; it is a political reality. Looking at the hon. Members in the Chamber, I suspect that much of the debate will be confrontational and critical in tone. It is a great pity that the right hon. Member for Old Bexley and Sidcup (Mr. Heath) is not here. It is rather sad that he does not attend at least some of the European debates.

Mr. Rippon

My right hon. Friend spoke in the debate in December.

Mr. Johnston

I would have liked to have heard the right hon. Member for Old Bexley and Sidcup develop some of the points that he made in an interview in The Times, which I found extremely interesting. He dealt at length on the need for a consensus approach in general matters; he pointed out that we always talk about the Community in confrontational terms, while at the same time calling for closer and more sustained East-West dialogue. I am not in any way arguing against that; I am simply pointing out the contrast. There has been too great a confrontational approach during the past few years.

There was a rumour in the newspapers last week that the Prime Minister intends to appoint two Conservative commissioners to the Commission when the span of the present commissioners, Mr. Richard and Mr. Tugendhat, runs out. I hope that that is not true. There has been a good example in the appointments so far of the importance of sustaining some national political consensus at the very heart of Community institutions. There is a case for a Liberal or an apolitical person to be appointed. This is another example of the contrast in the way that European countries approach these matters compared with Britain's approach. The approach that I suggest would be regarded as normal in most Community countries. I hope that the Prime Minister does not appoint two Conservatives. I further hope that she does not, as reports suggest, see the task of the two British commissioners as being to advance the British interest solely—which is quite contrary to the notional job. If that is true, clearly her concept of the national interest is close to her view of the Conservative party.

Mr. Forth

Would the hon. Gentleman prefer the appointment of an anti-European Labour person or a pro-European Conservative person to the second place in the Commission?

Mr. Johnston

It would not make any sense to appoint someone who is opposed to the whole operation of the Community. But I have no doubt that there are plenty of people within the Labour party who are in favour of the European Community.

Mr. Boyes

The hon. Gentleman is asserting that there should not be two Conservative commissioners, and I understand that the alliance is calling for wider consultation with its members. This is the second debate in quick succession on EC matters, but on the last occasion no representative of the Social Democratic party entered the Chamber. Indeed, we do not need to be mathematicians to count how many of them are present today.

Mr. Johnston

It is true that we do not need to be mathematicians—there are only six Social Democratic party Members, and they cannot be everywhere at once — and there are only six of them because of our electoral system.

As the right hon. Member for Old Bexley and Sidcup said in the newspaper interview, it is more difficult to find a consensus solution with people who disagree than to embark on the attacking approach adopted by many hon. Members—such as the hon. Member for Southend, East (Mr. Taylor) who, in an earlier intervention, spoke about "the continentals" as though that was some leprous breed of humankind to whom one would not dare to speak or to touch.

Mr. Teddy Taylor

I am accustomed to the hon. Gentleman's unjustified and unfair attacks. He talks about consensus, but never tells us what that is. When I referred to continentals, I meant the non-British members of the EEC. If he can think of a better or shorter definition perhaps he will tell me.

Mr. Johnston

I am grateful to the hon. Gentleman for his intervention. There are Irishmen who, as far as I know, do not live on the continent of Europe, However, I shall not pursue that matter further.

I come now to the budget and the budgetary solution. There was a meeting of Liberal leaders in Stuttgart in January. It was attended by four Foreign Ministers from the Community, a number of Finance Ministers and the President of the Commission. It was a representative meeting at which persons involved in the decision-making process could talk together for the better part of a day. Despite the differing national positions that emerged, at the end of the day they agreed a common approach and a common communiqué—part of which I shall draw to the attention of the House.

The statement had three basic elements. First, there was the acceptance that steps must be taken quickly to contain agricultural production. To subsidise agricultural production where there is no market makes no sense. That is the key reason why the budget is out of balance. At the same time, we must face the fact—some hon. Members do not—that if we cut agricultural production, as we must do — whether by price or by quota — we cannot do anything immediately. It will take three or four years if we are to do it in an acceptable way. I mean acceptable not only on the continent or in Ireland, which is a classic example, but in Great Britain. The idea that we can produce a magical reform of the common agricultural policy which can be implemented the day after tomorrow is nonsense.

There should be a budgetary settlement which involves a system of correcting the injustices in revenue and an increase in own resources. The communiqué says: The Community's budgetary problems must be resolved, in particular and in combination"— I stress the words "in combination"— by:—the introduction of stricter rules on budget spending, although the need for savings must not be used as a pretext for blocking the Community's development. That refers to a matter that comes later. The communiqué continues: —the creation of a better balance between the Community's policies"— that refers to the preponderance of the CAP and the ensuring of a fairer distribution of the financial burdens between Member States. That is a direct reference to the British position and what would become in time the Portuguese position and is becoming the German position. It then refers to the rejection of the system of 'juste retour'. If we go on the basis of "juste retour", there will be no redistribution of anything in the Community. That would be quite contrary, one would have thought, to the views held on the Opposition Front Bench.

The communiqué goes on: — the increase of own resources by raising the ceiling of VAT paid to the Community. The sacrifices entailed by these reforms and the raising of the ceiling on own resources will be all the more justified in order to enable the Community to embark on a new stage in its internal development and to admit Spain and Portugal as new members. Spain's and Portugal's prospective adherence has not yet been mentioned, and perhaps hon. Members do not think that it is relevant to a budgetary debate, but it is. Their impact on the budget will be considerable, and the political imperative of including them is important. We may have to pay a price for it.

Mr. Nigel Spearing (Newham, South)

In view of the importance of the document, which represents a strand in pan-European thinking, will the hon. Gentleman tell the House whether it went so far as to give a percentage of the VAT base, which has been canvassed by the Commission and the Italian Government? I believe that 1.4 per cent. and 2 per cent. have been mentioned. Did the group come to any conclusions?

Mr. Johnston

No, we did not come to a conclusion on that because the representatives of the countries taking part held different views. However, we all agreed that there should be an increase and that the minimum increase should be in line with the Commission's proposal of 1·;4 per cent. I favour the higher increase, but there was no agreed figure.

Mr. Teddy Taylor

The hon. Gentleman said that the group wants eventually to reduce agricultural production. Will he give me some idea of how it thought that that could be achieved? That would help many hon. Members.

Mr. Johnston

The hon. Gentleman asks me how agricultural expenditure will be reduced. Is that right?

Mr. Taylor

The hon. Gentleman referred to the gathering of Liberals and Democrats, who agreed that a reduction could not be done quickly, but who aimed in time to reduce agricultural production. I listened to his words carefully. Did those great Liberal thinkers show how they would recommend to this Government or other Governments how such production would be reduced?

Mr. Johnston

I shall give two answers to the hon. Gentleman. I shall take his point in a serious and straightforward manner. The communiqué refers to the introduction of guarantee thresholds which can be varied according to the product concerned. That refers to operating the price mechanism as a means of containing production. There are many difficulties in that, as the hon. Gentleman knows. If we are to have an immediate impact on production through the price mechanism, we would probably need cuts of about 20 per cent., which would have the gravest effect in Europe. Seventy per cent. of dairy production comes from about one-quarter of the producers. If there was a 20 per cent. price cut, those people would be affected, although not all that adversely. The great milk factories would take their own measures, but many small farmers would be severely affected. Therefore, we must grade the reduction.

The concept of quotas met with more favour. The hon. Gentleman knows that we can argue from dawn till dusk about the quota for the common fisheries policy, and the right hon. and learned Member for Hexham would agree. Quotas would be one way of varying it. If quotas were fixed for Ireland on 1981 or 1983 production, the difference would be 17 per cent., because the Irish have been expanding like fury. It would be difficult for and unacceptable to the Irish Government if such draconian steps were immediately taken. As I said earlier, whatever we do about the CAP, we cannot do it instantaneously but must phase it over a period of time.

The third element in our approach was to seek to develop a programme for expansion. There can be no programme of expansion unless there is an increase in own resouces. Even if we contain or reduce expenditure on the CAP, we could not do it quickly enough and we would not release enough money. We would need more own resources to tackle unemployment in the way that it should be tackled.

The essence of what we would commend to the Government for the Council meetings on which they are about to embark is contained in the communiqué: Our common experience of recession over the last decade has demonstrated that economic recovery is impossible to achieve if nations act independently. To restore our industries' competitiveness and to fight unemployment, our priorities must be:

• — more vigorous action by the Commission to prevent Member states from introducing technical trade barriers designed to protect their own markets;
• —full achievement of the internal market to ensure that the vast efforts, in terms of research, training, and investment required by the challenge of new tachnology, can be rapidly made profitable and brought to fruition".

The German Foreign Minister agreed to that, although the Germans are major culprits in that area. The communiqué continues:

• "—establishment of a genuine European policy for the research and development of new technology, with the immediate adoption of the ESPRIT programme … as a first step towards a commitment to the sectors of the future represented by telecommunications and biotechnologies;
• —consolidation of the area of economic and monetary stability created by the European Monetary System, which must be extended to all the Member States."

The Minister said nothing about that today, nor did the right hon. and learned Member for Hexham.

Mr. Rippon

I did mention it— although I cannot cover everything—when I referred to the difficulty of altering the green pound at a time when sterling fluctuates wildly because we are outside the European monetary system, which I believe we should join.

Mr. Johnston

I apologise to the right hon. and learned Gentleman and I know that he has always said that in the past.

The basis of the agreement exists, but the question is whether the requisite will exists to do something about it.

I was disappointed with the speech of the hon. Member for Livingston (Mr. Cook), which was good, but very cutting. He has a cutting edge to him and a silver cutting tongue, but there was no positive element in his speech. It was almost like an accountant's speech at a board meeting that dealt with all the bits and pieces, but said nothing about policy. Towards the end of his speech the hon. Gentleman had the gall to talk about strategy. I had not heard a word about strategy previously, unless it was the old strategy of the Duke of York—marching up and down and sometimes wandering round in the middle.

I am not sure what the Labour party's present policy is on the European Community. It used to be that we should withdraw, but I understand that it has changed. The hon. Member for Livingston suggested an in-out approach—one day we would be in, and the other day we would be out. But I should not be flippant. It is bad for Britan if the Labour party is isolated from its natural political allies in the rest of the European Community. Much fun is poked at the European Parliament, but it provides a great opportunity for politicians of all shades to meet and work together, to understand each other, and to go back and make contact with their Governments. The Labour party lacks that quality.

The Conservative party also lacks that quality. I agree with the hon. Member for Livingston that it is remarkable that the Conservative group in the European Parliament could not link with any other Conservative group. The Christian Democrats, for example, regarded the British Conservative group as being too Right wing.

Mr. Robin Cook

Who is the hon. Gentleman going to link with?

Mr. Johnston

I am linked already, thank you.

Mr. Allan Rogers (Rhondda)

Which group will the hon. Gentleman join in the European Parliament if he stands in the June election?

Mr. Foulkes

He is trying to do an old lady out of a job.

Mr. Johnston

I am not laughing at the interesting but somewhat ill-informed question from the hon. Member for Rhondda (Mr. Rogers), but at the sedentary observation of the hon. Member for Carrick, Cumnock and Doon Valley (Mr. Foulkes). I would join the Liberal group in the European Parliament. British Liberals are members of the European Liberal Democrats, who are represented in the Parliament by the Liberal group.

The Government must stress the fact that Community States can create more jobs and achieve industrial renewal only by expanding their economies together. The Government should press the Community to take an initiative in advocating joint international action. They should join the Europen monetary system and should support an expansion of the regional and social funds to create more jobs and to help people to adjust to industrial change. If they take such a positive approach, the other necessary element—that the revenue side of the budget must be changed to take account of the present position —will follow. The Labour Government negotiated that budget and we had a referendum on it. The other members of the Community who become a little short-tempered about the budget are entitled to do so, because we came to an agreement but now we want to change it again. But they have accepted the fact that it must change again, but that will not happen immediately.

It is clear that the common agricultural policy is out of control. Therefore, we must reduce intervention prices for products in surplus, while ensuring income support for the poorer farmer. We must phase that in in a way that is politically acceptable and reasonable. The CAP should be linked with a reshaped budget so that contributions from member states reflect their ability to pay. That is what the Government are trying to do.

The Community is nearing the crunch. Its survival and expansion is of the utmost importance to our own survival and industrial expansion, and we must never forget it.

5.44 pm

Mr. Hugh Dykes (Harrow, East)

One is bound to agree with much of what the hon. Member for Inverness, Nairn and Lochaber (Mr. Johnston) said. I agree with his inference that, at a time when the Community is facing a serious crisis, once again the House of Commons has a traditional EC debate. The posturing of the Labour Opposition produces, as the hon. Gentleman said, no positive demonstration of their policy for not only the survival of the Community but its revival, reinforcement and augmentation in the future. All hon. Members will dismiss the remarks of the hon. Member for Livingston (Mr. Cook) for what they are. The Opposition must remain as united as possible, although that is very difficult.

Labour party members are psychologically committed withdrawalists, but cannot admit it. They have had to back away from that policy and at the same time try to satisfy what one might describe, without breaching parliamentary rules, as the new Kinnock wing and the old Benn wing of the Labour party.

Mr. George Foulkes (Carrick, Cumnock and Doon Valley)

Will the hon. Gentleman give way?

Mr. Dykes

Not at present.

Mr. Foulkes

Come on.

Mr. Dykes

I shall not give way now, because the hon. Gentleman might welcome an opportunity to intervene later when I have concluded my opening remarks.

It is inevitable that the Labour party will never make a positive suggestion about how to make progress in the Community. One saw again the awkwardness of the hon. Member for Livingston when he tried to describe the so-called relationship between the British Labour Members of the European Parliament—I emphasise the word "Parliament" because it is developing into one—with the members of the enlarged Socialist group in that Parliament. Labour Members do not know how to play this game. They want to indulge in their little Englander of nationalism, which has been the hallmark of the Labour party for decades, yet they must pretend to be reasonably enthusiastic members of Socialist International.

Mr. Boyes

Will the hon. Gentleman give way?

Mr. Dykes

I am becoming so enthusiastic about this theme that I shall not give way. I may do so in a moment, but I wish to conclude this part of my speech.

There may be some suggestions from the alliance, but we must rely on my hon. Friends the Minister of State and the Economic Secretary to the Treasury and the Government to put forward suggestions for making real progress in the Community. I am a well-known enthusiastic adherent to our membership of the Community, and I wish it to develop properly in the future so that we can get through the crisis. However, I have reservations about some signs of the Government's lack of enthusiasm for developing the Community.

Mr. Boyes

The hon. Gentleman made the accusation that British Labour Members of the European Parliament were petty nationalists. Does he agree that at least British Labour Members sit in a group with nine other nations and about 12 other political parties, whereas the British Conservative group has not managed to attract another full group anywhere in the political spectrum, except for two Danes? Are not the Conservative MEPs the isolated petty nationalists in Europe?

Mr. Dykes

I shall answer the hon. Gentleman's point with a personal opinion. Since we were in the old European Parliament, I have been on record as being in favour of British Conservatives linking with the Christian Democrat group.

I hope that my hon. Friend the Minister of State will say something about the meeting this weekend at St. Cloud. I missed the first few minutes of the debate, so perhaps my hon. Friend the Economic Secretary made some reference to it then—[HON. MEMBERS: "No."] It would be helpful—

Mr. Foulkes

They are still all over there.

Mr. Dykes

There may be problems at the GPO, but let us focus on the fact that there was an important meeting at the weekend and that it is difficult, to say the least, for the House comprehensively to debate this matter without some reference to what happened at that meeting, or at least an allusion.

It is ironic that had the Community developed in the way that good Europeans in all members states would wish, and had we by now proceeded to qualified majority voting on financial and budgetary matters—this is a tentative suggestion, but I am becoming more convinced of it in the context of recent European history —probably a year ago, or little more than that, the panoply of the United Kingdom's rebates would have been agreed, for at that stage only one or two members states were being difficult. The rest were more and more inclined to agree with us.

My right hon. and learned Friend the Member for Hexham (Mr. Rippon), in his otherwise excellent speech, perhaps overdid his omission in not understanding fully the feeling of collective frustration shown in the European Parliament among all political groups at the failure of the other institutions to develop the Community as a cohesive entity. The European Parliament, through various resolutions, through its reaction to the Spinelli report--again, often irrespective of political groups—repeatedly expresses its frustration — indeed anger — that the Community is not making progress at a time when the whole of western Europe is facing such grave issues that it should be doing so. Therefore, it falls exclusively to the European Parliament, which is constitutionally weak -- that is also why it feels frustrated—to try to take this development forward, but it cannot because the member states will not themselves do anything about it and because the European Council is a quasi-autonomous institution overlaying the European Parliament and the Council of Ministers and further slowing down the collective development process.

That applies to the budget as well. That is why it is right for Members of the European Parliament and, I hope, hon. Members here to realise the validity of developing all this, and be in favour of the budget evolving, as well as the EEC as a whole. It is a great sadness that the budget is not larger. What a miserable little instrument it is for cohesive financial decision making, developmental progress, reducing unemployment, building up the regions and so on, particularly when so much goes on agriculture, although that has a positive regional effect that must not be ignored.

The fact remains that the gross myopia of all the member states' Governments, irrespective of political complexion or the majority in any of their Parliaments, has in recent years produced a gradual paralysis of the Community, which is not merely disturbing but terrifying. Therefore, I hope that Her Majesty's Government will understand again their solemn obligations and not only drat which is the immediate prerogative and preoccupation of the debate — getting through the budget crisis and finding a just and fair solution for the United Kingdom..

Without exaggerating that requirement—which is valid but should not be overstated at the expense of other,—there are even more important policy requirements. I hope that on that basis and, I hope, a successful resolution at the end of March at the summit on this short-term crisis, the Government will become one of the most enthusiastic member states of the European Community. They will have seen that, despite the constitutional rigidity and institutional paralysis of the Community, the other members states—allowing for their exasperation with us, which must also be acknowledged, although it does not make me unpatriotic to say this—have come our way and agreed with us. Many of them feel that in Brussels, in the other institutions—the Commission and elsewhere — the United Kingdom has exaggerated these problems, although we feel differently for understandable reasons.

The amounts involved are minuscule and the EEC budget is an unrealistic instrument for gradual EEC fusion, harmonisation, collective policies, or European union, to use that convenient but vague constitutional term. That is why I am enthusiastic about going through the own resources ceiling as soon as possible and do not feel alarmed at the idea of 2 per cent., which may seem radical and over-dramatic, but is not in that sense anything other than the beginning of what could be the first stage of a realistic Community budget.

There is no way in which farm spending can be significantly reduced in absolute terms. It may be possible to reduce some of the surpluses — and even they are exaggerated, except the dairy surpluses—but only to a limited extent. If farm spending is to be kept more or less in broad terms at existing levels, allowing for a normative annual increase, it will be unrealistic to do other than increase the size of the EEC budget and spend money on other desirable areas.

What a farce it is that the British Labour party Is unwilling, despite the fact that it is obsessed with spending public money in this country, and the more the better, to agree to that in the European context, when so many of its Socialist colleagues are involved in the European Parliament and elsewhere. What an exaggeration it is for this national Parliament and others to talk about the need for financial discipline and to avoid bankruptcy in the EEC budget. We all know that that term is even more technical than in the concept and sense of domestic bankruptcy. At least the EEC budget does not have a deficit, as do all other national Parliaments. The budget deficit in Italy is £50 billion; in ours the borrowing requirement is about £9 billion. The EEC budget needs to be bigger. I hope that in future there will be a change in the treaty that will produce a debt ratio gradually developing as long as that money is to be invested in desirable purposes throughout all member states.

There is a need for proper financial discipline, and the Court of Auditors has been rightly critical in a number of important aspects. It also criticises us, as much as the other member states, on certain financial matters, so we are not uniquely virtuous in any sense in that context. There are many criticisms about the way in which money can be transferred from one chapter to another—the so-called continental habit of budgeting and financial expression —and rightly, on both sides of the House, criticism about the way in which amounts can be taken from one annual period to another and all the rest, which is a different approach. Morever, there is no case, other than in the past few years of severe deflation in this country, for saying that there is instrinsically less financial discipline in the management and operation of the EEC budget than there is in the member states, with the possible exception of one or two. I hesitate to mention them now, because I do not want to annoy some of our colleagues on the other side of the Channel.

Therefore, if that is so, let us maintain a sense of realism about these matters. Let us go into the resolution of the present short-term crisis and build up and enlarge the Community budget thereafter with equanimity and enthusiasm, because we know that the United Kingdom will benefit substantially from spending money in other sectors where budgets are held back artificially by the unreality of maintaining the own resources limit, which is getting increasingly out of date.

Mr. Budgen

My hon. Friend is courageously putting forward a view that is not popular on this side of the House.

Mr. Rippon

It is to some of us.

Mr. Budgen

I am grateful to my right hon. and learned Friend the Member for Hexham (Mr. Rippon) for that correction.

All of us are listening to the Government's remarks with great care, and those of us who disagree with my hon. Friend's proposition take the view that the Government's position is ambivalent. It may be that my hon. Friend has heard remarks from the Government that support his view. If so, we are grateful, because it is something that we fear but are at present open minded about.

Mr. Dykes

I am not sure to whom my hon. Friend was referring when he said "we".

Mr. Budgen

Those of us who disagree with my hon. Friend.

Mr. Dykes

The "we" might have been verging on the royal. I think that Government policy has been and is clear —I support it—and I think that what I am talking about is also clear.

Mr. Budgen

rose—

Mr. Dykes

I shall continue, if my hon. Friend will allow me.

There is no problem in that context. As the stages of negotiation have continued — and this is the normal process — the Government have developed more enthusiasm for those objectives in the future than they had at first, when they were naturally preoccupied with trying only to get the rebates fixed in amounts and obtain them from the budget Council and summit meetings.

We have proceeded beyond that stage, which is logical, and there is no divergence between what I am saying and what appears to me to be the Government's policy. Therefore, there is an opportunity to be used after the March summit. It is reassuring that the summit is in the hands of the French presidency. Although in the conventional mythology we suggest in this House that everybody on the continent is basically wicked, but that the French are even worse than the rest, I do not believe that to be the case. The Socialist Government of France are concerned to resolve the immediate crisis and to try to develop the Community further. They, too, know that the old pattern of saying that the budget is mostly concerned with agriculture spending, with only a little on the rest of the items, is no longer valid. The Community has to pass beyond that paralysed stage of inefficiency and lack of achievement. It is important for the Government to recognise those factors.

It is asking a lot to have a system that will continue for ever, so we may have to have a compromise mixture of annual periods of adjustment in the rebate and a safety net system, with some kind of mixture coming out of the very intricate negotiations. I hope that the Government will remember—as others should—that the amounts involved are very modest. I am not referring to the total excess payment, which we could regard as an aggregate rebate concept. We would, after all, settle for some deficit payment—some net contribution. Although we might think that it is unfair, we have already said that it would be justified.

Therefore, the amount of money that we are discussing is equivalent only to three days' public spending in the United Kingdom. That is the measure of the crisis that has been precipitated by the excessive adherence to nationalism in all the member states, including the United Kingdom, at the expense of the Community, for the sake of objectives that have assumed all too great a political posture, way out of proportion to the amount of money involved.

Therefore, it is not only a matter of establishing a proper rebate system, and the amounts of money which should be in an enlarged budget in the future; we should be doing other things conjointly with economic decision making. In the end, it is also a matter of joining the EMS. It is sad that the Government have not yet been able to make the decision. The EMS has been an unqualified success, apart from several hiccups which were only a matter of adjustment in the rates, and entirely within the operational framework of the policy. The Government are already halfway there as a member of the reserve sharing system, so that it would be a good idea to go the whole way and join the EMS.

My conclusion must be that the motion is correct, that the Government are pursuing exactly the right policy to get the correct result at the end of March, and that the Opposition's policies are ludicrously irrelevant and outdated. They even embarrass their own members. We have seen nothing of the alliance today, apart from the few hon. Members who appeared during the concluding remarks of the hon. Member for Inverness, Nairn and Lochaber. It is for the European party par excellence in this House—that is, the Conservative party—to find the right solutions.

6.3 pm

Mr. Nigel Spearing (Newham, South)

This is only the second occasion in about 14 years when I must resist the temptation to reply to some of the remarks of the hon. Member for Harrow, East (Mr. Dykes)—particularly his opening and closing remarks—but I have no doubt that my hon. Friends will deal with them adequately in due course.

The debate and the motion illustrate some of the problems facing the House in grappling with the issues of the European Community. We have five issues before us in the motion, mostly related to finance.

I think it would be in order for me to comment on at least one point made by the hon. Member for Harrow, East, who is advocating up to 2 per cent. of VAT base as the limit to which the Community can draw on our funds. I remind the hon. Gentleman that that would mean that about 22 per cent. at the current rate of our VAT take would have to be transferred to Brussels. He may well feel that that is proper, but I suggest to him that there would be, some debate at least in this House over such a figure.

The first of the five topics, at which the House is looking simultaneously is the draft budget, together with the two amending documents. These were described in HC 78-ii, the Second Report of the Scrutiny Committee, over which I have the honour to preside.

The second topic relates to the repayments to the United Kingdom and Germany. They were discussed earlier in the debate, together with the importance of their being either obligatory or otherwise. Those matters were reported in HC 78-xi, the Eleventh Report of the Committee.

We also have before us, as third topic, the Court of Auditors' report for the financial year 1982—OJ C357—running to 243 pages, on which the Scrutiny Committee reported on 5 February in HC 78-xiv, which is not yet published.

We have before us also the motion which refers to future financing, and the Scrutiny Committee reported to the House on that in HC 78-vi. The Foreign Secretary appeared before us on 15 February last, giving us further evidence.

Finally, the Opposition's amendment deals with the policy of holding back our rebates.

Mr. Anthony Nelson (Chichester)

If I heard the hon. Gentleman correctly, he said about a minute ago that 2 per cent. would amount to 22 per cent. of the VAT yield. Would he care to explain that in relation to the point about 2 per cent. of 15 per cent.?

Mr. Spearing

I shall try to answer the hon. Gentleman's question, although I do not want to take long over it. I am not at all surprised at the hon. Gentleman's surprise, but one of the functions of the Scruntiny Committee is to look at some of the essential facts which might otherwise escape the attention of the House, the country, or some of the other members of the European Community.

When we speak of the all-important 1 per cent. of VAT, we remember that there have been various interpretations. I admit that some time ago I thought that it was 1 per cent. of our VAT take; other people thought that it was a 1. per cent. rate on the current 15 per cent. VAT. But it is 1 per cent. maximum of the assessed VAT base, which works rather like a rateable value, in that it is assessed annually by the Commission and by the Council. It is a rate of up to 1 per cent. of that base which has to go to the EC. The current rate—I think it was last year's rate—amounted to no less than 11 per cent. of the VAT take.

I should add that the amount every year will necessarily vary because the base can vary marginally. The percentage of the base can vary, and, in addition, the rate of sterling against the ECU will also vary. If sterling goes down., our contribution goes up, even if the notional rate is the same. I hope that I have fully explained the matter to the hon. Gentleman. I am obliged to him for his inquiry, because this point has not been very well understood. Indeed, it has perhaps emerged only in the last few months.

I do not want to spend too long on any of the five issues. I want to concentrate on two points in particular—the Court of Auditors' report for 1982 and the report of the Scrutiny Committee on it—and also on some of the major points arising from the Committee's Sixth Report dealing with the future financing of the Community.

I turn to document HC78-xiv, which is available in the Vote Office. Unfortunately, although the Committee reported on 8 February, it is not yet fully available to the House. The process whereby the Court of Auditors' report is discharged is perhaps crucial in the control of the Council of Ministers over the way in which money is spent. Last year we heard from the Minister that letters had been sent to the Council and that things had been said. I hope that he will be able to give us assurances again, because we understood that in the past the discharge of the Court of Auditors' report had sometimes been taken as an "A" point in the Council of Ministers and had not even received very much discussion. It is a pity, because, as is said in paragraph 6.26 of the Court of Auditors' report, in respect of the European regional fund—which is often a feature of our debates on these matters—there is a narrow conception of regional development measures … the impact on the region of the various national and Community policies—agricultural, industrial or social—is mentioned for the record only, without any attempt to translate it into figures or indeed any precise indication of what results are envisaged". It appears that the all-important regional fund does not contain much evaluation of the results that are expected from the expenditure authorised.

I wish to draw particular attention to the report of the Court of Auditors on the European development fund. It is funded direct from the Vote of the Overseas Aid Appropriation, and is not part of the EC budget formula that we have just been considering. The report that we made on that subject to the House illustrates the many serious difficulties encountered in the implementation and programming in favour of developing countries. The Court of Auditors' report, and our report to the House, pointed to one or two issues where there have been difficulties, including a spectacular failure in relation to a road in the Congo. Some 33 million ECU were spent on 77 kilometres of road, the expenditure being nine times that of the initial estimate. The report points out that it was an exception to the general rule, but it raises disturbing issues.

I also wish to draw attention to the Court of Auditors' report, paragraph 15.72, dealing with the place of the European Investment Bank in the activities of the European development fund. It states: The Commission's files regarding projects for which it has paid an EDF contribution to the EIB are inadequate to permit the Court to perform the duties imposed on it by the Treaties". It goes on to say that insufficient material is available for its scrutiny. Paragraph 15.78 — it is an extraordinary admission—also states: The Commission delegations"— the Commission's own diplomatic representatives abroad— are rarely informed of EIB financing decisions and project progress. In Mauritius, it was only through the local press that the delegate learned of a decision to grant an EIB loan with EDF interest subsidy. There are other points about the EDF accounts, in particular, the arrangements — or lack of them — for monitoring scholarships. Paragraph 15.12 says that from July 1981 to December 1982, there was no record in the EDF accounts of the expenditure incurred by the scholarship management agencies in Belgium and France. It goes on: It is therefore impossible to check the accuracy of the figures presented.

I mention these matters only because the Court of Auditors' report, which is about 240 pages long, is our only method of control over EC public expenditure—or, rather, its advisability and proper accounting method. This is a matter that exercises our minds equally on both sides of the House—indeed, if anything, perhaps more so on the Government Benches, where nowadays many hon. Members hold particular views on public expenditure. The matters dealt with in the report are just as much public expenditure as is expenditure in this country when it comes to scrutiny by this House.

Mr. Dykes

I am sure that the hon. Gentleman would be the first to agree with me, not only because of the modest sums involved but because the problem has not yet been solved by the House of Commons, that the problem in the Community pales into insignificance compared with the problems that face the British Parliament.

Mr. Spearing

I am not sure that I agree with the hon. Member for Harrow, East, but as Chairman of the Committee I cannot go too far down that road. I suggest to the hon. Gentleman that the powers of the Public Accounts Committee and of the Comptroller and Auditor General, now an Officer of the House, put him in a position vis-a-vis our domestic expenditure that is somewhat different from his position vis-a-vis EC expenditure. I commend that point to the hon. Gentleman.

Before leaving the subject of the European development fund, I point out that in the Second Report of the Select Committee on Overseas Development on the renegotiation of the Lomé convention—Lomé II—HC 586 of Session 1977–78, the then Government clearly said: Experience has shown that such programming"— of the EDF— needs to be conducted with care and that projects within programmes should not be considered as commitments until they have been examined in detail". That was the view of the then Government in negotiating Lomé II. We are now negotiating Lomé III, and I hope that the remarks of the Government and the Select Committee at that time can be incorporated into the negotiations that are now in progress in producing Lomé III.

I turn now to the second part of my comments, about the future financing of the EC and the problems inherent in it. We read in the press this morning of a triangle of forces between the institutions. In its report to the House on 23 November last—HC 78-vi—the Select Committee tried to give an objective summary of the problems now facing Her Majesty's Government and the House. I draw attention to the table on page 7 of the report, which sets out the full position on payments; the sources of payments to the EC and the receipts that we received. The last full figures are for 1982. They show that our total gross payments amounted to £2,863 million, of which the VAT contribution was £1,554 million. Our net contributions for that year, without refunds, amounted to no less than £1,600 million, although our refunds for that year were £1,000 million, giving a net payment of £600 million. Of course, much of that £1,000 million of refunds was on expenditure in this country, which we would have to bear under our own Budget were we not a member of the EC.

However, I draw attention to the fact that of the total of receipts—£1,238 million—no less than £791 million came under the heading of the European agriculture guidance and guarantee fund. I stress that £791 million—virtually £800 million, some two thirds of the receipts from the EC—went to the agriculture sector. In view of the discussions that are now taking place, partly in the National Farmers Union and partly in other circles, we should realise that the receipts to Britain come largely within that one economic sector.

In the summary of United Kingdom expenditure, given in the equivalent report to the House by the Intervention Board, Cmnd. 8963, for the same financial year, the split in some of these figures is interestingly set out. Cereals support was £184 million, dairy support £170 million and support for whisky was £81 million. We had export refunds of £27 million for sugar and £28 million for the private storage of sugar. So there was £737 million in agriculture at that time.

The problems that we face are well illustrated by the question and answer session that we had with the Economic Secretary on 21 November 1983. The questions and answers were fully taken into account in the Sixth Report, which was published on 23 November, and show that the Government have a formidable task ahead in pursuing the Stuttgart objectives. Question 90 asks: Who will take those decisions—Treasury or Agricultural Ministers? The Economic Secretary replied: There has been a proposal that Finance Ministers should be more involved with the decisions, but the mechanism has not yet been agreed. That illustrates the nub of the problem facing us all. Agricultural expenditure is rising as production increases, so the ceiling is rising. Such expenditure needs to take account of world prices, which we cannot control. If world prices fall, so the floor will go down.

Therefore, the problem for the Government in controlling agricultural expenditure—the condition that they have put down, which is supported by both sides of the House — is how to achieve that aim. From our question to the Economic Secretary, it is clear that control is not yet to he vested in our equivalent of the Chancellor of the Exchequer. It is to remain largely in the hands of Agriculture Ministers. The distinction between those who have the responsibility for raising money and those who have the responsibility for spending it lies at the heart of the problem. Indeed, it goes to the question of control by the House—the control that it used to exercise, that it obtained from elsewhere and that it still holds.

That is the measure of the problem. Therefore, it will come as no surprise to hon. Members that difficulty and controversy will continue, at least until the summer, and perhaps even longer.

6.21 pm

Mr. Robert Jackson (Wantage)

When I was elected to this honourable House in June last year, I hoped that I might have the chance on one or two occasions to bend the ears of my colleagues on the subject of the European budget and the CAP, on which I have specialised as a Member of the European Parliament. However, as things have turned out, we have had many more than one or two —some might say too many—opportunities to discuss such matters. So may I congratulate the usual channels on the number of European debates that they have sponsored in the past few months. Certainly no one can say that Back Benchers have not had the opportunity to express their views on the issues currently under negotiation in the Community.

In that spirit I shall discuss the principal points at issue in one important sector of the current Brussels negotiations. I refer to the reform of the European budget.

I call this only "one sector", because budget reform is only a single element among the several that comprises these negotiations. Another crucial element, which was mentioned by the hon. Member for Newham, South (Mr. Spearing), is the reform of the finances of the CAP. However, I shall not address myself to that subject today, but will instead focus on the problems raised by our efforts to install an automatic budgetary corrective mechanism in the European budget.

The first question concerns the way in which such a corrective mechanism should operate. The Government have proposed that it should be done by an abatement of the revenue contribution from the United Kingdom—that is to say, by an abatement of the payments that flow out of the United Kingdom to the Community budget rather than, as has been done since 1980, by means of exceptional measures of Community expenditure in the United Kingdom. After four years in the European Parliament, I have no doubt that this is the correct approach, because, among other things, as long as compensation for excessive net contributions takes the form of special expenditure in Britain by the Community, it will continue to be very difficult to get public opinion in the other member state to understand that Britain has not sought, and is not obtaining, any form of special treatment. I hope, therefore, that the Government will stick to their guns with regard to the method by which the corrective mechanism is to be paid.

The second question concerns the method of calculation of the amount to be paid, or, rather, to be abated, by way of compensation. I hope that the Government will not relax their position on the method of calculation of the size of the net contribution that has to be corrected. Here I am referring not only to the Commission's ideas about how to redefine the British share of that Community expenditure: those ideas are not and never have been acceptable.

More seriously, the Government should not be willing to accept that in calculating the size of the British gross contribution, the so-called traditional own resources—that is to say, customs duties and levies—should be left out of account. It is a specious argument that a corrective mechanism that includes a measure of compensation for the duties and the levies would somehow be incompatible with the principle of Community preference. Community preference would in fact continue to operate if duties and levies were thus taken into account, because it would continue to apply to the decisions made by economic operators who have to decide how much to import. The question of how much compensation is paid to the United Kingdom Government in terms of public expenditure would be quite irrelevant to the decisions of those operators—so as far as they are concerned the principle of Community preference would continue to hold.

I hope, therefore, that the Government will maintain their position that the total gross contribution must be taken into account in assessing the gap which has to be compensated. I say this because there is a danger that if we accept that the net contributions gap should be calculated only in relation to the VAT contribution, the amount of compensation that is eventually agreed may appear to be too large in relation to a net contribution which is measured on such a narrow basis. And if it appears to be too large, it will be very difficult for us to explain and justify it to opinion elsewhere in the Community.

However, while the Government should stand firm on how to calculate the size of the net contribution, I hope that they will show some flexibility in the design of the compensatory safety net that we must and will have for Britain. I am afraid that it will not prove to be workable for the net contribution of any member state, including Britain, to be limited to a fixed ceiling, whatever the size or rate of growth of the Community budget. Our purpose should be to obtain equity in the Community's budget system rather than merely to attempt to put a ceiling on the net contribution of any single member state.

Consideration of this question of equity leads us to one of the most difficult issues in the negotations, which is how budget compensation for the United Kingdom and the Federal Republic of Germany should be financed. It is very tempting for British people to feel that it is not really a problem for us, and that the main thing that we have to worry about is obtaining the money rather than fussing about how it is to be paid. I shall yield to that temptation by not dwelling on this point other than to say that we in the Community cannot go on putting on the backs of the Germans a heavy financial burden to pay for all the rest of us. Germany has been willing to make a very substantial net contribution to the operations of the Community. The German attitude has reflected the historical and political situation of Germany since 1945. However, a new generation is rising in that country, and it is not acceptable or understandable to it that Germany should continue to be in such a position.

Mr. Marlow

Is it not the case that the Germans have a massive surplus in exports of manufactures with the rest of the Community, and that therefore it is worth while for the Germans to pay a considerable membership fee for the Community whereas the opposite is true for the United Kingdom which has a massive manufacturing deficit?

Mr. Jackson

I entirely agee with my hon. Friend. But he must recognise that we cannot overload the Germans, because the political consequences of a change of attitude on this point could be very serious.

So the first point to make about who should pay is that it should not be only the Germans. What we must do is to get the Community's richer net beneficiary countries to pay their fair share. I shall take the case, for example, of our good friends the Dutch. They have indeed been good friends to us in Europe. The point I want to make to them should appeal to them because they are not only a businesslike but also a conscientious people. The Netherlands has one of the highest incomes per capita in western Europe and, indeed, the world. Nevertheless, that country has been a net beneficiary from Community expenditure since the Community's beginning. And over the past three years it has been a net beneficiary of such expenditure to the tune of some £200 million per year.

Since about half of all the net benefits in the Community are paid for by the United Kingdom—the other half is paid for by Germany—a quick back-of-the-envelope calculation shows that we in Britain have been transferring resources to the Netherlands to the tune of about £100 million a year. It is not, I think, wholly unfair to compare that figure with the £110 million in resources that we transfer to India each year. Our Dutch friends should appreciate that we through the Community transfer more resources to the Netherlands than we do to India. They should try to do something about it.

Another crucial question in the negotiation is that of the duration of the proposed budgetary corrective mechanism. The ideal must be to obtain for us a mechanism which, as my hon. Friend the Economic Secretary said, would "last as long as the problem lasts". Indeed, it would not be acceptable if the mechanism operated only for an arbitrary number of years. It could not be logical for the Community to recognise the problem of net budget contributions and then to decide that the solution to the problem should operate for only a few years rather than for every year in which it arises.

I fear, however, that the Community may not yet be ready to undertake the changes in the budget system which are necessary to solve the problem permanently. I hope that it is, but I fear that it may not be. I fear, therefore, that it may be necessary for us to accept that the duration of the mechanism will be linked to the duration of the proposed increases in own resources.

I should regret that outcome because it can only store up future problems for Britain and the Community. But I should be prepared to accept it—as should the House, if the Government propose it as being the best deal that we can obtain in the present negotiations.

In accepting such an arrangement, however, we should recognise what it implies. At the risk of being thought unhelpful, I shall spell out the implications as I see them. The price of a further renewal of the budget when the next tranche of own resources is exhausted is likely to be our agreement to a still further increase in the Community's own resources in due course.

If that analysis is correct, we must recognise that the time is coming when Britain will have to have a more fully developed policy for Community public expenditure. Such a policy must, of course, include the elements on which we have hitherto laid such stress — the control of agricultural expenditure and other manners of control to which the Minister has referred. We must indeed continue to maintain a policy of vigilance and care to ensure that Community expenditure is cost effective.

But if the size of the Community budget is to be increased as a result of the current negotiations—and I believe that it will be—and if the perspective is of further growth in Community expenditure in the future, it will be necessary for us to think more deeply about what sort of expenditure and what sort of policies we want for Britain out of the growing Community budget. In this context what the hon. Member for Newham, South said about the proportion of VAT that might have to be paid across is correct.

The Government must take the initiative in this task. And I am sure that it will be the occasion for many more agreeable European debates in the future.

6.33 pm

Mr. Roland Boyes (Houghton and Washington)

The right hon. and learned Member for Hexham (Mr. Rippon) said that the social and political consequences of unemployment made the budgetary debate insignificant. I agree with him, in part. The political and social consequences of unemployment on the European scale will be tragic unless something is done about it.

I am the Rapporteur of a report on the social consequences of unemployment which was prepared by a committee which examined suicide, illness and other problems which affect unemployed people. The debate is not insignificant, because it illustrates the relationship between the Community's institutions and the consequential problems into which the Government have got themselves.

Until June 1984 I shall be a Member of the European Parliament. From day one over the last five years I have continually opposed the right of the European Parliament to interfere in the budgets of member states. I am even more against the right of the European Parliament to determine how the budget rebate is spent. In three or four years' time, or perhaps sooner if the Prime Minister continues to have the same problems, the Labour party will be in power in the United Kingdom. I shall certainly not then welcome a Right wing-dominated European Parliament trying to block our moves towards socialism.

Mr. Rifkind

The hon. Member for Houghton and Washington (Mr. Boyes) says that he strongly opposes the European Parliament interfering with the way in which refunds are spent. Can he explain why the British Socialist group in the European Parliament, of which I presume he is a member, voted against previous practice and against other British Members of the European Parliament to try to insist on the rate of refund for projects on which the refund is spent being reduced from the normal 70 to 50 per cent.?

Mr. Boyes

The Minister has been misinformed about the voting.

Mr. Rifkind

No, I have not been misinformed.

Mr. Boyes

I am the one who goes there. If you would like to discuss it with me after the debate I shall be happy to do so. I am making you an offer. I do not usually make offers of a chat to Conservatives, but on this occasion I am prepared to bend my self-imposed rules and discuss the matter with you.

Mr. Speaker

Order. The hon. Member is bringing me into the debate. I should love to talk to him, but I fear that he does not mean me.

Mr. Boyes

I was referring to the Minister. Why is the European Parliament taking such a negative attitude? I regret to say that part of the reason is the isolation of the elected Conservative group in the European Parliament.

Mr. Forth

Can the hon. Gentleman comment on the isolation of the Socialist group in the European Parliament and on the number of times that it has been at odds with Socialist colleagues in that group?

Mr. Boyes

If the hon. Gentleman will be patient for 10 seconds, I shall come to that.

Mr. Budgen

rose—

Mr. Boyes

I am trying to make a short contribution and I hope that the interruptions will be taken into consideration.

Mr. Budgen

The hon. Member for Houghton and Washington (Mr. Boyes) is being unkind to the Conservative group in the Assembly. It has given up its old-fashioned name "Conservative". It has allied itself with Danish parties. It has called itself the Democratic group to show that it is new and European, and 22 of its members voted against the veto. Surely that is an indication that a large section of the Conservative group has a splendid idealistic view of a future United Europe.

Mr. Boyes

The interesting point about that facetious comment is the way in which the hon. Member for Wolverhampton, South-West (Mr. Budgen) described the Conservative group because its members call themselves European Democrats. They are not democrats in a European way and they do not act democratically.

Mr. Jackson

I would like to make a serious point out of an amusing exchange. It is arguable that Conservatives in the European Parliament are isolated, but it could be said that Labour Members in the Socialist group are isolated. The important thing is that our country should not be isolated in European discussions.

Mr. Boyes

I promise to deal with that, because a number of Conservative Members have said, erroneously, that the British Labour group is anti-European, when in fact we are greatly pro-European. [Interruption.] On a number of issues we work closely with our European colleagues. For example, we are working together for a nuclear-free Europe and we are working within the European trade union movement for some control over multinational companies.

Mr. Budgen

How does that square with what the hon. Gentleman said—

Mr. Boyes

If the hon. Gentleman will rise to his feet, I shall give way.

Mr. Budgen

The hon. Gentleman says, on the one hand—

Mr. Boyes

No, the hon. Gentleman did not get to his feet quickly enough. I shall not give way if he cannot come out with whatever he wants to say straight away. In any event, I hope that I shall be permitted to make at least one complete point without being interrupted.

The Government have got themselves into the ludicrous position of having to beg the European Parliament to convene a special meeting so that we can get some of our money back. The British Government should examine this situation carefully to ensure that it cannot recur. The European Parliament is in no mood to compromise with the British Government, and it is this Government in particular with whom the European Parliament is concerned because it knows that any rebate is simply absorbed into our public sector borrowing requirement. When I write to the Chancellor of the Exchequer pointing out the effects of high unemployment on my constituency and asking how, when we receive a rebate, it will affect areas such as mine, I am usually told that the money will be absorbed and that he regrets he cannot do anything to help us.

Mr. Teddy Taylor

rose—

Mr. Boyes

I promise to give way to the hon. Gentleman later.

I regret that one of my sparring partners, who obtained for me much publicity in the past, a former President of the European Parliament, the right hon. Member for Glasgow, Hillhead (Mr. Jenkins), is not in his place, because many of the problems that we are discussing occurred because of the road down which he took us. I do not want to attack him in his absence. I wish that occasionally when we have European debates such as this he would attend so that we can make points about what he did. As I say, I do not want to make such comments in his absence, especially as there are no representatives of the SDP in the Chamber.

The British Government should now demonstrate what they feel about the European Parliament's interference, and to do that we should call its bluff and repeat the words that appear in the Opposition amendment today. Let us make it absolutely clear that we shall stop paying money into the Community if we do not get a fair deal in return.

One of the most disgraceful speeches affecting people such as my constituents was made by the President of the Commission, Mr. Gaston Thorn, to the European Parliament in Strasbourg on 15 February 1984, and I hope that I shall be forgiven for quoting rather more extensively than did my hon. Friend the Member for Livingston (Mr. Cook) from his remarks on that occasion. Having referred to a few small advantages resulting from the activities of the Community, he said that the fact of the matter is that even these modest achievements will come under threat if the Community persists in displaying an inability to adapt to change and face up to the new challenges posed by the march of time. He mentioned in particular the common agricultural policy and said that it was perhaps, the most striking example of this inability to adapt.

The solution to the problem concerns me, because he went on: You know that this year we have our backs to the wall and little room for manoeuvre. The Commission will keep you abreast of developments"— he was talking to the European Parliament— and, at all events, I will be reporting to this House on the Brussels European Council. Clearly, if no decisions have been taken by then to ensure the financing of agricultural expenditure, the Commission will eventually be forced to propose appropriate action, however harsh, to the budgetary authority.

Mr. Thorn's speech was printed in the document that I have with me. However, we were all issued with an addendum. In other words, the addendum was not designed to contain some slack words, as it were, added to the speech by some civil servant. The words of the addendum must have been carefully thought out, and they include this passage: Let us have no illusions. You know only too well that if it does come to this, there are only two ways to balance the 1984 Budget. Either the Member States will have to agree — unanimously, as you well know — to foot the extra bill themselves, or cuts will have to be made in, say, the Social Fund or the Regional Fund to make money available for agriculture.

The Foreign Secretary, at a meeting in Paris in recent days, made his position clear. Alan Osborn, Common Market correspondent of the Daily Telegraph, reported: Britain has insisted that it will not consider any increases in the EEC's annual income from member governments until its two demands are met … and those are … sweeping reforms to reduce EEC farm spending and correct imbalances in the budget. Thus, the only solution left is to cut the social fund. Small though it is—I said in a debate earlier in the year that the amount of cash available was analogous to trying to treat a man run over by a steamroller with a Band-aid—the Commission is proposing to reduce the amount of cash available to the social fund to try to solve the Community's problems.

When we remember that there are at least 12 million people unemployed in the EEC — and the trend is upwards—with more than 35 million people living in poverty, it is wise to consider what cutting the social fund would mean. Over the next three years, £500,000 has been earmarked for a poverty programme. A simple calculation—a calculation slightly more difficult that counting the number of SDP Members present in the Chamber today — shows that if only £500,000 is available for 35 million people living in poverty, not much more than 1p per person will be available. Yet Gaston Thorn has the audacity to stand before the European Parliament and say that, because of the present crisis, money will have to come from perhaps the only fund that is designed to help the people whom we in the Labour party represent—the unemployed, the poorest and the young people without jobs.

Mr. Forth

rose—

Mr. Boyes

What a disgrace to propose such cuts.

Mr. Johnston

rose—

Mr. Boyes

If hon. Members wish to intervene, I will take them one at a time.

Mr. Johnston

The hon. Gentleman might feel, on reflection, that he is being a little unfair to the President of the Commission. Does he agree that the Commission has in the past, and under Gaston Thorn, pressed for increases in regional and social funds, as has the Parliament itself, but that those efforts have been blocked by the Council? Is he aware that what the President was saying, in effect, was that if one was in a budgetary crisis one would have to fulfil the obligatory expenditure, and that the only area of fluidity was the non-obligatory expenditure to which one was not legally committed?

Mr. Boyes

I cannot agree with that. I tried to illustrate the ethos of Mr. Thorn's speech by quoting extensively from it. They were his remarks; I was not reading from a newspaper report of what he said. He was speaking to the European Parliament, and that is why I stressed that it was not any slip of a pen but a well thought-out and determined policy.

Mr. Forth

We know that there is a British Socialist representative in the Commission and we assume that he must have agreed with the collegiate view that was expressed by Mr. Thorn. However, does he agree that the British Government's position is entirely different and that they have consistently laid stress on control of the agricultural sector to maintain programmes involving the regional and social funds?

Mr. Boyes

The cash that is available for the social and regional funds is still extremely limited. One of the most serious problems with the EC is that Members of this place can question a Minister only when he has been to an EC meeting. The House has no way of determining what he should say when he gets there. The remarks of Government representatives of the Ten are said to be confidential and secret. That being so, I cannot be sure what half of them have been trying to do. On a number of social issues—for example, the Vredling issue—only one Government have stood out against all the other member Governments, and that it is the British Government. Our record on social measures in the Council of Ministers is—

Mr. Allan Rogers

Appalling.

Mr. Boyes

—bad. The matters that we have discussed will be well understood by those who are present. We all understand how the various institutions interrelate. But much of what has been said will mean little to those outside this place. I shall illustrate the interrelationship of the institutions in a way that everyone whom I know will understand.

The Commission has taken the British Government to court over the harmonisation of tax on wine and beer. I speak as an ex-working men's club secretary and a member of about a dozen working men's clubs in my constituency. In case you ever invite me for drinks, Mr. Speaker, I must ask you to ensure that tomato juice is available, as I do not drink alcoholic drinks. I declare an interest in clubs and the price of beer, but I do not have a vested self-interest.

The European Court has determined that the tax on wine and that on beer must be brought more closely together. This is an issue which my constituents and those in the region understand very well. They know what an additional 7p on the cost of a pint of beer means. None of us really understands what 300 million ecu or £1 million means. The figures are so huge that they are beyond comprehension. Much of what we have discussed this evening has been beyond comprehension, but a man knows what an extra 7p on his pint means. A man who runs a club knows that 7p a pint on his beer will close his clubs. Most of us know that the clubs and pubs are now under threat.

Brewery representatives know, too, that an extra 7p on a pint of beer will so reduce the amount of beer that is bought that unemployment will increase as a result.

Mr. Marlow

I wish to agree with the hon. Gentleman and support him, particularly as more working people actually vote for the Conservative party than any other party in the country. There are many people on this side of the House who would be very anxious indeed if the Government were to increase taxes on beer so that we could subsidise claret for the Social Democratic party. I should like to go back to the point that the hon. Gentleman was making about social policy. Does he believe that social policy should be decided by Brussels—

Mr. Boyes

rose—

Mr. Marlow

—or decided here?

Mr. Boyes

Can I decide to give way to an intervention, Mr. Speaker, and subsequently decide not do so?

Mr. Speaker

No. However, the hon. Member may now respond to the inteventon of the hon. Member for Northampton, North, (Mr. Marlow).

Mr. Boyes

I wish to concentrate on beer prices and the mess from which the Government must extricate themselves as a result of the European Court's ruling that taxes on wine and beer must be brought closer together. The harmonisation of tax on wine and beer does not relate directly to tax matters. The issue has arisen because there is a surplus of wine and there is a wish to sell more of it. It is hoped that the harmonisation of taxes will cause the British people to drink more wine than beer. I concede that the amount of wine that is being consumed in Britain is increasing slightly, but I cannot envisage the miners, shipyard workers and other working people in my constituency going into pubs and beginning to be white wine drinkers. They will want a pint of beer.

What are the revenue implications? According to the best information that I can obtain, an increase of 1p in the cost of a pint of beer will bring the Chancellor of the Exchequer an additional £95 million. An increase of 1p on the cost of a bottle of wine will bring him in only £5 million. If the Chancellor increases the price of a pint of beer by 7p, he will rapidly lengthen the dole queues. I know that the Government have not cared about that for the past five or six years, but I think that the implications of lengthening the queues still further are now becoming apparent and alarming to them.

If the Chancellor of the Exchquer reduces the price of wine, he will want to retrieve the loss of revenue from another source. It is not in the nature of this Government to give away money. For example, if he reduces the price of a bottle of wine by 19p, he will have to collect nearly £100 million from somewhere else. Where will he find that extra revenue?

The problems that are caused by the interrelationship of the institutions will continue for as long as we have a European Parliament that can block the budget and a Commission that can take member states to court. If the results of this messy interrelationship are allowed to work their way down to ground level, we shall find that an extra 7p a pint will be added to the price of a pint of beer. We shall continue to find ourselves in severe difficulties from time to time if the present interrelationship is allowed to continue.

The Government must take two measures. One is important and the second is vital. First, they must examine the interrelationship between the institutions. We cannot have the European Parliament determining what happens to the budget. Secondly, we must make it clear that we shall not solve the problem of the CAP by putting the greatest imposition on the poorest people in Britain, especially the working people. It is vital to ensure that 7p is not added to the price of a pint of beer and that we find another solution to the problem that is caused by the Italian wine lake.

6.58 pm

Mr. Teddy Taylor (Southend, East)

The hon. Member for Houghton and Washington (Mr. Boyes) seemed to give way to almost everyone under the sun, and I am only sorry that he chose not to allow me to intervene. He obviously knows far more about the European Assembly than anyone who has contributed to the debate so far, and he explained that to us in detail. As someone who has spent so much of his time in that institution and who realises the amount of time and energy that it consumes, perhaps he can say whether working people in his constituency and in mine would be any worse off if we did not have a European Assembly or Parliament. Having listened to all those who have spoken about the great problems within the Community and how nothing can be done to solve them, it seems that the first step that we could usefully make would be to abolish the European Assembly as from tomorrow. No person in Britain or elsewhere in the Community would be worse off, and a little more help would be provided for some of the worthy interests supported by hon. Members on both sides of the House.

The hon. Member for Inverness, Nairn and Lochaber (Mr. Johnston) in a thoughtful speech said that the House was empty. He made that point the last time he spoke in a similar debate. He tried to make it clear that that had nothing to do with the fact that he was speaking and that he was not scaring other hon. Members away. I believe he knows why the Benches are empty. It is clear that the parties are put in the difficult position of arguing the opposite of their usual arguments. The Conservative party has just published a White Paper pointing to the importance of cutting public expenditure and the Government not making decisions about where money goes in investment. The Government want to stop expenditure in Britain, but they are supporting it in the Common Market.

The hon. Member for Livingston (Mr. Cook), who usually makes good speeches, will admit that he was knocked for six by a splendid intervention from my hon. Friend the Minister of State, Foreign and Commonwealth Office, who suggested that if he were arguing for European co-operation and spending for jobs and welfare, he was arguing for the further development of the Common Market.

A major problem is that the Labour party clearly sees that in the Common Market it has the vehicle to achieve all that it—the Labour party—wants for society. The Labour party can have its developed regional policy, an extended social fund and many bureaucrats running around deciding how to spend more and more public money in the hope that somehow it will solve the problems of unemployment. That is Labour's rightful place. It should be enthusiastic in developing the Community and extending its budget. I suggest that, for the same reasons, it is ridiculous for the Conservative party, while arguing as it rightly does for the curbing of public expenditure and state interference, to think that Community problems would be relieved by increasing the amount spent by the Community.

The most interesting speech made from the Conservative Benches came from my hon. Friend the Member for Harrow, East (Mr. Dykes). He referred to the amount of the budget taken by agriculture. His solution to the percentage problem was to increase spending elsewhere. I hope that the Government will reject that proposal. It is similar to saying to one of our constituents, worried about the fact that he is spending more than half his income on whisky, "If you spent more on tobacco and gambling, you could cut that amount to 25 per cent." That is what my hon. Friend was suggesting, and I hope that it will be rejected.

It is timely that we should be debating the Common Market budget a few days after publication of the White Paper on future public expenditure in Britain. The two documents show the stark difference between the spending attitudes of those institutions. The White Paper is marked by savage restraint in spending, while the Common Market budget shows its usual casual disregard for the use of taxpayers' money. It is possible to go through the long pages of the Community budget in a nit-picking way, commenting on the many examples of profligacy and waste that we have come to expect from the Common Market, but the real issue is the vast percentage of the total budget taken by agriculture and—this is more important to me—the huge proportion of the agriculture budget that is swallowed by the disposal of surpluses. That is done either by increasing the size of mountains and lakes or dumping the surpluses at knock-down prices in the Soviet Union and elsewhere.

I hope that my hon. Friend the Minister of State will take some steps to explain some of the items of expenditure in the Community budget. Page 25 of the document refers to a fixed entertainment allowance of £1.5 million. At the foot of page 25, there is a reference to entertainment expenses of an additional £650,000. Who receives those substantial allowances? What is done with them? I understand that they relate only to a small number of people appointed by the Commission. The high level of entertainment expenses may account for the alarming amount that appears to be spent on invalidity allowances for the Commission's staff. Why is it necessary to pay in invalidity pensions to a staff that is smaller than the Scottish Office and smaller than the GLC more than is paid to the entire British Civil Service? What is wrong with the Community? Does it spend too much on entertainment and, therefore, its staff are invalidity-benefited, or is there some other reason? I hope that the Minister can give us the answer.

We know that the Community is spending vast amounts of money—

Mr. Allan Rogers

Did the hon. Gentleman say that the pension of the retired President of the European Commission was larger than that for the whole of the British Civil Service?

Mr. Taylor

I was referring not to an individual, but to invalidity benefit pensions which, I understand, differ from the pension received by the right hon. Member for Glasgow, Hillhead (Mr. Jenkins). The fact that there are never members of the Social Democratic party at these debates should not be taken as a sign that they have been invalided out. I understand that they are busy people who want to go to lots of places, except the House of Commons.

What is meant by the reference to spending several hundreds of thousands of pounds on informing young people in the European spirit? I believe that the Minister is aware that most of us, people in towns and guilds, doctors and dentists and those who have positions in society, have been invited to join the traditional free trip to Strasbourg to meet the Commissioners. We know that a vast amount is spent on publicity, including handing out silly glossy pamphlets. At any conference there is always a European stall at which free glossy pamphlets are handed out. They are usually rubbish and end up in the bucket.

There is now a new venture—a special programme to inform young people in the European spirit. On what is the money being spent? How and by whom is it being spent? What are the Common Market and the Government doing —I hope that this is not an extension of entertainment—in giving so much money to support the so-called European Movement — an organisation promoting federalism, which today the Government said we oppose? I understood that my hon. Friend the Economic Secretary to the Treasury was worried about the fact that some Conservative, so-called European Members of Parliament have been voting against the veto and in favour of federalism. The Economic Secretary to the Treasury said that that was against all that the Conservative party stands for, yet we are giving a vast amount of money, through Common Market funds, and, I am ashamed to say, British Treasury funds, to keep that organisation going. That organisation is fully in support of the Spinelli plan and advocates it publicly.

That costly enterprise, the Commission, is spending most of its money on agricultural policy, which promotes waste and extravagance.

Mr. Marlow

My hon. Friend has told the House about various items of Community expenditure. He is a great expert and knows more about the Community than probably any other hon. Member. He may be aware that last December the Commission opened plush new premises in London. Does he know how much those premises cost and how much larger they were than those occupied previously? I have asked the Government for information on that subject, but so far I have not received any.

Mr. Taylor

I am afraid that my hon. Friend will find that what the silly European Assembly spent is not controlled by this Government. We are on a totally new spending exercise at a higher level. The Commission's expenditure is an unfortunate example of public expenditure getting out of control. That is shameful. We should be more careful with public funds. I know that some hon. Members take the silly view, "What is £1 million here or there?" If they realised the worry people face in paying their taxes—not just on their income but every time they spend money in the market — they would have a more careful attitude towards public spending. Although there is that careful attitude within the Government, it is not shown in the EEC.

We are all worried about the amount of spending on agriculture, but I am more worried about the huge amount being spent not on farms in France, Britain elsewhere, but on dumping agricultural surpluses. According to written answers that I have received, 40p in every pound spent by the Common Market is used in disposing of agricultural surpluses. That is done by selling them at knock-down prices to the Soviet Union or other countries. A great deal of damage, distress, poverty, misery and death is caused to the poorest countries.

Some of us get upset—I am sure that our friends at the Treasury are more upset than anyone—at the way in which Common Market money is wasted. If we as a nation and the Common Market are stupid enough to pay our farmers prices that are vastly above the world price, that is up to us. If we want to ensure that every farmer has 10 Mercedes cars, that is a matter for us or the Common Market. We are entitled to take those decisions, whether they are right or wrong, but we are not entitled—I hope that the Government will do something about it—to cause so much damage, hardship and distress to some of the poorest countries, which are trying to get a decent return from their agricultural produce, but cannot because of Common Market dumping.

I had the pleasure to visit Pakistan early last year. It is an ideal country for sugar growing. There are perfect conditions for it. The people are trying to get a decent price for it, but cannot. I am sad to say that when they try to sell their produce. they find that the price is rock bottom, because the Common Market is dumping surpluses. The world price for sugar is about £120, but the price for British, French and Italian producers is about £350 to £360 — about three times the world price. It is the same for dairy products and cereals.

The Stuttgart summit made it clear that we accept the structure and principles of the CAP, and that all we are looking for are modifications and adjustments. That should be said in case some of our supporters or members of the public were disappointed. The Government are asking not for a reform of the CAP, but for modifications and adjustments.

I hope that those who have influence in the Common Market will at least agree that, whatever we do, we should not wreck the world markets. If we want to charge our people five times the world price for butter, that is our decision. If we want to charge them three times the world price for sugar, fair enough. If we want to charge people double the world price for cereals, that is our business and our stupidity. However, we must not wreck the poorest countries. I am surprised that some of the great Church leaders, who are always marching up and down complaining about the Government's policies, never protest outside the doors of the Common Market Commission about the damage, poverty and distress caused to the poorest people. If there is any place those leaders should demonstrate, it is there.

Some of my right hon. and learned Friends talk about the Brandt report and how we must try to help the underdeveloped world. Why do they not also say that the CAP is doing great damage to the world's poor and stopping those countries from getting a decent living? They cannot get it because Common Market salesmen are ruining the world market by indiscriminate dumping at knock-down prices.

Mr. Bryan Gould (Dagenham)

That is exactly right.

Mr. Taylor

It is exactly right. But what are we going to do about it? That is the important thing.

Mr. Foulkes

What have the Conservative Government done?

Mr. Taylor

I do not want to become involved in party political points. The hon. Gentleman must know that at least the Conservative Government have achieved a little more than the Labour Government. They got the famous rebates. We are still arguing about them.

Mr. Foulkes

rose—

Mr. Taylor

The hon. Gentleman is and always has been a troublemaker. However, I shall give way.

Mr. Foulkes

The hon. Gentleman said that the Government got the rebates. Yet, earlier, he said that not only has the rebate for 1983 not been paid, but the rebate of £42 million has not been paid. Can he tell us when we shall get the rebates?

Mr. Taylor

I am afraid that that information is not available to me. I was going to come to that point. The hon. Gentleman should not try to stir up animosity. The parties are on the wrong sides. He and his hon. Friends are attacking the Common Market, which stands for all the things that Socialists should support. I see some Opposition Members nodding. We should accept this, as it would make things so much easier. If we want the workers to control industry, we will never get it through the British Parliament or the Labour party, but we will get it through the Common Market. If we want a great European policy for spending vast sums of money to try to resolve unemployment in Europe, we will never get it through a Labour Government—they thought that they would, and they know how they were stopped—but we will get it through the Common Market. If we want grand harmonisation measures, a European social policy, and bureaucrats sitting on boards all over the place deciding how Governments, civil servants and social subsidies can solve problems, we can get that through the Common Market. One of the tragedies is that the Labour party should be enthusiastically shouting for it.

Mr. Austin Mitchell (Great Grimsby)

Will the hon. Gentleman tell us how we could get a policy for shovelling money into the pockets of farmers, who constitute such a large majority in the Cabinet and one quarter of Conservative Members of the European Parliament?

Mr. Taylor

We cannot change anything in the Common Market, except by unanimous agreement. The Labour Government tried to do a little about the CAP, but not much. This Government cannot and have not achieved anything. They can do so only by unanimous agreement, or if the money runs out.

The House should not think for a moment that I am suggesting that industry, commerce and agriculture are in favour of free enterprise and competition. Far from it. When there is a carved-up market, nobody likes to complain—neither the manufacturer nor the consumer. If there is a cosy arrangement, nobody complains.

We have talked about CAP reform for 10 years since joining the Common Market, but progress has been impossible because we require unanimous agreement for any changes. However, now that we have the first chance to achieve CAP reform because additional resources require the consent of every Parliament, it is regrettable that the Government have agreed to refrain from even asking for reforms. Our position, as I understand it, is that if the Common Market agrees to a permanent budget reform providing for us to pay about £400 million a year net and if it agrees to restrict the rate of increase in agricultural spending, we shall agree to even more cash going into the EEC. If the Government agree to a permanent solution, restricting our annual contributions to about £300 million, £400 million or £500 million, and if they agree to restrict the rate of increase in agricultural spending, more cash could be forthcoming. Such modest demands throw away the first and perhaps only chance that we shall have of changing the Common Market.

We should make it abundantly clear to the EEC that its budget shows that there is no need to increase resources. If we are spending 40p of every pound already on dumping food abroad, how is it possible to say that there is a need to expand the resources of the Community? As long as we talk about spending 70 per cent. of all the money on the CAP, how can we say that more spending is required? One simple solution that would sort out the problem for six years would be to take milk out of the CAP and let each member state look after its own milk production and milk surpluses, and do what it wishes.

The wasteful CAP should be drastically reformed, or have its throat cut. Apart from our national budgetary interests, there can be no security for British agriculture in the long term so long as it operates under a policy that has round its feet the ball and chain of the vast and growing continental food surpluses that nobody wants. There is no point in denying that British farmers have done extremely well—perhaps remarkably well—out of the CAP. That is why most of them have supported it until now. However, they must realise that in the long-term future, when Britain has had a dramatic increase in production and the continental countries are poised for an even greater increase, there will be no security for British farming so long as there are vast agricultural surpluses on the continent.

In considering the budget, we are also considering the EEC policies that the budget finances. While we preach the importance of freer trade and always talk about the importance of cutting down trade barriers, the various EEC economic policies seem to be aimed at increasing protectionism rather than freedom of trade. If those policies succeed, we shall be saddled with a series of common policies for steel, coal, chemicals, and so on, which will simply ensure that industrial basic costs in Europe are higher than those of our manufacturing competitors. That cannot suit Britain, which depends on world exports to survive. Nor should we look with any favour on the various devices that are used to get round the GATT restrictions on tariff increases. The so-called voluntary restraint agreements with Japan and other countries — for example, on video recorders and television sets—are simply devices to raise prices in Europe and so give protection by requiring countries, such as Japan, to charge us more for such products than they would normally do. The agreements were presented as a means of protecting jobs in Europe, and were supported by Socialists. We asked the Japanese kindly to charge us more for their videos. The Japanese must have been laughing all the way to the bank.

The Davignon steel regime has been applied in a way that is brutally unfair to Britain. It is well on the way to becoming another CAP. Even if Mr. Davignon were able to get all that he wants—

Mr. Foulkes

Viscount Davignon.

Mr. Taylor

I apologise. I am not quite as aware of such matters as the hon. Gentleman. Even if Viscount Davignon were able to achieve all that he wants and to cut down on production all over Europe, how precisely would we be able to maintain the gap between European and world prices? Again, the only answer will be the creation of a CAP. We are already well on the way to that. The control of industry on the basis of bureaucracy, subsidy, back-door tariffs through bogus health and safety requirements, quota production control and central direction is wholly at odds with the sensible policies that the Government are pursuing at home.

Before we provide the Common Market with greater resources to develop its policies, we should carry out an impartial assessment of the impact on our economy to date. The consequences on trade have been disastrous. We always had a surplus in trade in manufactures with the EEC before membership, but there has been a substantial deficit every year since then. In the first nine months of 1983, the deficit was about £6 billion. If we use the rather suspect comparisons that are used to make the claim that 2 million British jobs depend on trade with Europe, we can conclude that the change in the pattern of trade has cost Britain 750,000 jobs since we joined the EEC. Some people say that that is the fault of the lazy British workers, inefficient British management, and so on. However, despite those so-called problems, our trade with the rest of the world has improved dramatically and sharply.

The cash drain has been horrendous. We have contributed net about £4 billion. No country can afford such a transfer in aid to other countries without damaging itself. The budget demonstrates the extent to which the Common Market has become a spendthrift, bureaucratic, protectionist trading block, wholly opposed to the principles of conservatism. It would be an outrage if we responded to the budget by supplying even more resources which could be used to develop policies which are an affront to commercial common sense and damaging to the future of our nation.

The one encouraging theme that we have heard from the Government on several recent occasions has been a warning that there will be dreadful consequences for the Common Market and for Europeans if we do not get our rebate on 31 March. I am sure that my hon. Friends will have heard and approved the ringing tones in which Ministers have warned of the appalling consequences for other countries if we do not get our money on time. If we do not get £450 million by 31 March, they say that something dreadful will happen.

If we are to react to a default in that strong and substantial way. what have we been doing since 31 December when the Common Market defaulted on £42 million of the money due in 1982? The issues were just as clear then. The money was due to us. What did we do? Did we send the fleet? Did we alert our lorry drivers to be ready to block French roads? No. On 3 January, our splendid Foreign Secretary sent a letter to the Commission. Week after week since then, I have embarrassed and troubled the Government by asking when the reply was to arrive. We were told earlier today that it arrived at the weekend, but we do not yet know what it contains, because the Foreign Secretary has it in his possession in Brussels.

I hope that we shall hear today the Commission's response. I hope that we shall not have to engage in long correspondence. I am not opposed to long correspondence, but, if we are sending out warning signals to the Common Market, it could undermine our position if it were thought that our only response to a default is to send a letter and to wait six weeks for a reply.

I hope that the Government will realise that the best answer to all the problems is to say, "No more resources." I would find it difficult to tell my hard-pressed constituents in Southend that, although we have to cut down—rightly, I believe—on many areas of local government —on housing benefits and health and social services—we are going to pour more billions into the extravaganza of the Common Market. That does not make sense. I hope that we will be cautious in our spending at home, and realise that the best way to bring about reform of the EEC is to give it no more money at all.

7.27 pm

Mr. Bryan Gould (Dagenham)

It is common ground throughout the Chamber that the EC is in crisis because it is about to run out of money. The recognition of that fact was perhaps the only shaft of realism that penetrated the fog of fantasy that has characterised some of the speeches that we have heard. The EC is in crisis not simply because the sums do not add up. I agree with the hon. Member for Harrow, East (Mr. Dykes) that it is not simply a shortage of resources—that it is not the usual budgetary problem. The range of European resources available to meet the relatively small increase in expenditure which is required is enormous. The significance of the budget dilemma is that it reflects what is wrong with the structure of the EC. It is the structure of EC policies which has plunged it into crisis, and it is the unwillingness of the Government to go along with that structure that will in the end—I believe and hope—mean that we shall not allow an increase in our payments to the EC.

The EC is unusual or perhaps unique in that it has policies that stimulate spending. The only consequence of providing additional resources to the EC, as the hon. Member for Harrow, East advised us to do, would be to encourage even more spending. The more money we provide, the greater will be the incentive to increase expenditure. The only way to get a grip on the situation is to get control of that expenditure and limit it. That is the dilemma. That is the hard fact that the EC faces. That is why it is in crisis—not because it cannot raise an extra £100 million.

There is of course a subsidiary problem. The budget also creates circumstances in which Britain must make an unfairly large contribution. There are those who are so carried away with their Eurovisions that they are inclined to say that that must be Britain's fault. They say that we have not adjusted, that we are constantly demandeur, and that that shows how un-European we are. There is an implication of moral culpability in that charge.

We are un-European. In the past 100 years or more our economy has developed quite differently from continental economies. When, towards the end of the previous century, the real price of world food dropped we, who had had our industrial revolution, responded by opening up our markets to the cheapest and most efficient producers so that we could feed our large urban and industrial populations as cheaply as possible. We then developed an agricultural policy that ensured that prices for the consumer were kept low. Our continental rivals protected their agriculture. They kept it at its then size and kept it inefficient. They reaped an uncovenanted benefit in that they then had to adjust to higher industrial costs and to do that they had to become more efficient manufacturing nations.

Because of that different economic history and because we remain net importers of food, we are inevitably penalised by the EC arrangement. There is nothing that we can do about that. No fault is involved. It is simply that our economy does not suit the way in which the EC works. Indeed, in some ways it was because our economy does not suit the structure of the EC that we were brought in in the first place. We contribute to the EC twice. We make our budget contributions and we make another enormous contribution as consumers. If we were not foolish enough to be buying EC food surpluses at roughly twice the world price, the enormously expensive surpluses which the hon. Member for Southend, East (Mr. Taylor) rightly identified as a major head of expenditure would cost even more to store and dispose of.

It suits the Government to take the simple fact that I have outlined, look at the net direct payment and identify it as our major problem with the EC because they believe and hope that they can do something about it. They can quantify it, hold it up to the British people and say, "We shall reduce it in some way and bring money back. Once we have done that our problems with the EC will be over." I do not argue that the budget and our contribution to it is not important, but it is far from the only or most important element in the damage that we suffer from being members of the EC.

According to the Institute of Fiscal Studies, the common agricultural policy costs Britain £1 billion a year in real resource terms. In trade in manufactured goods —my figures are even greater than those cited by the hon. Member for Southend, East—we had a deficit last year of £8 billion and we have had a turn round in our trade in manufactured goods of £10 billion since we joined. At a conservative estimate, that is worth 1 million jobs in British industry. That is the important damage that we have suffered from being members of the EC.

I agree with the Government that the budget is a salient issue as it provides us, perhaps for the first time, with a lever. We can use it to exert pressure. We are now able for the first time legitimately, within the terms of the treaty of Rome and our treaty of accession, to refuse to make payments to EC coffers unless we get some fundamental change that suits us. Having that opportunity means that the Government are posed with a real challenge. They will now be asked to do something as they have an opportunity to do it. They can no longer take refuge behind the fundamental sell-out that occurred when we first joined. Nor can they take refuge behind the intransigence of our partners because at long last they have an instrument which will enable them to achieve what they say they want to achieve. All that is needed is political will.

I am the first to concede that, in trying to secure that objective, the Government are handicapped by at least two major factors. The first is that throughout our membership of the EC Britain's major diplomatic failure has been not explaining to our European partners, the politicians, officials and the man in the street what is damaging us and why we, uniquely, always appear to be asking for something. The Foreign Office has been so anxious to represent the EC in Whitehall that it has forgotten that its principal job is to represent Britain's interests abroad. I hope that the Minister who will wind up will give some assurance that at long last the Foreign Office understands its responsibilities.

The second factor is the responsibility not so much of the Foreign Office as of successive politicians who have appeared at the Dispatch Box to discuss these matters. In the 10 years of our membership, successive Governments have talked tough with an eye on the electorate, but have regarded it as essential to placate the Helmuts, the Valerys and the others.

Mr. Dykes

And the Francoises.

Mr. Gould

Indeed. That has been the key to Britain's European policy. It is little wonder that, in those circumstances, when the Government start talking tough again our European partners think that it is merely for domestic consumption and that the British political establishment recognises only too well the weakness of their position as demandeur.

Mr. Jackson

The hon. Gentleman refers to talking tough. He is a distinguished lawyer and has said correctly that the British Government have a powerful lever in whether to increase own resources. How does the hon. Gentleman, as a lawyer, square the Labour party's proposition that we should resort to illegal action with his view that we have available to us a powerful negotiating weapon which, as he said, is perfectly legitimate?

Mr. Gould

I shall deal with both of those issues in a moment. My point is that in limbering up or girding their loins to face those issues, the Government have been fatally handicapped by the record of successive Governments. Time and again Governments and officials have said—we hear the weasel words even now—that it is necessary to make concessions, to show ourselves to be good Europeans and to go through the humiliating process of asking for £300 million or £400 million back each year. I cannot believe that negotiations on a budget mechanism, a safety net or whatever else will resolve our problems with the EC. They will merely reinforce our position as supplementary benefit claimants in a wider European economy. That is not right for Britain.

The legal issue as to whether we should make more payments while an agreed refund is outstanding is an open question. In those circumstances, I certainly support the Opposition amendment and urge the Government — I hope that this is their policy—that if the refund is not paid on the due date to offset it against any future contributions that might be demanded.

Mr. Jackson

If it is an open question the hon. Gentleman must, as a lawyer, accept that the method by which such questions are normally determined is by reference to a court. There is a court in this matter. Why then does he propose that action along the lines that he suggests should be taken?

Mr. Gould

I do so because it is by now well established EC practice that, in such circumstances, the defaulting party should wait to be taken to the court. I believe that we should simply pursue a policy that, for once, suits our interests. If we are then taken to court, we can argue our case.

There is a more important question than that of the refund, which I consider to be of marginal importance only. Far more important is the question of the demanded increase in what is laughingly called own resources. In fact, they are increased contributions from the VAT payments made by every man and woman in Britain. The Government have told us repeatedly that that issue can be decided only in conjunction with some fundamental reform of expenditure — principally the common agricultural policy. We should examine precisely what is meant by that. The Foreign Secretary has said recently that they are linked issues that must be considered together, and that they can be linked also with budgetary refund. That is not good enough. It is not what he was saying a few months ago. I see that the Minister is shaking his head —I presume paradoxically in agreement with what I am saying, which is that the Foreign Secretary is not to be thought of as saying that.

Mr. Ian Stewart

We have always maintained that there is no connection with the current negotiations about our refund and the future financing of the Community.

Mr. Gould

I am glad to hear that. But there are signs from the Foreign Secretary that the issues are intermingled and the distinction between them is not as clear as the Minister has just indicated. I am glad to hear him speak in that vein.

On the link between the increase in own resources—the demanded payment from us—and the reforms that we seek, our refusal to countenance an increase in payments is not simply a precondition of securing the changes that we need. It is more than that—it is the only mechanism by which we can secure such a reform. We have a unique opportunity. If we fail to press that advantage we shall never have the opportunity again. That is why I believe that this is the acid test for the Government. It is the time when all their protestations about their keenness to reform agricultural spending and to limit public expenditure in that form are being put to the test. Their bluff is being called. The power exists to ensure that the Government need not agree to that expenditure.

In principle, the position allows the Government the luxury of saying that, whichever way it turns out, there is no case for increased payments. Without the reforms that we are demanding, the Government are entitled to say no increase. Yet with the changes that we are demanding, the Government are equally entitled to say that there is now no need for an increase. It is not only I who say that; the Commission, in its budgetary estimates, made it clear that without any change in the CAP, and on assumptions about substantial increases in the regional and social fund expenditure, the actual increase in VAT contribution—the level of take that would be required over the next few years—would be fairly marginal.

If we were to obtain the sort of limitation on spending that would significantly reduce the 40 per cent. of EC expenditure referred to by the hon. Member for Southend, East, the case for any increased payment in the light of those changes would melt away. I hope very much that the Government will show their mettle. There are great advantages to them to throw off the image with which we have been saddled for so long—talking tough but acting weak. The quicker that the Foreign Secretary and the Government can convince our partners that they mean business, the easier the position will become and the quicker we can arrive at a solution, whatever it might be.

I apologise that I did not hear the Minister's opening speech. One thing that the Government must now do, both because it is practically desirable and necessary, and because it is tactically useful, is to make it clear that we have in place contingency arrangements for the moment when, at some point during the year, the money runs out and our farmers say, "From where is the money to come?" We should have made legal, financial and practical arrangements to make national payments to our farmers in those circumstances.

That would provide a great opportunity for us to detach our agricultural policy from the whole miasma of the CAP. We could actually pursue the more flexible, rational policy that the Government have professed that they want to see. It is a great opportunity for the Government to prepare for such a position and to say precisely in what way they wish to change the CAP to introduce a much more adaptable and convenient national agricultural policy.

We have a great distance to go. As my hon. Friend the Member for Houghton and Washington (Mr. Boyes) said, the speech made by Mr. Gaston Thorn a few days ago demonstrates beyond any words that I could use just how impregnable is the CAP—how much it is in the centre, how much is it is a fundamental edifice and how much the other fripperies of the regional and social funds are simply trimmings. It is the CAP that our friends in Europe will protect and defend to the last breath. We must, therefore, seize the opportunity that will be presented when the money runs out to detach our agricultural policy from that disastrous failure.

I entirely endorse the Opposition amendment. I and many other hon. Members, and others elsewhere, will be watching the Government closely. We suspect that the Government are very much more in the pockets of the farming industry than they care to admit. This is the acid test. This is when we shall know whether they are prepared to abandon those interests in the interests of the country as a whole. We shall watch carefully to see whether the Government's actions match their words.

7.47 pm

Mr. Robert Hicks (Cornwall, South-East)

Sadly, I detect that in debates on EC issues there is a disturbing tendency to fall into the trap of magnifying our differences, of accentuating some of the anomalies and absurdities and, as a consequence, of failing to put the subject into true perspective. That is why I think it essential to put the current discussion and disagreement about the Community budget and the future financing of the EC into perspective.

At present, the Community budget takes just 0…8 per cent. of the aggregate gross national products of the 10 member states. Of course the budget issue must be settled —I hope as a matter of urgency—but it is important that the United Kingdom, and especially the House, should not allow itself to become bogged down in eternal bickering about the size of our contribution and related matters. It amounts to a fraction of 1 per cent. of our national income. At the same time, we are allowing the very policies from which the Community and ourselves stand to gain so much to go by default.

Many of us who voted on 28 October 1971 with enthusiasm for the principle—

Mr. Marlow

Guilty men.

Mr. Hicks

I do not consider myself a guilty man. It was the most significant debate in which I have participated during the 14 years that I have had the honour to be a Member of the House. Some hon. Members voted with enthusiasm on that historic occasion for the principle of United Kingdom membership of the European Community. Sadly, we are to some extent disappointed by subsequent events. This is not the occasion to expand on the reasons for that unfortunate position. Some are international, others relate to the workings of the Community and, in that context, British Governments have not always been as helpful and as imaginative as I would have wished.

My right hon. and learned Friend the Foreign Secretary, however, has on more than one occasion in recent months clearly stated the British Government's position. As I interpret it, the United Kingdom will be prepared to consider an increase in own resources provided, first, that an agreement is reached on effective control of the rate of agricultural and other expenditure and, secondly, that it is accompanied by an arrangement to ensure a fair share of the financial burden. Inherent in that is a settlement for an adjustment of current imbalances, to which hon. Members have referred this afternoon.

Ministers are right to emphasise to their European colleagues the importance of achieving a permanent arrangement to ensure that budgetary burdens are shared equitably between member states. The safety net formula which the Foreign Secretary first suggested in June 1981 in a speech at The Hague, which has since been modified, merits further attention. I hope that those proposals featured highly in the discussions which took place at the weekend and which are taking place in Brussels today.

As to the required constraint on agricultural expenditure, which accounts for almost seven tenths of Community expenditure, I remind the House that inherent in the CAP are not only farm support prices but food aid expenditure, and an important component part which can be described as a rural development fund. Hon. Members are all too well aware of the deficiences of the CAP. Prices have been set unnecessarily high, especially in the grain sector. The relationship between demand and supply has been ignored, with the consequence that too many producers are merely producing for intervention, and these surpluses have become increasingly expensive to store and to dispose of.

Mr. Dykes

Despite the problems, would my hon. Friend concede that in many comparisons the policy stands up rather well? Does he agree that it can in no way be compared with the grossly wastefully and extravagant United States farm support system? Does he agree that if we had our domestic farm support system of the old days, it would now be much more expensive than our contribution on farm spending, and that in those days we also produced surpluses of dairy products?

Mr. Hicks

My hon. Friend is correct. To take one of his points, had we carried on with the pre-1973 domestic support for agricultural production, the cost to the United Kingdom Treasury is estimated to be almost £3,000 million a year.

Mr. Marlow

Who by?

Mr. Hicks

I refer my hon. Friend to parliamentary replies given to questions in the House on a number of occasions.

The point that I wish to develop in this context was made correctly by the hon. Member for Inverness, Nairn and Lochaber (Mr. Johnston). He said that whatever modifications and adjustments may be made during the discussions of the next few months in Europe, those modifications and adjustments — whatever their character—cannot be made overnight. There will not suddenly be a dramatic change in the financing of the Community. I go further—I expect the hon. Gentleman and other hon. Members who have spoken will agree—and say that when the financial decisions are made, which in turn will affect the level of expenditure on the CAP, I hope that Ministers will be aware of the effects that they will have not only on producers but on the economic structure and social fabric of the countryside.

Mr. Marlow

I understand why my hon. Friend says that. He is a generous man and is enthusiastic in supporting and agreeing with the point made by my hon. Friend the Member for Harrow, East (Mr. Dykes). One of his points was that there were massive surpluses in dairy products before we joined the Community, but I shall correct that. There are now sufficient butter stocks in surpluses and intervention stores in Great Britain to fill the Chamber 20 times over. Before we joined the Community we were 16 per cent. self-sufficient, and so we had to import 84 per cent. There were no surpluses then, but there are surpluses now. My hon. Friend was wrong on that point, as he was on all the others.

Mr. Hicks

All hon. Members can choose examples to suit their cases. As a child I lived in a small village in the west country, and I remember that our previous system of deficiency payments encouraged a surplus of milk, which was poured down the drains, quite legitimately. I do not have to go back so far; I remember the difficulties in the autumn of 1973. It is far better to have products marginally in surplus than to have shortages. My hon. Friend will not disagree with that general principle.

In conclusion, I return to the fundamental point that I have attempted to get across to the House. The European Economic Community was founded for political purposes. The expansion of the European economy from 1956 until the mid-1970s provided a prosperity which formed a sound basis for its political objective. The momentum has been lost in recent years.

Mr. Gould

I have heard that argument used so frequently that I cannot resist the opportunity to point out that the economy of the member states grew faster before the EC was set up than in the decade after it was set up.

Mr. Hicks

The circumstances in the late 1940s and early 1950s were somewhat artificial. During those postwar years the Marshall plan and all manner of other additional economic aids and forms of assistance were being given to Europe. Therefore, to make the generalisation that the aggregate economy of the EC grew more quickly before 1956 than after 1956 overlooks those facts. The hon. Gentleman is a fair man and will acknowledge that one can argue one's case either way, both of which stand up intellectually.

The effect is that the momentum has been lost during the past decade. However, my right hon. and learned Friend the Foreign Secretary claims that the basis upon which the British case proceeds in looking for radical solutions to the current problems of the Community is that the process of Community development must be accelerated and given a much higher priority. That means speeding the negotiations towards enlargement, to include Spain and Portugal. It also implies giving a higher priority and greater impetus to extending and completing the Community's internal markets, as well as work in other areas, such as industrial, regional, social, environmental and energy co-operation.

Not surprisingly, I welcome that wholeheartedly. However, in bringing about what I consider to be those sound objectives, the Government may have to adopt a more flexible and amenable approach than hitherto to the preconditions on additional own resources and increasing receipts as part of the budgetary settlement.

8.1 pm

Mr. Allan Rogers (Rhondda)

I am pleased to be able to speak in the debate, although I step with some fear and trepidation into the rather incestuous discussion about whether British farmers tipped away more milk before we joined the EEC or after we joined it. I do so because I know that the experts are in the Conservative party. They know what the farming industry has been doing for many years, and they know how the British consumer has been taken for a ride for many years.

However, I must speak in the debate especially because of the celebrations of European solidarity that have gone on this weekend in the Alps. It is especially appropriate that we should have the debate today after that great festival. I am pleased that the French lorry drivers enjoyed themselves, because at least now they have taken action against their Government's policies rather than taking it out on British lorry drivers in the essential spirit of the European Community in which they always act. I wish that some of our lorry drivers and workers would behave towards French imported goods as the French behave towards ours.

We should do well to remember that, as a device to create disharmony in Europe, the EEC has made a greater contribution during the past few years than anything else. That underlines the need for reform.

As the hon. Member for Southend, East (Mr. Taylor) said, the European Parliament has little function, and as a Member of the European Parliament for the past four and a half years I have been a sorry witness to the continual grovelling of the British Government to try to get our money back from Europe. We are asked to believe that the Prime Minister rides out on her white horse to recover the money from the bandits of Europe, but the money belonged to the people of Britain originally. We are not getting a handout from Europe — the money properly belongs to us.

The hon. Member for Harrow, East (Mr. Dykes) said that he wishes to join us in the European Parliament, or that if he was with us he would wish to join the Christian Democrat group. I know some of the members of that group. and although Habsburg-Lothringen and von Bismarck might welcome his company, the friends of Mr. Strauss and the other neo-Nazis in the Christian Democrat group would not.

Many Conservative Members have spoken about the common agricultural policy. The hon. Member for Southend, East described the problems in the sugar industry resulting from the CAP, but he did not say that action has already been taken. It is not a matter of saying that Pakistan would be a wonderful place to grow sugar cane; there are wonderful places that can grow sugar cane which have already been destroyed by the CAP. British Guyana's economy was completely destroyed. As well as the jobs lost in the sugar refining industry in Liverpool, the sugar cane industry of the West Indies was destroyed by the CAP and the dumping of sugar on world markets. Who benefits from that? The supporters of the Conservative party—especially the big business farmers in the east of England.

When Conservative Members got into an incestuous argument about surpluses, they did not say that one of the biggest contributors to surpluses in Europe is the British farmer—not the hill farmers of Wales and Scotland, nor the smallholders in the west country, but those who have invested in the east of England and who have ploughed up the hedges in their money-grabbing exercises. They have not only destroyed the countryside, but have laid waste to other countries' economies.

It is extremely important to put the budget in the wider context of a continual sell-out of British interests. What disturbs me greatly is the fossilised attitude of. Pro-Marketeers in the Conservative party. The right hon. and learned Member for Hexham (Mr. Rippon) — [Interruption.] I hope that the House does not mind if I drop an "h" here and there. I come from the valleys and did not go to a public school, as did most Conservative Members. In the vernacular of the Welsh valleys we sometimes drop our "h's".

The right hon. and learned Member for Hexham said that we are in the Community and that we should stay in. What a fossilised attitude. We are in an economic union that is already many years out of date and is coming apart completely at the seams. Why should we stay in, and for whom? The union was structured in a post-war Europe that had special tensions, political problems and food problems. That was the basis of the CAP. But now that we have moved on, the fossilised argument is that we should stay in because were are in. That attitude is negative.

Mr. Johnston

What is the bright, non-fossilised alternative?

Mr. Rogers

The bright, non-fossialised alternative would be to renegotiate, at the very least, the present treaties.

Mr. Marlow

I thought that we had done that.

Mr. Rogers

Yes, but it was done badly. We were sold down the river, but at least the Labour party had the courage to put it to the electorate. However, as a result of the propaganda and lies spread at that time, the British public became slightly confused about the issues.

The economic union to which we belong is completely out of date. It needs revising, but it is incapable of revision because of the vested interests that are so manifest not only within itself but within the budget, which is coming up in the same form as it has in other years. I am further disturbed by the Goebbels-like repetitions from the Conservative Benches that if one is anti-Market, one is anti-Europe. It is complete nonsense to suggest that the Common Market is all of Europe. Europe is far larger and wider than the Common Market. One cannot confine a geographical continent within an economic treaty. I am sure that that offends the people of Norway, Sweden, Finland, Spain, Portugal. Austria, Czechoslavakia, Romania, Bulgaria, Yugoslavia and European Russia. On this point, I wonder whether Conservative Members would, in their European idealism and at the appropriate time, accept as members of the European Community some of the latter countries, especially as the leader of their party has recently visited some of them.

The English nationalist movement within the Conservative party holds the same view as I do— that we should withdraw from the European Community, —but I base my opinion on different reasons. I believe that we should be looking for progress in Europe and proper relationships with other countries. We should be looking at progress and defining why and in what sectors we need this progress.

I am concerned by the moves in Europe towards economic and political union. On 19 June 1983 we had the Stuttgart declaration, which was signed by the Prime Minister. What was this declaration, which is often referred to so loosely? Here is a selection of some of its propositions and statements. It says that it is resolved to continue the work begun on the basis of the Treat les of Paris and Rome and to create a united Europe … determined to achieve a comprehensive and coherent common political approach and reaffirming their will to transform the whole complex of relations between their States into a European Union … Desiring to consolidate the progress already made towards a European Union". Throughout the document runs the Prime Minister's affirmation that she wants us to move to a European union. What is the proposition arising out of the summit, and what is the legitimacy of the statement? We saw the answer in the European Parliament last week, with the preliminary draft treaty to establish a European union. The basis of that was the Stuttgart declaration, which is mentioned throughout the Spinelli explanatory statement, besides being specifically mentioned in the draft treaty.

Many hon. Members have spoken of Spinelli as though he is a visionary, but if he is, he is having the wrong visions, particularly if they result in what is proposed in the document. It proposes to sell away the democratic rights of the peoples of this country. Conservative Members of the European Parliament supported these moves towards European union. It will be interesting, in the run-up to the European election on 14 June, to see what the Conservative party's views will be. Will they be the late views of the Prime Minister and the Government, who want to adopt a hard policy towards our European partners, or will it be the policy that Conservative Members of the European Parliament support?

Conservative Members have to come clean eventually. I challenge the Government to come clean tonight as to their position on European union. They must tell the country exactly where they stand on this issue. Do they stand with Conservative Members of the European Parliament, of whom 22 voted for the resolution and only six against, with four chickening out by abstaining and 19 who, even worse, did not bother to turn up to vote even though they were around? They did so because they did not have the courage to indicate which way they would vote. Some of the Members who did not have that courage are hon. Members of this House. If the Minister does not believe in what those hon. Members did last week, he should be taking them to task.

Mr. Johnston

Will the hon. Gentleman remind the House that Spinelli is a Left-wing Socialist?

Mr. Rogers

Yes, but I am sure that the hon. Member for Inverness, Nairn and Lochaber (Mr. Johnston) will accept that there are many brands of Left-wing Socialism, and Mr. Spinelli is a European Communist who wears garbs that are different from ours. Mr. Spinelli and his Committee are proposing to remove from the member states the right of veto on all the issues relating to the development of Europe towards a European union. The document is alarming, and it disturbs many of us greatly.

The budget is not the only important issue before us this evening. We should remember that the Government, in bringing forward the budget in its present form, show that they have no real will to resolve the crisis and the problems in the European Community. There is an answer— withdraw from the European Community unless our partners are prepared to renegotiate the treaty from stage 1. If they are prepared to do that, we should go forward positively, but if they are not, we should get out so that the British people do not have to pay as much as they do in their present burden.

8.17 pm

Mr. Tony Marlow (Northampton, North)

The hon. Member for Rhondda (Mr. Rogers) talked about the disharmony and discord caused by the Community. One of the great tragedies of Community membership and the way that the Community has been structured so far is that it has caused a great deal of disharmony between countries which have a great many interests in common. I hope that is something that we can put behind us; but the hon. Gentleman is right in that, although I do not agree with many of the other things that he said.

The hon. Member for Rhondda asked the important question: where does the Conservative party stand on European union? I do not think that he heard what my hon. Friend the Economic Secretary to the Treasury said earlier, because he made it clear that the Conservative party is in favour of retaining the veto and is therefore against a federal Europe and a European union. That is reassuring for the hon. Member for Rhondda, although it may cause severe problems for some members of the European Democratic group, who will be going to selection meetings wishing to stand again for the European Assembly and who will then discover that they are out of sympathy with Conservative party philosophy and thinking on this issue. That could cause distinct and real problems as they seek to pursue their careers.

Mr. Austin Mitchell

As the hon. Gentleman is telling us about the determination of the Government to resist moves towards European unity and to insist on the national veto, why is it that in the debate on the Spinelli reports on the European union the Conservative Members of the European Parliament—who had a free vote on the issue, which is a curious thing for a party as committed as the hon. Gentleman suggests—divided, 18 for Spinelli, four against and three abstaining?

Mr. Marlow

As the hon. Gentleman probably knows, the best people to ask are the Members of the European Assembly, because I should not have taken that view. Whether one is pro-Europe or anti-Europe, I think it will be agreed that there has been much sterile argument over the years. If something in Europe is good, we are in favour of it: if we have the power to do it, we do it. If something in Europe is bad and we can stop it happening, we try to do so.

My hon. Friend the Member for Harrow, East (Mr. Dykes) has pursued his philosophy on Europe for a considerable time. Edward Pearce, that well-known correspondent of the Daily Telegraph, has described my hon. Friend as a "sacramental European". In his view, anything that comes from Europe is good. That is not the view of the party that I represent. We are in favour of the national interest. We are virtually attached to Europe. It is just across the Channel. We have friends in Europe, we have business in Europe, and we have interests in common with Europe. If something European is good, we are in favour of it; if it is not good, obviously we are against it; and if we can do something about it we do it.

We are now at a crucial and critical time for our relationship with Europe. We are embarking upon the relaunch of the Community. Obviously, the first thing that we have to tackle is the common agricultural policy. Hon. Members on both sides of the House have referred to the fact that the common agricultural policy accounts for about 70 per cent. of European expenditure. To be fair, that is not quite right. The common agricultural policy accounts for 70 per cent. of European expenditure if we gross it up and include the rebates that are paid to ourselves and the Federal Republic of Germany, but in terms of actual expenditure on actual programmes and policies of the Community, the common agricultural policy takes up nearly a staggering 80 per cent. of Community expenditure.

Not only is there much wrong with the common agricultural policy, and not only is it growing so fast that it is rapidly getting out of control, but it takes the overwhelming share of the Community budget, so that something must be done about it. What are we to do about it?

Opposition Members have said that the Conservative party is the party of the farmer. That idea is out of date; it is history. At the last general election, many Conservative Members were returned for seats which had not had Conservative Members for a long time. We on the Conservative Benches represent more working people and more urban constituencies than are represented by the Labour party. Of course, some of our constituencies are rural, but we have other very great priorities as well.

Mr. Austin Mitchell

rose—

Mr. Marlow

I should like to finish my point before giving way to the hon. Member for Great Grimsby (Mr. Mitchell), for whom I have great respect. He took on the solicitors' monopoly in regard to conveyancing. I am delighted that the Government saw the problem in the same way arid that that monopoly will be overcome. The Government are taking on all monopolies, wherever they happen to be. The Government's policy is in favour of the consumer and in favour of the wide range of people in the country. The Conservative party is not just the party of the farmer. The hon. Gentleman may have seen in the newspapers last week the report that there are only five constituencies with Conservative Members where the farming community makes up the majority achieved at the last election.

Mr. Mitchell

I am grateful to the hon. Gentleman for defusing my point before I had made it, but there are several matters which arise from his claim about representation. What is important is not who actually voted for the Conservative party, but whose interests it serves. A party which has put 4 million working people out of jobs, shovelled money into the pockets of the farmers and caused an astronomical increase in land prices, which can benefit only the land owners, cannot claim to be representing the working class and must be representing the farmers.

Mr. Marlow

The hon. Gentleman is trying to reduce what I am trying to make as a general statement on European policy into a party political issue. I do not want to follow him in the direction of the generalities of economic policy.

What can we do? It would be nice — it will not happen — if we could knock 10 per cent. off cereal prices. The cereal farmer is currently getting too much; he does not need the amount of money that he is getting. If we did that, we would cut back on the price to the consumer, we would cut back on the cost of disposal of surpluses, and we would cut back on the price of feedstuff to the livestock sector, which currently is not making sufficient return. We would cut back on the price of land. We would cut back on the levels of Community expenditure on the common agricultural policy, and at the same time provide a sufficient and adequate return to farmers. That is one way that we could move.

We have had discussion about deficiency payments. I am not suggesting that we can embark upon a system of deficiency payments, or that we can persuade the Europeans to go for a policy of deficiency payments, but there has been a lot of nonsense and rubbish talked about deficiency payments and the expenditure that would be involved in going back to such a system. If we had deficiency payments, we would not have to make the massive contributions that we are currently making to the common agricultural policy. If we had deficiency payments, we could buy food on the world market at cheaper prices, allowing cheaper prices to the consumer.

We would not have to buy expensive Community food. We could buy cheaper world price food. With deficiency payments there is a cheaper price of food to the consumer. When we add up the lower cost of food and the lower cost of taxation, we can see that the consumer and the farmer and everybody together in Britain would be better off under deficiency payments than under the existing system. In addition, those who are the weakest and poorest in our community, those who are dependent, as pensioners of the state, those on supplementary benefit or unemployment benefit, those on retirement pensions—a vast proportion of whose budget goes on food—would be better off, and they in real terms would be a lesser cost to the state. We may not be able to have deficiency payments, but let us not talk nonsense about them. We would be better off under a system of deficiency payments than we are under the common agricultural policy.

There is a third way in which we could tackle the problems of the common agricultural policy. We could have a similar regime to the one that we have at present. We could have lower levels of prices and a finite limit on the amount of money that each country could take from the common agricultural policy. If there were a growth of surpluses in one Community country or another, the national exchequer of that country would have to take up the excess expenditure over a certain level. That would have a highly beneficial effect.

Today, countries can vote for increases in prices knowing that they do not have to pick up the tab or to pay the bill; they do not have to go to their taxpayers for more money. They can satisfy their farmers by having higher prices but they do not have to upset the taxpayers, because the bill is picked up at Community level. Bring the bill home. Let the chicken come home to roost, so that those countries wishing to vote for higher common agricultural fund expenditure will themselves have to pick up the surplus expenditure that arises.

What are we to do about the budget? We have first to bear in mind that the budget is not the only financial burden that we bear as a result of Community membership. By being within the common agricultural policy we are force-fed with European food in preference to any other food from the world market. We are net importers of food. The food that we import largely comes from other European countries at twice world market prices, or even higher rates above world market prices. So we have the budget contribution to make and the food price contribution which our consumer has to make.

Mr. Cheysson, a Frenchman, says that we signed a treaty and that because we signed that treaty we have to accept all that follows from it. But not only did we sign a treaty; we had discussion at the time we signed the treaty. In the Government's document, "Britain in the European Community—the Budget Problem", students of the history of the European Community will see that it says: During the 1970 negotiations over Britain's accession to the Community, the British negotiators pointed out that the Community's financial arrangements, if unchanged, would leave Britain carrying an excessive burden from the budget after the transitional period. This was because of the dominance of the common agricultural policy, from which Britain's share of expenditure would be low because of the relatively small size of its agriculture. The Community replied that this would not happen because the balance of the Community's spending policies would change, and in particular agriculture would take a much smaller share of budget spending. The Community added that should unacceptable situations arise, the very survival of the Community would demand that the institutions find equitable solutions. Let us hope and pray that that is what will happen, because unacceptable situations have arisen. If unacceptable situations arise, the Community is destabilised by them.

Those who want to work together with our European friends for the policies that we hold in common will not be able to do so if Britain is unjustly and unfairly treated by the budget, as has happened in the past. We have a strong case. We have justice on our side.

The same document says that at the moment we are paying as much in our net contributions to the European Community as we pay in overseas aid". It is fantastic that we should pay as much to the rich in Europe as we do to the Third world countries. This is reinforced by the disgraceful situation that, as my hon. Friend the Member for Southend, East (Mr. Taylor) said, we are dumping food on the world market, which prevents the poorer countries in the world from getting a proper price for the one product that they can produce to sustain the standard of living of their people.

We have conditions precedent before we talk about the possibility of an increase in moneys available for the Community budget. Those conditions must be satisfied before we even talk about it. In fact, it is rather strange that we heard observations from the Opposition that the Government had gone back on those conditions precedent and that everything was in the melting pot together. I am delighted that my hon. Friend the Minister said that these two issues, the budget and the common agricultural policy, have to be satisfied before we can start considering whether to increase Community expenditure. I am glad that we had it clear and loud today.

If those policies are satisfied, apparently we can consider increases in the budget contribution on the basis of new policies. Let us look at the possibility of these new policies. We may wish to increase expenditure to assist the introduction of Spain and Portugal into the Community. Are we saying that Spain and Portugal will not come into the Community unless we actually pay for them to come in? Instead of people applying for membership, and applying with a membership fee, do they have to be subsidised to come into the Community, and if so to what extent?

One asks that question and the answer is given that there are other things more important than money and that it does not matter. We hear great statesmanlike remarks that Spain and Portugal must come into the Community for other reasons than filthy lucre. We are told that money does not matter. It is a great issue of principle. That is why we have the problems that we have today—because in the past people were concerned about the great issues of principle and did not get involved in sufficient detail to prevent the injustices from which we are currently suffering.

The Government, quite rightly, want to move towards a common market in insurance. The Government, quite rightly, want to move forward in other areas of European policy. That will not cost any money. We do not need to increase the budget for that.

The Opposition have a whole realm and plethora of Socialist-type policies — regional policies, social policies, unemployment policies, training policies —which they would wish the Community to operate and run.

Do they really believe that these policies are better directed from the Community? Do they really believe that our money should go across to Brussels to be laundered, reduced and sent back to us with strings attached before we introduce our own policies? Are we in favour of more Socialism, more bureaucracy, more control for Brussels? Do we not have sufficient confidence in our own ability to control and spend our own money? So, surely, that is not what we shall give more money to the European Community for.

Then there is the theory that unless we allow the VAT ceiling to go up those countries that will have to pay our enhanced rebate will not be allowed — within the existing VAT ceiling—to put enough money into the Community for it to be able to give us our money back. That is not right either. A look at the triennial estimates by the Commission, table 2, the alternative Commission figures, shows that there is plenty of money there to pay the rebate. So we do not need to increase the VAT limit to get our money back. We do not need to increase the VAT limit for Spain and Portugal, and why should we? We do not need to increase the VAT limit for the policies which Her Majesty's Government will rightly wish to pursue. We certainly do not want to increase the VAT limit for Socialist policies.

So there seems to be no case. I have to say that I have a great deal of confidence in my Government, and I am sure that if there is no reason for suggesting an increase in own resources they will not suggest an increase in own resources. However, if that unthinkable were to happen, if the suggestion were to be made that we should provide more money to the EC, an increase in own resources, that would be a major constitutional issue. We joined the Community and we signed up under certain finite terms with regard to agricultural levies, with regard to 1 per cent. VAT, with regard to the common external tariff.

At a time when we here are restricting our own public expenditure, cutting housing benefit, rate-capping, making savings in the Health Service, are we really going to say to our people that we must cut here but we can justify more expenditure in Brussels? Are we to say to our people here, at a time when daily we read in our papers of the waste of money, the maladministration of money within the European Community, that, instead of looking after and controlling our own money and our own policies here, we should be giving more money to the bureaucrats of Brussels to misapply, to miscontrol, to waste? At a time of lack of success of so many European policies, and the absurdities of the common agricultural policy, are we to say to our people here that we must give the Europeans more money so that they can have more control over more policies? It is unthinkable.

At a time when European policies are becoming increasingly dictated by the vested interests, by the institutions, by the Assembly, by the Commission, by the people who have an interest in European unity, are we to say to our people here, "Let them pursue our interests. Let us surrender just a little bit more sovereignty"? We have no proof that they know how to use it. We have no proof that it has been to our benefit. Are we to give more away in this respect?

This House — brought into being by Simon de Montfort to control expenditure by the Crown, this House which, when the Crown got too far removed from what the people of this country wanted, chopped his head off— not the Government, not the Council of Ministers, will decide in the fullness of time whether Europe gets an increase in its own resources.

8.37 pm

Mr. Austin Mitchell (Great Grimsby)

I shall not follow the argument of the hon. Member for Northampton, North (Mr. Marlow). Essentially, I agree with what he said, because he was speaking for what is right. The misfortune in his speech was that in it he had to justify a Government who are not acting on what is right—certainly not in this instance.

There has been talk today of a crisis of the European Community. Crises are a way of life in the Common Market, and I have no doubt that the atmosphere of cliff-hanging tension has been exaggerated and projected as a way of getting more money out of us and of solving its own financial difficulties. It is not so much a crisis for the Common Market itself—as usual, it will fudge it or bludge it out of us—as a crisis of our relationship with a Community which basically does not suit this country. Because it is a crisis that affects all the basic aspects of that relationship, it is a chance to change it drastically for the better.

If we concentrate tonight on the financial aspects of the budget—the gains of a few million pounds here or the losses of a few million pounds there—we shall distract attention from the main issue. The budget in so far as it affects us, is the nature of the EC itself. It is a budget in which 64 per cent. —that is two thirds, for practical purposes—is devoted to agriculture. An institution that devotes that proportion of its spending on agriculture is not a great venture in European unity or international idealism. It is essentially the National Farmers Union turned into a system of government. It is an agriculture protection society. That is why the case for change for Britain is a strong one. As long as there is that emphasis on agriculture, we inevitably suffer, because we are and will remain a net agricultural importer. That means that we shall pay out more to the budget, and we shall receive less from the budget. It means that our problem can never be redressed. As long as that is the basic nature of the Common Market, there is no way round the problem.

We pay 29 per cent. of the agricultural levies paid in the EEC. That is the largest single contribution to agricultural levies. We pay 26 per cent. of the total custom duties. That is the second largest contribution. We pay 22 per cent. of the total of VAT. We are the third largest contributor in that respect. So, because of the emphasis on agriculture, our contributions will be bigger than anyone else's. We get back less. Our share of the CAP is 11 per cent. of total CAP expenditure. Given the comparative unimportance of agriculture in Britain, that relationship will always be the same. No amount of haggling, argument, or histrionics from the Prime Minister can change that.

Yet that situation should be changed. It is ludicrous in terms of our gross national product and our standard of living that we should be such a large contributor although we are one of the poorest states in the EEC. Indeed, it is ludicrous that we should contribute at all, as we suffer in so many other ways from our membership. We suffer from the £8,000 million lost in real resources through the CAP and we suffer massively because of the Common Market's impact on our manufacturing industry.

Today, various estimates have been given of the deficit in manufacturing trade, but the basic fact is that from a surplus in manufacturing trade with the Six in 1970 we moved to a deficit last year of more than £8,000 million. That loss in manufacturing trade must be worth more than 1 million jobs in this country. In 1970, we exported eight cars to the Common Market for every five that we imported, but we now export one for every 10 that we import. In other words, there is a massive deficit in manufacturing trade, which has had a disastrous effect on jobs.

Hon. Members have asked about West Germany's contributions. However, that country's manufacturing industry reaps the benefit of having access to our market in a way that has destroyed our own manufacturing industry. A nation that stands in that relationship to the Common Market and that has to face that massive loss on agriculture and on industry should, at the very least, be paid to be in the Common Market and should not have to contribute as we do now. I am not talking about small contributions or even level pegging. We should benefit massively from the budget to compensate for the other disadvantages of membership.

Those disadvantages stem from the fact that we entered a club that does not suit this country or the basic realities of our agriculture or manufacturing industry. As the club suits the other members of the Community, the system will never be altered to suit us unless, as a result of the sort of crisis that we are now approaching, the crunch comes and so allows a fundamental readjustment. Without that readjustment our relationship with the EEC is bound to be a continual plaintive, miserable haggle. We shall be continually on the defensive and fighting to get back that which was sold away in the entry negotiations, and which will not be given back to us because it does not suit the Community.

Therefore, we need to seize the opportunity of bankruptcy. However, as far as I can assess the Government's approach, seizing that opportunity is not the Government's policy. It is worth asking why. The first reason seems to be the importance of farming to the Conservative party. Many Conservative Members have tried to play down that farming interest, but it alone seems to account for their deference to the EEC. Farming is the fifth column and has benefited by the Government's approach to the EEC. The rest of the country is suffering in order to keep the farmer fat.

A quarter of the Conservative Members in the European Assembly have a farming interest. We have a Cabinet that has a substantial landed and farming interest represented in it. We have a Government who, by their manipulation of the green pound, have totally reversed what happened under the Labour Government, when the green pound was used effectively to cushion the consumer. Because the green pound has not been revalued and because of the monetary compensation amounts that our farmers are receiving to export to France—to lead only to the sort of peasants' revolt and protest against British agriculture now witnessed there—the green pound is now being used to put money into the farmers' pockets and to tax the consumer.

That tax must put our food prices 5 per cent. or 6 per cent. higher in a club that already has the highest food prices in the world. That is a direct subsidy to the farmers and it has formed the whole basis of the Government's policy. It is a tax on the consumer in order to benefit the farmer.

Mr. Nicholas Soames (Crawley)

Does the hon. Gentleman seek to do to the farmers what he has done to the solicitors? Is this a genuine attack on a so-called privileged monopoly, or is he just seeking to make a point?

Mr. Mitchell

If the Government are against professional monopolies, they should be against that sort of subsidisation of the farmer. Indeed, such subsidies are not of direct benefit to the farmers themselves, although many of them misguidedly think that they are. Since we entered the Common Market, land prices have escalated enormously and so the benefit passes directly to the land owner. Therefore, we are pouring money into the pockets of a very small section of our society. In order to do that, the United Kingdom is bearing the onus of participation in an agricultural protection society that makes it difficult for us to carry on trading relationships with the rest of the world.

When the Treasury and Civil Service Committee went to Washington at the beginning of last year we were often asked in the Senate and elsewhere why Britain was joining an agricultural protection society and protecting agriculture to that extent when it was harming trading relationships with the United States of America and the developing countries. People said that it was not in our interest. Indeed, as net agricultural importers, it is not in our interest to have the burden of that agricultural protection society hung round our necks.

The second explanation of the Government's attitude is that, like so much of their approach to politics and to national issues, their approach to the EEC is one of government by public relations. It is not what they do so much as what they say. We saw that approach on the issue of taxation, when the Prime Minister proclaimed her intention to cut taxation. However, everyone is now bearing a higher burden of taxation. We saw the same attitude towards public expenditure. The Government proclaimed their determination to cut public spending, but public expenditure has increased by 3 per cent. per annum over the past three years, and as a proportion of gross national product. The same approach can also be seen in the Government's attitude to unemployment.

The Government's approach to the Common Market is that the Prime Minister bustles around in her busy fashion looking active while meanwhile there is government by Bernard Ingham. He is reinterpreting reality as though something had happened. That is not prime ministerial government, but an attempt to change reality. The real government consists of the public relations exercise that is carried on from No. 10. When it comes to the Common Market, we hear the din of battle and the Prime Minister declaring her determination to fight for the national interest as if something has been achieved, yet nothing is achieved. We do not change the terms of our relationship, although they are unfavourable to us, or even attempt to subvert the CAP, which is the most disastrous element of that disastrous relationship. However, the Government are not tackling that in any way.

We see continual claims about a budget rebate, but that rebate has been reduced every time. In 1981 it was worth £1,000 million. In 1982 it was worth £631 million, with a lot more strings attached than in 1981. In 1983 it was worth £457 million, but it was the rebate that never was and that we shall never obtain. Yet last June the Prime Minister told the House that she had not only achieved a settlement of the British refund for that year but had also made encouraging progress towards a long-term settlement of the financing problems which have so long bedevilled Community discussion." — [Official Report, 23 June 1983; Vol. 44, c. 146.] That £457 million has not been paid. The Assembly has made it a condition of paying it that the Council meeting in Brussels in March should reach a satisfactory agreement on reforms. However, for the Assembly, a sine qua non of such a reform is an increase in own resources which this country cannot and must not agree to. If that deadline of 31 March is not met, the rebate will not be paid. Therefore, what the Prime Minister said about the rebate was incorrect. We are not going to get the money, and that is the only test. What she said about encouraging progress on a long-term settlement was also incorrect, because the speech of the President of the Council of Ministers, Mr. Cheysson, to the European Assembly on 18 January indicated no progress at all in the Government's demand for a permanent settlement to the problem of unfair budget contribution.

Mr. Cheysson said: There is a problem and it must be dealt with—at least for a certain period. Britain has proposed a safety net system under which we would get back the overpayment on VAT the following year, but this would require a change in the April 1971 own resources treaty which requires that the same VAT rate for EC budgetary purposes be levied in all the member states.

Mr. Cheysson said: There is no question of amending the provisions of the treaties on this subject—and I am astonished that this has even been rumoured". What is the Prime Minister talking about? There is no prospect of a long-term settlement. What is more, sacrifices have been made of vital interests to get even the budget repayments that we have. The Dublin mandate, which the Prime Minister won after all that eclat and noise, meant a budget refund, but the condition was that she did not question the fundamentals of the common agricultural policy and that we compromised on the common fisheries policy.

Fishermen in Grimsby and throughout the country were sold down the river by an inadequate settlement which is disastrous for the British fishing industry. The Prime Minister has sold out on issues of major importance to win temporary, inadequate deals on the budget.

If the Government cannot achieve the fundamental reforms to which they say they are committed with an Opposition who are and who have been committed to withdrawal, when will they achieve them? Without that voice in the country and that backing, what possibility is there?

Mr. Marlow

That is an interesting point. Is the hon. Member absolutely convinced that the Opposition are committed to withdraw from the Community at this moment?

Mr. Mitchell

In the period 1980–83 the clear commitment was to withdraw. We are now committed to withdraw as an option. That is important. Personally, I would withdraw from the Common Market tomorrow, as would the hon. Member for Northampton, North (Mr. Marlow). I do not decide what Government will decide in four years time when the Labour party will be elected. I am speaking of my personal view. For that period, and certainly at the last election, our commitment was to withdraw. In the face of such opposition, if the Government cannot win concessions from the Common Market, when will they? That is a straightforward question. The Government show no prospect of achieving concessions.

At the end of their abysmal record the Government are preparing to abdicate on the one negotiating power, the one lever and one spanner in the works that they have—the ability to wreck the system to produce fundamental change by the budget crisis. Already they are abdicating that power.

The Government are accepting that we remain modest net contributors. It is ludicrous to accept that disastrous burden. The Government are accepting that we shall increase the so-called own resources on two impossible conditions: first, a lasting solution to the budget problem—when there can be no such solution given the importance of the CAP—and secondly, that there be strict budgetary control, which cannot happen in that organisation.

On the basis of two conditions, both of which are almost certain to be fudged by an organisation which is a past-master at the art of fudging, the Government are preparing to abdicate the power to produce fundamental change. An increase in own resources, beguiling as it may sound, is a betrayal. It is rather like playing a bad record. It is not improved by turning up the volume because that makes the bad record worse. There is no guarantee that if we agree to an own resources increase other funds will develop.

It has been said by the President, Mr. Thorn, that other funds would have to be cut to make way for agriculture. That is the most appalling statement that I have heard in a long time. Agriculture is insatiable. Not only will other funds not increase, but agriculture will continue to be the drain that it has always been. With the certainty of more money automatically being generated, it will take an increasing share of funds.

There is no prospect of the Government's conditions being fulfilled. It is ludicrous that two thirds of the budget goes on the CAP and only one eighth on measures which grapple with unemployment. It is ludicrous because the Common Market supports 8 million farmers and 13 million unemployed. What a ridiculous division of budgetary resources that is. Resources are being used to support wealthy farmers, almost as if Hinduism has become the religion of the Common Market and the sacred cow was free to wander the streets of Brussels.

The only way out is to allow the crisis to bust the bank and to force reform. We must do that by an adamant refusal to increase own resources and then use the situation to redress terms which were inadequate at the start and which have remained disastrous. My hope is that the whole thing breaks up, but here is a heaven-sent opportunity to change a situation which every Government have said that they want to change but about which no Government have done anything. If we do not change, our future is one of a declining periphery, with development siphoned away to the golden triangle and an increasing tide of manufactured imports destroying jobs in the United Kingdom.

The Common Market is not strong enough to help us, but it is strong enough to do positive harm to us. The distortion machine that has become part of the Community's way of life is one of the reasons for the prevailing alienation of politics. The gobbledegook and Goebbels-isation of British life, produced by attempts to explain membership of an institution which fundamentally does not and cannot suit us, is one of the main distortions.

That explanation and distortion has been carried on at our expense by the Commission's fifth column which has put over a totally inaccurate view of what is happening. It tries to tell us that decline is improvement; that black is white; that ruining our manufacturing industry is actually a benefit; that the burden of high food prices is an advantage; and that the budget to which we contribute on a large scale gives us access to opportunities which are not there. All these distortions have produced what I can only describe as the Goebbels-isation of British life.

It is, therefore, the duty of Opposition Members to put backbone into what has emerged, for all their brave talk, as a weak, nervous, grovelling and deferential Government who are on the point of abdicating the one weapon to have come into our hands in the EEC from 12 years of a disastrous relationship. They should use that weapon, abandon public relations and stand up for Britain and British interests. Perhaps I could offer the Government a slogan which, though it was not used all that successfully on the first occasion, has great potential in the Common Market. They should take up the slogan "Can't pay, won't pay."

9 pm

Mr. Kenneth Carlisle (Lincoln)

I shall not follow the highways and byways taken by the hon. Member for Great Grimsby (Mr. Mitchell), or I should find myself in a quagmire of words.

This debate has no meaning unless it is seen in the wider context of our position in Europe and the reasons for our continued membership of the Common Market. Indeed, we should sink without trace if we got involved in the seven volumes of the draft budget. The failure of Europe is that it has not succeeded in persuading people that Europe is not just about things, such as the import of caramel and caramel products, but is concerned with much more important and fundamental matters affecting our future as a country. We can overcome the problems of, and opposition to, Europe only if we persuade people of the real meaning of our membership of the Common Market and if they are persuaded to understand that our membership is fundamental to the future of our country.

I believe that people understand in their hearts that our membership of the Common Market is necessary for our security with our fellow members. They understand that our membership is essential for our businesses and industry, as trade and jobs depend largely on our future in the EEC. They certainly understand that, if we were not members, there would be little future for us in the world and in the decisions affecting the future of the world.

I am often saddened by the Labour party's acceptance of our role as a little England and in the abdication of any role in the future decisions which affect the world at large. It is essential, therefore—if we are to accept the large issues that are at stake—that we find a solution to the budgetary problems. If we do that, we can concentrate more on the matters that are central to our future as part of Europe. And, if we accept that our future is in Europe, we are more likely to find a solution to the budgetary problems.

Budgetary reform is needed for two basic reasons. The first is that it is only fair that we should not contribute more than fellow members—that we should pay according to our wealth, a principle to which reference has been made several times during the debate. It is fundamental in our search for a solution that we should at least make a fair contribution. At the same time, I was glad to learn from the Economic Secretary that we are determined to secure in March the repayment which has been accepted for us.

The second reason why we need reform of the budget is that reform of the CAP is essential. As the hon. Member for Great Grimsby said, we are spending a large proportion of Europan money on the CAP. Without doubt, guaranteed prices only lead to surpluses. Indeed, without some market discipline it is impossible to get hold of the agricultural surplus system, because more will be produced. The Foreign Secretary was correct when he said that he would vote for an increase in own resources for the budget only if we have effective control of expenditure. That means getting a proper reform of the CAP and regaining a fair share of our financial burden.

My right hon. and learned Friend the Member for Hexham (Mr. Rippon) was right when he said that, as we face the reform of the CAP, farming should not be allowed to decline. It has an important part to play in the future prosperity of this country and of the rural areas. The hon. Member for Great Grimsby went overboard in his attack on the farming community and showed a complete lack of understanding of the position when he said that farmers benefited from rocketing land prices. Any true farmer does not want his land to be worth all that much because he will not sell it but farm it and will wish to pass it on to his sons, and that is impossible if the price of the land is too high.

However, we should accept the fact that the system of farm support is wrong. First, it produces surpluses and, secondly, it leads to the destruction of the countryside. Habitats for wildlife are at a premium in the United Kingdom. The Nature Conservancy Council claims that we shall have only just enough habitat to secure our wildlife for future generations if we stop the destruction now. It is one thing to farm existing farm lands as well as we can and quite another to destroy valuable habitat merely to produce surpluses.

The current system of support is encouraging surpluses and, in turn, destruction. This is happening in Ireland, for example, where millions of pounds are encouraging the drainage of hill river valleys. Valuable wetland sites for wildfowl and waders are being destroyed to produce surpluses of wheat that are not required, or excess dairy products. In Britain, it is CAP money that is encouraging, for example, the drainage of North Duffield Cans in Yorkshire, a water meadow site of international importance. Without the subsidies for wheat from the Common Market, such drainage would not be considered.

Any new farm support system that is evolved—we must have some such support—must avoid the plague of surpluses while linking farming development with proper consideration for conservation.

We have a skill in service industries, such as financial services, insurance and the provision of air services. We must wrest from the Common Market free competition for the service industries. In the recent past we have not been so competitive in manufacturing industries, but we have free competition in that sector. Let us now secure free competition for financial services.

In our fight to secure a reformed budget, I should like the Government to push for greater emphasis to be placed on the conservation of wildlife and habitat. That will be needed for the quality of life of future generations. Secondly, I urge the Government to press for fair competition for service industries. I hope that everyone in the House will accept that our future lies in Europe. If we are in Europe, we can have a wider vision of the world. We shall be able to play a full part without sinking into becoming an isolated and scorned little England.

9.7 pm

Mr. Phillip Oppenheim (Amber Valley)

It would be all too easy to talk about the many superficial absurdities of the EC—for example, the millions wasted on the absurd so-called EC information campaign. I could talk of the fact that Britain was meant to provide almost 20 per cent. of EC employees, but accounts for less than 10 per cent. I could talk also about the millions that are wasted internally by EC bureaucrats.

I had personal experience of trying to install a small network of micro-computers for the European democratic group. I tried to learn what I could of what the EC, the Commission and the Parliament had planned for their internal network. Whenever I contacted someone who was meant to have responsibility, I found invariably that he was out for lunch or taking a two-month sabbatical.

I discovered some appalling examples of waste. On some entirely dubious grounds, a large consignment of Italian word processors was ordered two years ago. The machines have still not been delivered or installed, yet the design has been out of production for nearly a year. This is ridiculous, but all this expenditure and waste is be a drop in the ocean compared with the cost of the common agricultural policy. The CAP is the key because it is the most developed part of the EC.

The CAP is much criticised and it is certainly far from perfect, but that should not obscure many of the sound reasons that lie behind it. Agriculture is entirely different from other industries. It is different because land is a finite resource. It is different because it costs more per unit of production the more we try to produce per acre. It is different also owing to the uncertainty of prices in a free market because of factors outside the producer's control. All those factors in a free market would serve to depress production, so that we would be not self-sufficient in Europe but heavily deficient in production.

Systems of guaranteed prices for agriculture are not unique to the EC. They are common to most developed nations, including the United States, and, before 1972, Great Britain. Guaranteed price systems iron out the worst of the market uncertainties and ensure reasonable levels of production. It is worth remembering that, although the EEC has a heavy surplus production in milk, it has only a 15 per cent. surplus in grain production, is in balance in beef production, and has a 30 per cent. deficit in sheepmeat production. It is no coincidence, however, that countries with guaranteed price structures have the best-fed consumers. Those without guaranteed price support often go short.

It is true that agricultural support costs money, but the money that British farmers receive from the EEC is less than the total spent on the coal and steel industries. Would Labour Members who call for the abolition of any support for agriculture be consistent in calling for the abolition of support and return to world prices especially for the coal industry? The coal and steel industries produce less and employ fewer people than agriculture.

It is far from true to say that, with the possible exception of sugar, the Third world suffers from EEC pricing policies. Quite the contrary, it is generally agreed that a lack of support for prices in those economies leads to food shortages. The low prices for which farmers in those economies must work encourage not production but subsistence farming leading to shortages for the mass of the population.

Assuming that one wants to get away from the system of guaranteed prices, what are the alternatives? One alternative is to go to world prices. If the EEC were to go to a system of world prices for farming products, it would mean a cut in production of about 30 per cent., which would bring Europe heavily into deficit for all products, except possibly milk. It would mean billions of pounds worth of imported food and total dependence for our food on the United States or, worse still, on South America. That would mean also a return to a huge rise in world prices. Anti-marketeers admit that EEC price support depresses world prices, but they must admit also that, if we went away from a guaranteed price structure, world prices would correspondingly increase. There is no doubt that if the EEC abolished price support and went on to a system of world prices, those world prices would increase sharply.

Another consequence of moving to world prices would be that small farmers, many of whom had invested heavily in capital equipment in the reasonable expectation of a certain price level, would be bankrupted. Ironically, it would be the larger grain farmers who would do well. It is true that they would probably have to cut grain production, but lower imputs per tonne of grain produced would mean higher margins on those tonnes of grain. A return to world prices would possibly even increase the profitability of the large grain farmers.

The consumers would suffer if we went to a system of world prices, because they would be totally dependent for food on North and South America and would have no protection against the fluctuations of world prices and supplies.

Another alternative to the current prices support system operated by the EEC would be a return to national policies of price support. That may be an answer, but, in terms of what United Kingdom farmers receive, price support would probably cost as much as it does now. After all, before 1972, British farmers received no more or no less in real terms than they do now. However, to argue that some form of price guarantee system for agriculture is necessary is not the same as saying that the current CAP does not need radical reform. It is surely 'grossly unfair to expect the British taxpayer to go on financing huge overproduction by the French and the Dutch. Not only do the French and Dutch seem to want our markets to sell their surplus goods to, but they want us to pay for the privilege. For every pound that we pay our own fanners, our taxpayers contribute a further 50p to French and Dutch farmers. Therefore, perhaps some national financing of overproduction over and above what the Community can absorb would help the French and the Dutch to see our point of view as well as theirs. I also cannot see the logic of asking our dairy farmers to cut back production by 6 per cent. just so that we can import more French milk. That seems to be an absurdity.

Another way in which the EEC should be going is to return more of the benefits of agricultural spending to the consumer. Deficiency payments schemes, where possible, such as the sheepmeat regime, achieve that purpose to some extent. Additionally, the sale of more intervention grain to the livestock sectors would lower feed costs and thus lower the cost of the end product. Surely that is the direction in which we should move.

We need to reform the CAP, but to use the CAP' s many excesses and absurdities as an excuse to scrap the whole policy would be to throw out the baby with the bathwater.

9.16 pm

Dr. Oonagh McDonald (Thurrock)

In some quarters, the debate has been marked by complacency. For example, the hon. Member for Inverness, Nairn and Lochaber (Mr. Johnston) appeared to be reading out the Liberal manifesto for the forthcoming European Parliament elections. He has disappeared from his seat. Perhaps the Liberal manifesto has overcome him. He talked about the need to reform the common agricultural policy, but it was a long and slow reform. Apparently neither he nor the Liberal party has any notion of the urgency of the matter as agricultural spending continues to increase and get out of hand. Perhaps that is typical of the alliance's approach to political problems, which is marked by the lack of a sense of urgency or reality.

By way of contrast, one or two Conservative Members seemed to delight in their praise for and adoration of membership of the European Community, so much so that they were prepared to tolerate an increase in the membership fee. If the Commission proposes to raise the VAT ceiling to 1.4 per cent., they will accept that. They might even accept a doubling to 2 per cent. Some of them seem to be unaware of its implications for taxation here.

As my hon. Friend the Member for Newham, South (Mr. Spearing) said, the present ceiling means that 11 per cent. of VAT is contributed to the European Community. Any rise in that ceiling would greatly increase VAT. Those who spoke in favour of raising the ceiling did not say where they expected the taxes to fall. There could be an increase in the already high 15 per cent. VAT, or there could be a widening of the base for the collection of VAT, perhaps to cover items at present zero rated, such as food and children's clothing. However, Conservative Members did not tell us what would be the effect on the British tax system of a raised ceiling.

The Economic Secretary took us on a brisk trot through the technicalities of the budget. I was particularly interested in some aspects of his speech. He welcomed the liberalisation of lorry movement throughout the Community. He must have had a busy few weeks in France, either stopping the hijacking of British lorries or heaving them out of the way when they are blocking the holiday routes.

More seriously, the Economic Secretary's speech had a couple of interesting features. First, he said that the EC was at a crossroads. That was a surprising understatement after Stuttgart and the abysmal failure of Athens. It was an astonishing statement to make when even Mr. Cheysson, the French Foreign Minister, sees the Community as galloping towards a precipice unless urgent action is taken by the end of March.

The Economic Secretary also said that it would be premature to withhold payments. He said that we have until the end of March to get our rebate from the EEC. The end of March is not far away, and the signs do not yet seem very hopeful.

In view of the heavy weight of the documents, which we have, of course, all dutifully read over the past few days to prepare ourselves for this debate—[HON. MEMBERS: "Hear, hear."] I am glad to hear that hon. Members are so hard working. In view of the size of these documents, it seems churlish to complain of lack of information, but I shall do so.

The hon. Member for Southend, East (Mr. Taylor) referred to the missing letter—the reply to the Foreign Secretary's request for the £42 million owed to us since 1982. That reply is with the Foreign Secretary who is now in Brussels, having been in Paris over the weekend. I hope that we shall be given a statement this week giving us all the details of the discussions at St. Cloud near Paris at which the Foreign Secretary has been present. I hope that there will be a statement, because a number of issues arise from press reports today of the weekend meetings.

The Foreign Secretary was prepared to say that the meeting had been "mildly encouraging", but, despite that overt statement, the briefings which the press received do not encourage us at all, and I doubt whether the Foreign Secretary was as encouraged as he chose to pretend. For example, it appeared that some countries were not prepared to offer Britain the long-term budget settlement on which we quite rightly insist. That appears in a number of press reports, including one in The Times today. There is also a fear that President Mitterrand's visits to the various capitals of Europe may represent an attempt to put together a secret deal behind Britain's back. Other problems concern France's attempt to impose a five-year limit on any budget agreement and to keep the reduction in Britain's payments to less than 1 billion ecu. All those features of the weekend's meeting disturb us.

We also have no information about the various proposals which are apparently being discussed about the way in which the size of contributions to and rebates from the Community should be assessed. There are proposals from Mr. Delors and from the Dutch, and Gaston Thorn also has other ideas for new methods of calculating budgetary imbalances. It is not surprising for those who have heard Gaston Thorn's statements about Britain and our claims concerning a rebate that his proposals reduce the apparent net contribution and the potential rebate which Britain could hope to claim.

We cannot sensibly discuss the 1984 budget and any plans that the Government might have to get us out of our difficulties with it without knowing, in detail, what the proposals are. We should be able to examine them critically and, if necessary, offer other ways in which to assess each member country's benefit from the Community and the amount that it sacrifices or pays to it. Even with the enormous pile of documents involved, the debate has been a waste of time, although by that I do not wish in any way to be disrespectful to my hon. Friend the Member for Livingston (Mr. Cook), who made a brilliant speech, and to others who have spoken. I am merely setting out the debate which we should have before 31 March.

We must examine the proposals in detail and know precisely why the Government regard the refusal to pay our contribution to the budget before the end of March as premature. We need to know the Government's detailed proposals to ensure that agricultural spending is controlled. We need to know what trade-off the Government are considering in terms of allowing our contribution to the budget to be raised or for allowing the ceiling to be raised. We all recognise the difficulties of engaging in a negotiating process such as this, but as the decisions are being taken in a crucial year, and as they could affect the development of budgeting for the Community for many years to come, the Government should take what the House has to say about these matters fully in account. As has been pointed out, there appears to be a gap between the Government's rhetoric and their actions. My hon. Friend the Member for Great Grimsby (Mr. Mitchell) described that gap beautifully. I shall not attempt to follow his eloquent description of the activities of Mr. Ingham and the press office at No. 10. Nevertheless, we have all seen the gap and are worried about its possible extent in the future.

The report of the Court of Auditors provides us with much ammunition with which to defend Britain's stance. It mentions what happens to agricultural funds and argues that a large proportion of the £9.28 billion which is allocated to agriculture could be saved if the CAP were made more effective. Apparently, on CAP guidance for farm modernisation, the court deplores the absence of a clear and stringent programme which is designed to help farmers abandon production in surplus sectors. It also says that sound financial management is as much a key to averting the EC's cash crisis as raising the ceiling on the EC budget measures.

Many right hon. and hon. Members have rightly argued that strict financial controls—we all agree that they have their place—will not solve the problems of the CAP. It has a built-in tendency for overspending, as many factors can change in one year. In present legal circumstances, Brussels must meet the demands that are made of it. Changes in world prices, changes in the exchange rate and the way in which surpluses might unexpectedly build up all mean that spending on agriculture is bound to overrun. It has done so in the past—it increased by 183 per cent. during the 10 years from 1973 to 1983, and there is no reason not to expect it to continue to increase in the years to come.

We suspect that the Government will stop short of financial controls on the agricultural policy and will back off from the notion of the fundamental reform that needs to take place, not only to stop overspending, but to stop the build-up of the obscene surpluses—the butter mountains, the wine lakes, and so on. The surpluses are stored at enormous expense and occasionally released at knock-down prices to other parts of the world. That kind of policy is not only financially unacceptable, but is rapidly becoming morally unacceptable—not only in this country but throughout the remainder of the Community.

If the Government merely go for financial control they will be giving up an important part of the initial rhetoric, which was to go for fundamental reform of the agricultural policy. It is not surprising that the Government back off. My hon. Friend the Member for Great Grimsby was attacked for his statement about the importance of farmers to the Conservative party. A more acceptable source for the Conservative party, The Economist, also had its doubts about the Government's determination to press for a reform of the agricultural policy owing to the barnful of farming Cabinet Ministers responsible for such decisions.

Mr. Marlow

On a point of order, Mr. Speaker. Is it proper for the hon. Lady to suggest that members of the Cabinet let their personal fortunes come in the way of their decisions about the policies needed for this country?

Mr. Speaker

I did not hear the hon. Lady say anything that was out of order.

Dr. McDonald

It will be for the Minister to try to rescue the Government from criticisms.

The Opposition are concerned about another aspect of the current negotiations. Mr. Gaston Thorn talked yesterday about the possibility of plundering the EC funds that aid employment measures and the regions. It is true that the Commission is not under a legal obligation to continue those payments during 1984, although they have been laid down in the budget. It is, however, obliged to continue to meet all the demands made on it by the agricultural policy.

We want from the Government tonight an absolute assurance that they will reject any move by other member states and the Commission to spend on agricultural policy money that should be used to aid the impoverished regions of the Community or on employment measures. Admittedly it will be hard for the Government to do that, but if they were to make their objections clear that would give them an additional lever in the negotiations that must take place during the next few weeks.

The Community is in a crisis. It is wrong to dismiss the budgetary matters as though they were irrelevant to the development of the Community. They are not—they are a constant diversion and a constant source of bad feeling and hostility between members of the Community. They lead to wasteful spending on agriculture and raise the prices of food to consumers because of overspending. It is high time that the agricultural policy was thoroughly reformed, and if the Government keep their nerve they can do that. They can refuse to pay their contributions to the European budget this year, not only if they fail to receive their rebate but to ensure that the reform of agricultural policy, which must take place, actually does take place. To accept a short-term compromise solution now and to allow the moment of crisis to go by without taking the necessary fundamental and long-term action would be crass weakness on the part of the Government. Despite all their rhetoric, we fear that that is what is going on behind the closed doors at St. Cloud, and that the Government will not live up to what they say they want to do.

The Government have already backed down, as we have seen from their statements, and we are afraid that they will do so once again and take an easy compromise solution—the easy way out—and that consumers in Britain will end up paying more taxation as the budgetary contributions are increased because the ceiling on their own contributions is raised. The Government are prepared to go for the soft solution and to allow everyone else to pick up the tab for the weakness of their decisions.

The Opposition want a commitment from the Minister that all the information necessary for the House to make a decision will be revealed, that we may have a further debate before the Government come to a conclusion, and that they will not abandon their rhetoric, but will instead push for the fundamental reforms in the EC agricultural policy which are absolutely necessary if the EC is to survive.

9.37 pm

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

The hon. Member for Thurrock (Dr. McDonald) and many other hon. Members who have spoken have quite properly concentrated their remarks on budgetary matters. I say "properly" not only because that is the subject of the debate—those were the issues recommended by the Scrutiny Committee—but because that issue is most central to the problems facing the Community now and the negotiations upon which all the member Governments are embarked.

The hon. Member for Inverness, Nairn and Lochaber (Mr. Johnston) and my hon. Friend the Member for Harrow, East (Mr. Dykes) emphasised their desire that during the negotiations the British Government should not address the matters in a narrow short-term frame of mind but that they should remember the broad, overall objectives of the Community and the long-term interests of Britain and the Community as a whole. The Government do not wish to dissociate themselves from that consideration. Hon. Members rightly and properly made that point.

It is equally important that all member states should consider it perfectly proper to emphasise to the Community during the negotiations the vital national interests that are at stake. It would be wrong and improper for anyone to expect any member Government, including the United Kingdom Government, not to take into account the vital national interests.

The Community was not invented and has not developed on the basis of ignoring the vital interests of member states. Rather it has survived and prospered by being able to reconcile the conflicting interests of many member states. That feature has survived over the years and is the essential strength of the Community.

During the past few years the United Kingdom has been in the forefront of calling for reform of the Community. That has led to some suggestion that the United Kingdom is not fully committed to membership of the Community, and that it is only a part-time member. My right hon. and learned Friend the Member for Hexham (Mr. Rippon) was right to emphasise that the 'United Kingdom is not half-hearted in its approach to Community membership, and that it is wrong for anyone to suggest otherwise. We reject and resent such accusations.

I recollect how, in the late 1960s, France under General de Gaulle was so anxious to protect its vital interests, as it saw them, that it withdrew from the Council of Ministers for seven months, without anyone trying to question its basic commitment to the Community. In the present negotiations every member state has vital interests, and one does not blame them for trying to ensure that they are respected.

I was astonished by the suggestion of the hon. Member for Great Grimsby (Mr. Mitchell) that the Labour party's commitment to withdrawal from the Community, at least until the previous general election, was an asset to the Government during the past few years in their negotiations with the Community. He has obviously not spoken to any of his fellow Socialists in Europe or to anyone else. The great embarrassment for the Government during the past few years has been that other member states, until the last election, could say, "What is the point of trying to reform the Community in the direction that the United Kingdom wishes if the advent of a Labour Government would mean British withdrawal in any case?"

Mr. Austin Mitchell

If, faced with the dire threat of an Opposition who are committed to withdrawal, the Government could get no concession from the EC, when do they hope to get concessions?

Mr. Rifkind

There are two fundamental errors in the hon. Gentleman's remarks. First, during the past few yars £2,000 million has been refunded, apart from the sum due at present. That compares favourably with the complete lack of success of the Labour Government. Secondly, the Hon. Gentleman must appreciate that as the other member states had no internal dissension such as Britain had until the previous election, that could not be an asset in the negotiations.

Several of my hon. Friends and other hon. Members referred to the unresolved dispute between the Government and the European Parliament about the net payment of £430 million arising out of our 1983 refund. Let us be clear what the dispute is not about. It is not about our entitlement to that sum. No one—not the Council of Ministers, the European Parliament, nor the Commission—oubts our entitlement to the sum. Nor is it a dispute between the United Kingdom and other member Governments. It is not a dispute with the Commission. At this stage it is a disagreement with the European Parliament, which is trying to insist that the payment of the sum should be linked to progress on the Stuttgart negotiations. The Government fundamentally disagree with that assertion, and I would go so far as to say that, in making that proposition, the European Parliament is acting improperly, unfairly, illogically, unwisely and dangerously.

First, its action is improper because there is no basis for establishing a link between progress on the Stuttgart negotiations and the payment of the refund. Anyone who reads the Stuttgart communiqué, and the speech of Herr Kohl, the German Chancellor, when he reported to the European Parliament, will be aware that no such link is justified.

Mr. Jackson

The European Parliament was not party to the Council meeting in Stuttgart and cannot, therefore, have been bound by its decisions. We should understand that in trying to evaluate the problems that have been caused by the Parliament.

Mr. Rifkind

My hon. Friend is correct to say that the Parliament was not bound by the Stuttgart negotiations. Nevertheless, it should take into account the basis on which this payment was agreed. The agreement did not depend on other factors; it was agreed because Britain is entitled to the refund. Any attempt to establish links would be improper.

Secondly, the proposition is unfair because in many respects—certainly following the Arndt resolution by the European Parliament—the United Kingdom is closer to the thinking of the Parliament than almost any other member state in its desire for a permanent solution to the budget problem and for sensible control of agricultural expenditure. Therefore, it is somewhat unfair of the Parliament to take such action against the country that is the closest to its own thinking in this respect. Thirdly, it is illogical for the Parliament to establish such a linkage because, if it is seeking to bring pressure on the Community as a whole, it is rather difficult to understand its policies. The suggestion that the French, the Italians or the Irish would be persuaded to be more reasonable on progress in the negotiations because a refund due to the United Kingdom is not being paid is rather illogical.

Mr. Johnston

On the point about the European Parliament, in which the hon. Gentleman is interested, he said that the Parliament was unfair because the British Government was more in tune with the views of the European Parliament than anybody else. That would suggest that the European Conservative group is more in tune with the views of the Parliament than Parliament itself, which is illogical.

Mr. Rifkind

On the contrary. The Conservative Members of the European Parliament have been in the forefront in pressing for the money to be paid within the due course of time, unlike the Labour group, which has not been helping the Conservative group and has been putting forward wrecking amendments to prevent the money being paid.

Fourthly, the Parliament's position is unwise because it spends a great deal of its time persuading member states to increase its powers and responsibilities. Anyone who might have been sympathetic to the approach will hardly be persuaded if the Parliament abuses it existing powers by seeking to withhold sums due for reasons that are not linked to entitlement to those sums.

Finally, the action of the Parliament if it refuses to pay these sums at the right time may be dangerous because clearly, as my right hon. Friend the Prime Minister has shown, this is not something to which the United Kingdom would acquiesce and we would take steps to defend our position.

The hon. Member for Livingston (Mr. Cook) has tabled an amendment that invites the House as of now to insist on the withholding of sums due to the European Community. The Opposition's amendment is both precipitate and irresponsible. I say that for two reasons. At the moment, no one is suggesting that the Community is in default of the £430 million. The United Kingdom has made clear all along that that is the sum that falls due to be paid by 31 March this year. Our actions cannot be questioned. If the House were so misguided as to accept the advice of the hon. Member for Livingston and the Opposition on this matter, that would put the United Kingdom in the wrong because it would have acted in a way that was hostile to the Community when its rights to the sum had not been attacked.

Mr. Marlow

While I accept and respect entirely what my hon. Friend has said, will he confirm to the House that if virtually all of the money is not paid by the due date, withholding is one of the options that will be considered by Her Majesty's Government?

Mr. Rifkind

My right hon. Friend the Prime Minister has made it clear that we cannot rule out any method of responding to such actions. It is not in the interests of the country to say at this moment what might happen if circumstances that we hope and believe will not occur should take place.

Mr. Robin Cook

The House will be rateful to the Minister for pointing out that action that is advocated by the Opposition is irresponsible on 20 February, but when advocated by the Government on 2 April is no longer irresponsible. As the Minister has spent the past five minutes fulminating at the illogicality, the danger and the lack of responsibility of the European Parliament, will he tell the House what possible reason there is after last week's sitting of the European Parliament for imagining that anyone will release the rebate in time for 31 March?

Mr. Rifkind

Two points need to be made. First, there is a fundamental difference between taking action after the Community has defaulted on a sum due to the United Kingdom and contemplating action today when no such default has taken place. Secondly, there is still no procedural reason why sums due to the United Kingdom should not be paid by the end of March. The European Parliament has itself indicated that it is fully aware of the significance of that date, and until that date has lapsed we are prepared to give the Parliament the benefit of the doubt. That, I believe, is the only reasonable, proper and responsible thing to do. [Interruption.] I do not expect Labour Members to act in a responsible or constructive fashion. They did not do so when they were in office, and it is hardly likely that they will do so in opposition. That is something that my hon. Friends will appreciate.

Mr. Jackson

In considering what is potentially a very serious matter, will the Minister explain what legal status the date 31 March has in any Community decision?

Mr. Rifkind

I shall not embark now on a detailed legal analysis, but my hon. Friend will be aware that in the past the sums have been paid by that date. It is not a matter in dispute, either in the Council of Ministers or in the European Parliament, that the proper course of action is that the sums due to the United Kingdom in respect of refunds are paid within the United Kingdom's financial year.

Mr. Teddy Taylor

While the House is greatly reassured to hear about the strong action that will be taken if the Common Market defaults on 31 March, will my hon. Friend say what strong action was taken following the default on 31 December last by the Community over the £42 million which should have been paid but was not, bearing in mind that the Foreign Secretary sent a letter on 3 January and that, we understand, a reply has just been received? I hope that the Minister will be able to tell us what that reply from the Common Market says.

Mr. Rifkind

The £42 million risk-sharing sum, unlike the other sums that we have been discussing, does not arise out of a dispute between the United Kingdom and the European Parliament. It arises from a quite separate basis—from a difference of view within the Council of Ministers as to the proper sum that is due for the risk-sharing element for 1982.

Secondly, the £42 million, unlike the other sum, is in dispute. I said earlier, with regard to the £430 million, that there was no dispute in any quarter of the Community as to British entitlement to that sum. That is not the case with the £42 million. The United Kingdom emphasises that that sum is due, arising out of the risk-sharing element. Other member states and the Council of Ministers do not take that view.

My hon. Friend the Member for Southend, East (Mr. Taylor) has referred to correspondence between the President of the Commission and Her Majesty's Government. I am not at liberty to indicate the contents of correspondence of that kind. In saying that, I am not saying anything new; it is a position with which the House is familiar. But the Commission agrees with the United Kingdom that the sum which has not been paid arises out of a political decision by the Council of Ministers and does not arise out of any legal entitlement or disentitlement that the Commission recognises. Therefore, this is a matter which now has to be dealt with within the context of the inter-governmental negotiations now taking place, and it is clearly an issue which will be raised in that context.

Mr. Boyes

Will the Minister give us an assurance that well before 10 pm he will have a word with me about a possible increase in the cost of a pint of beer? I know that Ministers do not give way once they reach 9.55 pm, because they are in a hurry then.

Mr. Rifkind

The hon. Gentleman will be aware that questions of excise duty are more a matter for my right hon. Friend the Chancellor of the Exchequer than for me, and the hon. Gentleman would not wish me to anticipate my right hon. Friend's decision in that respect. That is all I can say on that issue.

With regard to the more general question of the reform of the budgetary system and budgetary imbalances, what we are seeking to do, as several hon. Members have said—I was particularly attracted by the remarks of my hon. Friend the Member for Wantage (Mr. Jackson)—is to achieve an equitable system which is fair to all member states of the Community.

Before the own resources decision of 1970, there was, indeed, an equitable system, because then the three major states of the Community—France, Italy and Germany—each paid 28 per cent. of the Community's costs, with the remaining costs shared by the other three smaller members. That system was changed not because of any desire to move away from an equitable system but because of the perfectly reasonable desire to achieve a position in which the Community had its own resources. But that does not remove the need for a basic equity in those arrangements, and it is a fundamental part of the objectives of Her Majesty's Government that in the negotiations we should achieve a system in which there is an equitable burden shared between the member states, based on the relative prosperity of the stales in question.

My hon. Friend the Member for Southend, East and others suggested that the Government are not serious about the reform of the common agricultural policy. However, we believe that expenditure on agriculture and the Community's expenditure as a whole need to be reformed. We were the first to argue for the need to have a strict financial guideline to ensure, for the first time in the history of the Community, that there should be control of agricultural expenditure and of the Community's expenditure as a whole. Other member Governments, as well as other commentators, have suggested that we need declarations of intent, saying that the Council of Ministers, or the Agriculture Ministers, should declare their intent, their good faith, to try to control total expenditure. To those who say that, I commend the wise words of Lord Home, when Prime Minister, when he said: If a politician tells you that his word is as good as his bond, then always ask for his bond. That is the approach that we are taking in the Council of Ministers. We are arguing that it is essential, if there is to be control of expenditure, for that control to be in the form of a change in the budgetary mechanisms, if there is to be a proper and adequate control of the Community's expenditure.

I listened with interest to the hon. Member for Livingston. Today, as on previous occasions when we debated these matters, he completely failed to reveal the alternative Labour policies on agricultural or budgetary matters or any other matters. If the House is to be denied the benefit of the Labour party's views it has at least one other way to discover what the hon. Gentleman believes. He is trying to identify what I am about to quote from, but I can tell him that it is our own local paper, the Edinburgh Evening News. It was the prime beneficiary of the hon. Gentleman's views on the matter, in a speech that he made to the Scottish Organisation of Labour Students. I shall quote his words to that august organisation. He gave Labour's four-point plan for contesting the European elections. He started by saying—this could be a reference to the Labour party, as well as to the European elections: Our job is to place internal problems and concerns within a European context". We can only speculate on what he meant by that. He went on to say something quite remarkable in a speech that was meant to be about the European Community: To those concerned about the Health Service we must connect the cuts in public expenditure to the world recession and the contribution Ministers throughout Europe have made to it. That is what the electorate will be subjected to in the debate on the European Assembly.

Mr. Robin Cook

The Minister will be well aware that shorthand in local newspapers is not all that might be desired. I am happy to assure the hon. Gentleman—who, I know, has listened to speeches from me during the past 15 years—that I said no such gobbledegook. As I have the privilege of the Minister's ear, and as he has tweaked me for having said nothing positive about what should be done on agricultural policy, I remind him that I made a strong and strenuous suggestion about what the Government should do as an earnest of their intention to reform the CAP, and that is to realign the green pound exchange rate and thereby abolish the 5 per cent. tax on food. That request was put also by Commissioner Tugendhat. Does the Minister propose to accept that recommendation as a positive step that can be taken on agriculture before we reach 10 o'clock?

Mr. Rifkind

I am interested to see the hon. Gentleman's anxiety to deny the words that he is reputed to have said in what is, after all, a most reputable newspaper.

Mr. Foulkes

Oh, not at all.

Mr. Rifkind

The correspondent who quoted the remarks of the hon. Member for Livingston was the paper's European correspondent—not some part-time reporter. Indeed, it is consistent with the Opposition's attitude, because throughout the past few months, in every public comment that they have made, they have emphasised their determination to avoid European issues which they know fundamentally divide their party, and they will try to fight the elections on domestic issues which they believe will bring them more satisfaction.

This debate has been about the Community budget. The Government have already achieved massive refunds for the United Kingdom taxpayer, and the fundamental objectives of our present negotiations are to ensure a fair deal for the British taxpayer and the British public in the years to come. The Community is, for the first time, addressing itself to those fundamental issues. We believe that we shall succeed, and I invite the House to reject the Opposition amendment.

Question, That the amendment be made, put and negatived.

Main Question put and agreed to.

Resolved, That this House takes note of the Preliminary Draft General Budget of the European Communities for 1984, of the Draft General Budget for 1984, of the Letter of Amendment to the 1984 Budget, of European Community Documents Nos. 10447/83, 10105/83, the Modifications and Amendments by the European Parliament to the 1984 Budget, of the Decisions by the Council on modifications and amendments by the European Parliament to the 1984 budget, of European Community Document No. 11094/83, financial compensation for the United Kingdom and Germany for 1983, and of Official Journal C 357, the Annual Report of the Court of Auditors for 1982; and supports the Government's efforts to secure budgetary procedures and control which are in the best interests of the United Kingdom and of the Community.

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1. BUSINESS OF THE HOUSE 21 words