European Community Affairs

HC Deb 10 July 1984 vol 63 cc890-980

[Relevant Document: Seventh Report of the Treasury and Civil Service Committee, on the Fontainebleau agreement.]

Mr. Speaker

I should tell the House that I have selected the amendment in the name of the Leader of the Opposition.

4.5 pm

The Secretary of State for Foreign and Commonwealth Affairs (Sir Geoffrey Howe)

I beg to move, That this House takes note of the White Paper on Developments in the European Community from July to December 1983, Cmnd, 9214; and of Community Documents Nos. 4972/84 and 4972/1/84, a communication from the Commission to the Council on budgetary discipline; 5427/84, a communication from the Commission to the Council on the future financing of the Community; 4812/84, the Sixth Commission Report on the implementation of supplementary measures in favour of the United Kingdom; 6240/84, the Commission Report on the application of regulations 625/83 and specific measures of Community interest relating to energy strategy; 7922/84 the preliminary draft budget of the European Communities for 1985; and 6681/84, a Commission proposal for a Council regulation introducing the measures to cover budgetary requirements in 1984 given the exhaustion of own resources: and welcomes the successful outcome of the European Council in Fontainebleau which secured a fair settlement to the problem of budgetary imbalances, a commitment to effective control of Community expenditure, and a sound basis for further development of the Community. The motion invites the House to take note of a number of Community documents, including the White Paper, which reports developments in the Community in the second half of last year. I imagine that the House will not wish to dwell on the events covered in that document, but will want instead to concentrate on the outcome of the negotiations which were successfully concluded at Fontainebleau last month.

For my part, I welcome the opportunity of a debate on the results of the European Council. They are potentially of great importance to the future of Europe and of this country. They represent the outcome of five years of hard negotiation, and it is my belief that they may well be seen in the future as marking a turning point in the development of the European Community. They mark a growing realisation by member states of their interdependence, and they underline as well the increasingly obvious irrelevance of the "Stop the world, I want to get off" school of thought still evident on too many of the Opposition Benches.

The Fontainebleau agreement shows one thing very clearly — that a British Government who are clearly committed to the success of the Community are more likely to make progress than one who base their negotiation on a never-ending threat to leave the Community. Britain is an integral part of Europe and is there to stay. Neither for this Government, nor for Britain, nor — if they had the courage to admit it — for the Labour party, is withdrawal any longer an option in Community affairs.

Our history shows that we are inextricably part of Europe. Over the centuries we have shared languages, territories, cultures, monarchies and, unfortunately, wars. The sacrifices and achievements of the last war, which we all remembered with such poignancy on the anniversary of D-Day last month, give the United Kingdom a unique and historic place in the reconstruction of our continent in a way which excludes the possibility of another European war.

Britain has always been a major contributor to the defence and security of Europe. We form a key element in the European pillar of the Atlantic Alliance. We were not present at the birth of the European economic community. Even so, we played a key part in the post-war construction of European co-operation in many fields; and in due course it became evident that our economic and political well-being lay in closer links with our nearest neighbours, with whom we already share so much, and with whom we could develop the enormous potential of the largest single market of the industrialised world.

The European Community is of course still very young. Inevitably it has experienced growing pains but now, with the agreement at Fontainebleau, we have the chance to move into a new phase.

Europe has the chance now to work at creating the conditions for sustained economic growth which should, in time, enable it to match the United States and Japanese performance in creating jobs. Europe has the chance now to strengthen the European pillar of the Alliance and thus make its voice more widely heard on foreign policy. If we, are to achieve those aims we must now make a reality of the treaty of Rome, beginning with the establishment of a true common market in goods and services.

Mr. Teddy Taylor (Southend, East)

As my right hon. and learned Friend has mentioned the great potential for jobs, could he tell us what has been the net increase in jobs during the past 10 years in the Common Market, America and Japan—the three areas that he mentioned?

Sir Geoffrey Howe

The argument is one with which I am familiar and which I often advance. One of the most important reasons for pressing ahead with the establishment of a true Common Market in goods and services in the EC is to create precisely that unity which has led to the creation of 12 million jobs in the United States. To achieve, that, we need the EC and the full implementation of the Common Market.

Mr. Nicholas Budgen (Wolverhampton, South-West)

Will my right hon. and learned Friend give way?

Sir Geoffrey Howe

No.

The importance of Fontainebleau is that it provides a much sounder financial basis on which to tackle precisely those tasks.

Mr. Budgen

rose—

Sir Geoffrey Howe

I know that my hon. Friend is always anxious to make a point during my speeches. I might give way to him later but I do not wish to do so so soon after giving way to my hon. Friend the Member for Southend, East (Mr. Taylor).

Fontainebleau provides a sounder financial basis on which to tackle the tasks that I have outlined. That is the measure of what was achieved last month. The budget settlement was a means to those ends. I shall say more about that in a few minutes. Let me first say something about the budget.

When the Government took office, we made two things crystal clear to our partners. First, Britain would once again adopt a positive attitude to Community membership —that was an important commitment —and secondly, that we were determined to secure reform of the unfair budgetary arrangements.

It is no secret that our task was not easy. Some of our partners suggested that increased expenditure on industry, on regions, and on social funds would take care of the problem. Meanwhile, we were offered a series of decreasing annual refunds.

There were three good reasons why we rejected that approach. First, the prospect of a spontaneous and significant change in our favour in the balance of Community spending was not a real one; secondly, our case could not be met by declining annual refunds, but only by a fair and lasting system; and thirdly, there was an overriding need to bring Community spending under control.

As I said in a speech at The Hague three years ago, conscious decisions needed to be taken on the size and direction of financial transfers. Those decisions needed to be based on objective criteria reflecting member states' ability to pay. Beginning in May 1980 our partners agreed to the first of a series of annual refunds. Those refunds have already brought us £2 billion — £2 billion more than the Labour Government ever got back, for all their negotiations.

Mr. Alan Howarth (Stratford-on-Avon)

My right hon. and learned Friend has just referred to the regions, the social fund and the need for objective criteria. Does he agree that there is a real problem associated with the attitudes that are apparent in the Commission? For example, it has proposed for 1985 increases in those two items in the budget of more than 16 per cent. apiece. Such increases bear no relation to the rate of inflation in any of the member countries or to the capacity of those countries to pay. Will my right hon. and learned Friend therefore not have to devise hoops of steel to contain the Commission's aspirations?

Sir Geoffrey Howe

I am grateful to my hon. Friend for drawing attention to the 1985 budget proposal of the Commission, which has yet to be scrutinised by the Council and which certainly does not represent the council's conclusions. I agree with him about the importance of the need for a financial disciplinary framework. The annual refunds did not produce a lasting settlement. Moreover, they have become progressively harder to negotiate at an acceptable rate.

For 1982, for example, our refunds amounted to some £660 million, including a so-called risk-sharing element of £176 million. As the House well knows, there has been continuing disagreement between the Council and ourselves over a part of that risk-sharing element, amounting to £42 million. We took that factor into account in coming to an agreement at Fontainebleau. Given the generally satisfactory nature of that agreement, the Government have decided not to pursue that outstanding claim.

For 1983, as hon. Members will know, the total agreed refund amounted to only £440 million. Taken over the four years, the total refund agreed to be paid amounted to £2.5 billion. That was a very substantial achievement, but over the longer term these ad hoc refunds were on a declining path. They did not provide a systematic correction of the budgetary burden and they provided no answer to the fundamental problem of structural imbalance in the Community's finances.

The long-drawn-out negotiations in search of a more lasting system took a first step in the right direction at the European Council at Stuttgart in June 1983. The Stuttgart declaration agreed on four main priorities. They were, first, that a lasting, systematic solution to our budgetary problems would be found; secondly, that the discipline which all member states have to practise within their budgets at the national level would be introduced into the Community's finances; thirdly, that, subject to the progress made on these fronts, the Community's financial needs — own resources — would be re-examined; and, fourthly, that new policies designed to reduce the dominant role of agriculture in the Community's affairs, and to strengthen the industrial and commercial common market, would be developed.

We hoped that those decisions would be implemented at Athens last December. We tried again at the European Council in Brussels in March. It required three major discussions in three successive European Councils to resolve the matter, because we were not prepared to agree to the inadequate offers made to us on previous occasions. We were not prepared to settle the matter on anything other than a lasting basis.

We went to Fontainebleau with five specific objectives. First, we wanted an automatic refund system, reflecting our ability to pay, which would avoid the annual haggles in each of the last four years; secondly, we wanted that arrangement to be lasting, unalterable except with the unanimous approval of all member states; thirdly, we wanted our refunds to be paid on the revenue side so that they would be deducted from our VAT contributions in the following year, and not paid through the creation of artificial spending programmes; fourthly, we wanted an agreement which introduced discipline into the spending of the Community, particularly where agriculture was concerned; and fifthly, we wanted agreement on new policies to revitalise the Community and to give its 270 million inhabitants a new confidence in the value of Europe.

Mr. Robert Jackson (Wantage)

Bearing in mind the importance and desirability of the policies that my right hon. and learned Friend has mentioned, does he think it is justifiable to apply rigidly the maximum rate of the budget?

Sir Geoffrey Howe

An important feature of the treaty is the fact that the maximum rate of the budget should be maintained as a discipline. I recognise that there might be impatience with the development of new policies and that it might be possible to achieve them by transferring resources from one programme to another. However, I do not think that it would be right, for whatever compelling reason, to allow ourselves to escape from the discipline imposed by the maximum budgetary rate.

I am glad to say without qualification that, quite contrary to the claims of the Opposition amendment, the agreement that we reached at Fontainebleau meets all of those objectives. It is a good agreement. It is good for Britain and good for the Community.

Mr. Budgen

Is my right hon. and learned Friend seriously saying that, at that meeting, he got 100 per cent. of everything for which he asked? Surely such meetings are essentially compromises. Is it not difficult for the House to understand what is happening if statesmen keep coming back to Britain saying that they have defeated the foreigners again and got everything that we want?

Sir Geoffrey Howe

I am not sure what my hon. Friend has in mind but he must have an entirely fanciful idea of life in the EC and of any type of negotiation, international or otherwise. All international negotiations among countries that are committed to the advancement of a common cause must contain an element of compromise. I am not prepared to be denounced by my hon. Friend for having achieved just that.

Mr. Budgen

It was a compromise, not a victory.

Sir Geoffrey Howe

I cannot repeat too often that my hon. Friend's perception of these matters is even less lacking in a secure and legitimate foundation than I had imagined.

The agreement is a good agreement for Britain, and for the Community. More precisely, £440 million of refunds due to us in respect of 1983 has been unblocked by other member states. We shall receive about £660 million in refunds for this year. For the future, our net contribution to the Community will be reduced by 66 per cent. of the difference between our VAT share of the Community's allocated budget and our share of Community expenditure.

The arrangement is explicitly linked to relative prosperity. The ceiling on the VAT revenue that is available to the Community will be raised from 1 per cent. to 1.4 per cent. That will mean in practice that the size of available own resources is increased by 25 per cent., provided that satisfactory texts on budgetary discipline are in place and national Parliaments agree.

Mr. David Heathcoat-Amory (Wells)

Will my right hon. and learned Friend give way?

Sir Geoffrey Howe

I shall give way in just a second.

Here I must say to my hon. Friends who signed an amendment to the Government's motion—the amendment has not been called—that we have no intention of bringing forward the necessary legislation to increase own resources until the Finance Ministers have agreed on precise measures to guarantee the effective implementation of budgetary discipline.

Mr. Heathcoat-Amory

Before my right hon. and learned Friend leaves this point, will he set out his own minimum requirements for financial control? The Fontainebleau summit is unambiguous about increasing own resources but, on the question of financial and budgetary discipline, it contains little more than pious hopes and generalisations. The details will be delegated to subsequent meetings.

Will my right hon. and learned Friend give his specific ideas on what is acceptable, and confirm that the House will not be asked to increase own resources unless and until there is an enforceable and guaranteed system for controlling Community expenditure?

Sir Geoffrey Howe

The position is as I have stated it. I shall not bring to the House proposals on an increase in own resources in the absence of the measures necessary to guarantee the effective application— [HON. MEMBERS: "What are they?"]—of the principles set out in the draft conclusions of the Brussels meeting of the European Council on 20 March. That has been said many times.

My right hon. Friend the Prime Minister reported on the meetings of the Brussels Council on 20 March. She set out the provisions contained in the text on financial discipline that was provisionally agreed at the Brussels Council and endorsed by the meeting of the Council at Fontainebleau. Finance Ministers have been working on that.

Yesterday, my right hon. Friend the Chancellor had a further meeting with the Finance Ministers Council, which is continuing its work on the implementation of the principles that I have set out. The measures are necessary to guarantee the effective application of the principles referred to in the provisional agreement.

Mr. Austin Mitchell (Great Grimsby)

We do not want to hear platitudes. What about the measures?

Sir Geoffrey Howe

I shall come to those in due course, if the hon. Gentleman wants to hear them.

The European Council invites the Council of Ministers to fix at the beginning of the budgetary procedure a reference framework that it must adopt to finance the Ministers' policies during the budgetary year. It invites the Council of Ministers so to proceed that agricultural expenditure does not increase as fast as the growth in own resources. It invites the Council of Ministers to comply with that maximum rate throughout the budgetary procedure. Finally, the European Council invites the Council of Ministers to take the measures necessary to guarantee the effective application of those principles.

Mr. Budgen

Will my right hon. and learned Friend give way?

Sir Geoffrey Howe

I shall develop that point further for a moment. Let me emphasise—I shall come back to this point later—that, although the VAT contribution from other member states will be above 1 per cent., ours will be lower than the present 1 per cent. ceiling, after taking account of the new arrangement. It is worth remembering that the Leader of the Opposition suggested not long ago that we should leave things as they were. If we had taken that advice our position would be very difficult. If we had taken that advice we should not now be paying only half of what we would have paid.

One of the clearest ways of understanding the results of the agreement is to examine its effects on member states' net rate of contribution to new expenditure. France will be contributing at a rate of up to 27 per cent., and Germany at 32 per cent. The comparable rate that has applied in Britain up to now is 21 per cent. As a result of the Fontainebleau agreement our net rate of contribution to new expenditure will be no higher than 7 per cent.

The achievement of Fontainebleau must not be measured only in terms of its financial consequences. What is even more important—I emphasise this point—is the fundamental change in attitude. Five years ago, when I first became involved in these negotiations as Chancellor of the Exchequer, our arguments on these matters were regarded as unacceptably radical. Now, those self-same arguments are established at the heart of Community policy.

Let me say something about the reasons for an increase in the Community's own resources. An increase is needed to finance sensible new policies that will be of potential benefit to Britain.

Mr. Teddy Taylor

Give us an example.

Sir Geoffrey Howe

I shall come to that in a moment. My hon. Friend knows the answer and he must contain his impatience.

An increase is needed as well to support a prudent expansion of the regional and social funds, of which we are among the largest beneficiaries. An increase is needed to bring Spain and Portugal into the Community. That is of major importance to the Alliance. It is also needed to allow other member states to pay Britain's refund.

I shall return to the point that was made by Opposition Members. The system will be a lasting one. The provision for our reliefs will form an integral part of the decision to increase the Community's own resources. It will last as long as that decision, and cannot be changed without the approval of the British Government and Parliament. While any new negotiations take place, we would be fully protected by that system.

Hon. Members may have read comments made by Le Monde not long after the Fontainebleau council. It said: Mrs. Thatcher has obtained her principal objectives: a substantial compensation … so inscribed in the facts that it is practically permanent. We have also made important progress in reforming the CAP. Before hon. Members remind me of it, I must say that there is still much to be done. The previous Labour Government allowed agriculture to take 78 per cent. of the Community budget in 1978. Last year, that share was 65 per cent. In the view of this Government, the figure is still too high.

The Treasury and Civil Service Committee, under the chairmanship of my right hon. Friend the Member for Worthing (Mr. Higgins) was right to draw attention in its report, published today, to the importance of controlling agricultural spending. In Brussels, as I have already mentioned, and again at Fontainebleau, the Community agreed that agricultural spending will grow less rapidly than the increase in the Community's own resources.

In March, for the first time ever, Agriculture Ministers tackled the problems of over-production and high agricultural prices. They agreed on milk production quotas, guarantee thresholds and nominal price cuts. Those are all painful but essential measures on the road to reforming the CAP. The past reluctance of other member states to curb agricultural spending is almost legendary. Of course, failure to take right decisions at the right time on surpluses and prices has led farmers, as my right hon. Friend the Minister of Agriculture, Fisheries and Food said the other day, up the garden path.

Further tough measures, for example on cereal prices, wine and olive oil, will need to follow. Those who believe that more could have been done at a single price-fixing should explain that to British farmers. As we all know, they have had to accept the need to make painful cuts in the dairy sector.

At Fontainebleau we reaffirmed the necessary changes to bring the Community's finances under control. Now that an overall settlement has been reached, the text that was agreed in March must be put into effect. That represents a far-reaching shift in the Community's approach to finance. In future, the Community will establish, as I have already explained, a maximum level of expenditure for a financial year, with a separate financial guideline for agricultural spending. Finance Ministers have been charged with the task of adopting the measures necessary to guarantee the effective application of those principles.

Mr. Eric Forth (Mid-Worcestershire)

Would my right hon. and learned Friend care to comment on the Community's habit of introducing supplementary budgets whenever annual expenditure threatens to overrun annual income? Will the negotiations on the financial mechanisms specifically exclude the possibility of such supplementary budgets in future, thus making the discipline effective?

Sir Geoffrey Howe

That is one of the factors to which the framework on which Finance Ministers are working will have to apply. The overriding rubric is the need to adopt measures necessary to guarantee the effective application of those principles. Only yesterday, my right hon. Friend the Chancellor of the Exchequer took up that task with his customary vigour at the Finance Ministers Council in Brussels. In addition, we shall be pressing in the Budget Council next week for savings that will bring into balance the 1984 budget, and—this is a point raised by other hon. Members—the preliminary draft budget for 1985. Let me repeat that only when Finance Ministers have adopted the necessary measures on budget discipline will the Government be prepared to recommend to the House that the own resources ceiling should be increased.

Mr. Robin Cook (Livingston)

I am sure that the whole House will be grateful to the Foreign Secretary for his assurance that he will not lay an order increasing the VAT contribution until he is satisfied that the Community has achieved effective control of expenditure. So that the House can assess that condition, will the right hon. and learned Gentleman tell us by what standard he will test whether effective control of expenditure has been achieved? Is he not concerned that at yesterday's meeting of the Finance Ministers Council, the Chancellor of the Exchequer was apparently unable to get our partners in the EEC to agree that the mechanism should be legally binding?

Sir Geoffrey Howe

The discussions in which my right hon. Friend the Chancellor of the Exchequer was yesterday engaged are far from complete —[Interruption.] Discussions took place yesterday. I must say that my hon. Friends are sometimes astonished into mirth by the most remarkably straightforward propositions. Discussions and negotiations are taking place. The Finance Ministers Council was considering the matter yesterday and will be returning to it at subsequent meetings with the object of producing the necessary measures on budget discipline that will enable us to put the own resources decision before the House.

The important thing is that, having got thus far in the negotiations, with the Fontainebleau summit behind us, the Community is now free to devote its energies—as we all want—to building internal economic strenght and to developing external influence. We shall be pressing hard in both those contexts for effective and early action. There are many examples that could be cited. Our companies must be able to benefit fully from the European dimension that the Common Market should give to their activities in services as well as in manufacture. For example, if they could cover their insurance needs throughout the Community with a single policy in a single member state, industry's insurance costs could be cut by as much as 5 per cent. That is true not only of British industry, but of industry throughout the Community. That is one of the key changes that would enable us to compete more effectively with our competitors—for example, in Japan and the United States.

Again, our undisputed scientific ability and inventiveness needs to be translated into commercial success. Thus, the ESPRIT programme is an important first step. More must follow—for example, in telecommunications and biotechnology. If Europe is to succeed in doing what we want it to do, and if it is to tackle the accumulation of unemployment not only in this country but throughout Europe, it must once again become a power house of technological and commercial achievement, creating new jobs on a lasting basis. The Community must become more relevant to the everyday activities of its inhabitants. Europeans should, for example, be free to travel as cheaply and as freely within Europe as Americans within the United States.

Mr. Eldon Griffiths (Bury St. Edmunds)

Is my right hon. and learned Friend aware that many of us who welcome the fact that we may now have been able to put aside the lost years and sterile arguments that have impeded the Community will now judge the success of European policies by how these new programmes cart be effectively translated into practice? Will he bear in mind the fact that, although it is encouraging that he should set out for priority in Europe the areas of financial services, high technology and, for example, energy and transport, the Government must also sell these ideas to the country so that people can see the positive advantages of the Community?

Sir Geoffrey Howe

I entirely agree with my hon. Friend. Indeed, I returned to that theme many times during the course of the European election campaign. It is a matter of selling such insight not only to the people of this country but to those in the Community as a whole on a basis that is not founded on the interests of any one nation state.

Mr. Budgen

Ah!

Sir Geoffrey Howe

If we seize the opportunities available for a really expanding Europe-wide market in services and goods, we will create jobs throughout Europe. We must present that case positively, by contrasting — as my hon. Friend the Member for Southend, East did—what can be achieved in the United States with what has not yet been achieved in the Community — [Interruption.] My hon. Friend the Member for Wolverhampton, South-West (Mr. Budgen) keeps muttering, "Ah!" safely from the Back Benches as if I had made some dreadful admission, but he should understand that we would not create opportunities for a wider job market throughout Europe if we withdrew from the Community.

Mr. Teddy Taylor

On that point—

Sir Geoffrey Howe

I am sorry—my hon. Friend is always leaping up "on that point", but he has so many of them that I cannot give way to them all.

I turn to our wider ideas about the future of Community activity, which go further than I have so far described. Shortly before the Fontainebleau Council my right hon. Friend the Prime Minister gave a paper to other Heads of Government that emphasised the need for the Community to act more effectively and coherently in its external affairs. Community countries, acting together, can play a valuable part, for example, in opening up the dialogue between East and West. There is also a clear need for a more concerted European approach to other problems, such as those of the middle east and southern Africa—

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

And south America.

Sir Geoffrey Howe

—or other parts of the world. I shall not list them all. We need, in other words, to develop an increasingly common approach not just to economic policy but to external policy as well. In that way, we shall be much better able to defend our collective interests in an increasingly troubled world, and to fulfil our international responsibility to the causes of freedom and peace.

I believe that with the Fontainebleau agreement behind us—and regardless of the mass yet to be done—we are entitled to expect much more of the Community. We shall certainly be striving to achieve that. Those ordinary Europeans whose interests still have to be fully reflected in the way that the Community operates, and who look to it quite rightly to do so in a way that is of practical benefit to them, are also entitled to expect much more of the Community. Our aim is to ensure, patiently, sensibly and with determination, that those expectations are fulfilled and that, moreover, Britain plays a significant part in their realisation.

4.37 pm

Mr. Robin Cook (Livingston)

I beg to move, to leave out from "own resources" to the end of the Question and to add instead thereof: 'regrets that the outcome of the European Council in Fontainebleau does not provide for a lasting equitable system for Community financing reflecting the relative prosperity of member states or for strict budgetary control of agricultural expenditure, but will result in a reduced level of rebate for the United Kingdom and an increase in the United Kingdom's net contributions, and does not believe that this settlement establishes a case for an increase in own resources.'. I shall not pretend that I come to this debate with an entirely open mind about the Fontainebleau settlement, but having heard the Foreign Secretary, my judgment that it represents a poor deal for our country is fortified. The only new factor that we learnt from the Foreign Secretary's speech involved the intriguing little item of £42 million, which is to be written off. For those hon. Members who were not present when we debated this matter in February, it may be worthwhile recalling the history of that £42 million. It is the self-same £42 million about which the Foreign Secretary wrote a letter to the President of the Commission on 3 January. That letter was then leaked to the lobby as having been written in "very strong terms". It is the same £42 million that the Prime Minister referred to in the course of her new year interview with Sir Alistair Burnet on 4 January, when she explicitly said that the Community was in default and that steps would be taken to recover the payment of that £42 million. We have now learnt six months later, that the only step to be taken is that this £42 million is to be written off as a bad debt. That may be a recognition of reality, but it is also another concession that has been made by the Government in the course of securing this dubious deal for Britain.

I shall now pick up one of the key questions, raised by the excellent report from the Treasury and Civil Service Committee, which was not answered by the Foreign Secretary. The House will be indebted to that Committee for having rushed out its report with such expedition. How does the Community propose to muddle through the present year before it goes bankrupt? There is an irony about both this summit and the previous summit. For the past six months, the leaders of the Community have concerned themselves with discussing financial discipline and budget financing. During the same six months, the Community has been going bankrupt and has been wildly overspending, so much so that in the next three months it will run out of money. The Select Committee's report says: we could not discover any firm proposal which the Government envisaged making, in order to solve the gap problem if it arises. I raise this point at the outset because I wish to give the Minister who will be replying time to respond to a request for an assurance. It was reported yesterday that the Commission has decided to request an advance payment of own resources from each member state. There is a certain sauce in the Commission, while the ink is barely dry on the agreement to increase own resources in January 1986, already writing to request an advance payment.

I hope that the Minister will be able to give the House an assurance that the Government do not propose to capitulate to this demand, because it raises a serious constitutional issue. It is for the House, not the Cabinet, to decide whether own resources should be increased. I understand that that decision will not be taken until the winter. It would be an outrage to our constitutional proprieties if, in the meantime, the Government were to anticipate any decision in the House by agreeing to make an advance of the increase in own resources. I hope that the Minister can assure us that that will not be so.

When the House decides whether it will agree to the increase in own resources, it will have the advantage that over the past 12 months the Government have set down a whole range of conditions that should be met, on any prudent basis, before an increase in own resources can be agreed. It is worth recalling what those conditions were because there seems to be some danger that the Government may be forgetting them. This is curious, because the most ringing assertion of the conditions was made by the Prime Minister when she returned from Brussels in March. She said that she had rejected the deal on offer in Brussels because it had been suggested that, instead of a lasting, equitable system for Community financing there should be a five-year ad hoc arrangement, which would have left us receiving less than the average refund which we received in the years 1980 to 1983".—[Official Report, 21 March 1984; Vol. 56, c. 1049.] It is clear on which two grounds the Prime Minister rejected the deal—first, it was not a lasting but an ad hoc agreement, and secondly, it provided a smaller rebate than that which we had received between 1980–83.

Let us then turn to the settlement with which the right hon. Lady has come back from Fontainebleau and apply these two conditions to that deal. First, we discover that, despite what the Foreign Secretary said, we do not have a lasting settlement. We do not even have the five-year settlement that the Prime Minister rejected at Brussels. We have, at best, a settlement for four years. That is clear if we turn to the summit communiqué issued by the presidency, a communiqué that was not available when the Prime Minister made her statement to the House, which was perhaps fortunate for her. The communiqué opened with the categorical and uncompromising statement: Expenditure policy is ultimately the essential means of resolving the question of budgetary imbalances. That is the reverse of the Government's position, which, throughout the whole affair, has been that the budgetary balance could be resolved only by action on the revenue, not the expenditure, side. However, there is a grudging concession thereafter, that it may be necessary for some member state to offer a correction at the appropriate time. However, for the removal of doubt, the communiqué goes on to define the appropriate time as the period referred to in para. 4. Paragraph 4 states explicitly: The correction formula foreseen … will be part of the decision to increase the VAT ceiling to 1.4 per cent., their durations being linked … before the new ceiling is reached". Every observer expects that to be some time in 1987–88. The communiqué continues: The Council will re-examine the question as a whole and will take the appropriate decisions ex novo. I take that to be Communautaire for "de novo".

Those statements leave no room for doubt. They are not the carefully balanced ambivalences of diplomatic texts. They are statements of brutal candour. In case we miss the point, they are repeated on four separate occasions to rub our noses in it. It is clear from the communiqué that we do not have a lasting settlement but an ad hoc interim settlement that will last only until the 1.4 per cent. Ceiling is reached. At that point, a decision will be taken ex novo, with no commitment.

I recall the words of the Foreign Affairs Select Committee, which reported just before the Fontainebleau summit. That expressed some concern that the timing of the Fontainebleau summit would make settlement more difficult because it came so swiftly after the European election. The report said that for some political leaders"— I wonder which the Committee had in mind— the abandonment of publicly espoused hardline positions may be difficult to achieve in the time available. On this occasion, the Prime Minister has shown a flexibility that the Committee did not anticipate. In record time, she has climbed down from a hard-line, publicly espoused position.

Mr. Budgen

On the point that there was nothing agreed for the future, does not section 2 of the communiqué, which says: The maximum rate may be increased to 1.6 per cent. on 1 January 1986 and then explains the mechanism for that, merely prepare the ground for an agreed second tranche of own resources?

Mr. Cook

It is clear that the European Council anticipated that the 1.4 per cent. ceiling would merely be an interim arrangement, and that expenditure would quickly go through it. The Government may argue that when we come to the increase to 1.6 per cent. they will be able to insist on an extension of our rebate as a condition for that increase. That is an argument which is seductive and plausible. In my innocence, I would have bought that argument up to Fontainebleau. However, it is clear what happened there. The Prime Minister said in the House, when she came back, that she had had to agree to an increase in own resources as a condition for getting the rebate for Britain. Had she not agreed to an increase in own resources, there would have been no rebate, and had there been no rebate, Britain would have been worse off than if it had agreed to an increase with the rebate.

This is a curious justification for the level of the rebate. After all, it is the case that, had the right hon. Lady secured a rebate of only one third instead of two thirds, it would still have left Britain better off than having no rebate. However, those are not the conditions that the Prime Minister set out as recently as March. She said then that she had rejected the deal offered in Brussels because it would have resulted in an average refund less than we received in the years 1980 to 1983".—[Official Report, 21 March 1984; Vol. 56, c. 1049.] Let us take the second condition and examine the rebates, or the abatements as they are now to be called, that flow from this agreement, to see whether they will be less or more than the refunds that we got for 1983–84. There can be no doubt—not even the Government have sought to cast doubt on it—that the refunds we will receive will be smaller. We do not know how much smaller, because the calculation is of such mind-bending complexity that it is difficult to work it out with precision.

I would have thought that it would have been possible for the Government to work it out—after all, they have negotiated this new set of refunds. My right hon. Friend the Member for Bethnal Green and Stepney (Mr. Shore) has attempted to obtain information about the figures. Last week he tabled a question asking the Government to update table 225 of the public expenditure White Paper, which contains the Government's estimate for net contributions and refunds for this year, next year and the year after. He received a reply an hour ago advising him that it will not be possible to publish these figures until the autumn public expenditure White Paper. It is difficult to accept the Government's assurances that they have wrung a hard, tight, negotiated deal when it will take them a further four months to work out the figures.

However, it is possible to make a guess at the figures even if they are not precisely right. The Library statistics section has made an honest and honourable attempt to work out the figures, which at least underlines the complexity of the agreement. The explanation amounts to three pages, the calculations take another full page and they are followed by another full page providing the glossary of terms in the preceding first three pages.

From the Library's calculation, it is possible to work out the effect of the new formula on our rebates. The statistics section concludes that, were the formula to be applied to 1983, for which we know all the figures, Britain would have received not 66 per cent. of our net contribution nor even 60 per cent.—the figure trailed by the Foreign Office immediately after Fontainebleau — but only the equivalent of 52 per cent. In other words, we would have received barely half the real net contribution, not two thirds of it as claimed in the Prime Minister's statement to the House when she returned.

The French presidency has done its own calculations, and estimates that had this formula operated between 1980 and 1983 it would have resulted in annual rebates £100 million less than were received. Indeed, one of the quieter boasts in Paris by President Mitterrand is that he has succeeded in screwing down the British Prime Minister to settle for a smaller sum than Giscard d'Estaing was ever able to do.

In short, this deal will give Brussels more money on a lasting basis while we get less of a rebate for an interim period.

The acid test must be whether this deal results in bigger or smaller rebates and whether our net contribution will increase or diminish. It is manifest that, on the basis of that acid test, our refunds will get smaller and our net contributions larger. Nor do we have the satisfaction of knowing that our increased contribution will even fund the new policies of which the Foreign Secretary made so much when he addressed the House.

We can assert that with some confidence, because paragraph 24 of the Foreign Affairs Select Committee report recounts the Committee's conversation with the Commission in Brussels about the reasons for the increase in VAT and why the Commission sought the spectacular increase in VAT to 2 per cent. —not 1.4 per cent. or 1.6 per cent. Having listened to the Commission explaining why it wanted a 2 per cent. increase, the Committee was struck by the following: The Commission … did not regard the possible cost of new Community policies as a significant reason for raising the VAT ceiling nor did they suggest that the raising of the ceiling would, in the short-term, provide sufficient funds for significant new expenditure programmes". In other words, the Commission wanted 2 per cent. in order to fund the waste and expenditure of the agricultural programme, and that is what the increase to 1.4 per cent. will go on.

Mr. Ron Leighton (Newham, North-East)

Will my hon. Friend confirm that the Commission is asking for a 100 per cent. increase in own resources?

Mr. Cook

It is certainly seeking a 100 per cent. increase in that proportion of own resources represented by VAT, which is the larger element. I am sure that I take my hon. Friend with me when I say that that is also the increase sought by the alliance Benches, and we shall listen with interest to its speech—a forerunner of which is contained in an amendment on the Order Paper, from which it seems that the alliance is dissatisfied with this deal because the Government did not give enough away at Fontainebleau.

Another amendment on the Order Paper stands in the name of the hon. Member for Southend, East (Mr. Taylor) and his colleagues. As I understand it, the hon. Gentleman does not accept the acid test that I have proposed. He and his colleagues take a more dispassionate and detached view and have set a more rigorous standard of evidence by which to assess the Fontainebleau settlement. As a result, for the moment they are left agnostic and believe that there is not quite enough evidence on which to base an opinion about the settlement.

As I have made clear to the House, I differ from them in that assessment and believe that sufficient evidence is available to come to a prima facie conclusion that it is a rotten deal. However, those hon. Members are right to draw the attention of the House to the fact that we have not yet garnered all the evidence.

There is one important condition to which we do not yet know the Community's response—whether it will accept effective control of its expenditure. There is no reference to that in the communiqué, nor in the outcome at Fontainebleau. Indeed, the only expenditure decision of any magnitude taken at Fontainebleau, other than the payment of our rebate, was to allow Chancellor Kohl to pay even more to his German farmers—a decision that will not be financed by the Community but which augurs badly for the future willingness of the European leaders to stand up to farming pressure.

The Foreign Secretary has assured the House that the Chancellor was busy yesterday in Europe doing the filigree work on the rough-hewn principles on expenditure control announced by the European Council. The timetable resulting from that Finance Council is somewhat relaxed. There is to be a working party which is to report to the Finance Council in the autumn, and the Finance Council will then report to the Dublin summit in December. That is a fairly lengthy and relaxed — even laid-back —timetable to deal with what we are assured is one of the essential conditions for the increase in own resources, which the rest of Europe fondly imagine was accepted at Fontainebleau two weeks ago.

Even more disturbing, we have absolutely no idea what settlement is likely to emerge from these discussions on effective control of expenditure, and having listened to the Foreign Secretary we are none the wiser than we were when he stood up.

A measure of the darkness covering what is under discussion is provided by a charming exchange in the hearing conducted by the Treasury Select Committee before which the Economic Secretary appeared. I assure the Economic Secretary and the Treasury Select Committee that on reading the evidence this morning I found it provided a sense of drama and comedy greater than Jeffrey Archer's latest novel.

Question 182 from my hon. Friend the Member for Stoke-on-Trent, Central (Mr. Fisher) asks: Ali you are telling us then is you want a better system? Can you not tell us something about the sort of priorities in the mechanism or, as Mr. Fitchew told us, the special areas, can you not tell us what our special areas are? The Economic Secretary replied: No, I cannot. These matters are still under negotiation".

Mr. Jackson

In the House, and in many speeches during the European elections, the hon. Gentleman extolled the virtues of new Community policies and the restructuring of the Budget away from agriculture. Does the hon. Gentleman think it appropriate to impose a strict maximum rate on growth of expenditure on these new policies under a system of financial discipline?

Mr. Cook

I and all my honourable colleagues wish to see a switch in priorities and resources from agriculture into these new areas. When there is evidence that the Community is both willing and capable of achieving that switch in resources, we shall consider increasing the global sum. We see scant such evidence at present.

To be fair to the Government, I can understand the difficulty experienced by the Chancellor in seeking to get effective control of agriculture expenditure because the common agricultural policy might have been devised to resist budgetary control. The point is well made in the report of the Treasury and Civil Service Committee that the difficulty is that the expenditure on agriculture, which is two thirds of the total, is demand-led. As I understand the mechanism under discussion, it focuses on the annual price settlement. Tragically, it is not the annual price settlement which necessarily determines the final outturn costs of the agricultural policy. Indeed, this year, as the Foreign Secretary has reminded us, the Agriculture Ministers agreed to a price settlement which is less than the rate of inflation. Nevertheless, agriculture expenditure this year will go up by 20 per cent., and is £1 billion overspent.

Mr. Russell Johnston (Inverness, Nairn and Lochaber)

I think that the hon. Gentleman will agree that it is virtually impossible, even for such a clever person as he is, to maintain production and consumption in agriculture in absolute balance. Since he is clearly against surplus, is his policy one of periodic shortage?

Mr. Robin Cook

I would not accept that the only choices available to mankind are structural surplus or structural shortage. If one is aiming at a broad average over the years, there may be the odd year in which one hits surpluses and the odd year in which one has a shortage below the average of which one is aiming. What we have at present is not just a structural surplus, but an annual increase in that structural surplus.

I deal next with the two elements of the agricultural policy that result in that overrun. The first is the guarantee that we will buy all produce for which an intervention regime exists. That renders any budgetary control meaningless. It means that we will pay for each and every additional output that can be squeezed out by the application of additional fertilisers, additional herbicides and additional pesticides. Indeed, as an ironic comment on the Fontainebleau settlement, the week after the summit, a fanner in Norfolk drained a portion of the Halvergate marshes to produce even more grain for intervention stock, thus demonstrating that, whatever the rhetoric may be about effective control of expenditure, he at least was confident that this lunatic system would continue.

The second reason that we end up with the demand-led overrun is the rigorous protectionism of the system. We compensate exporters for the difference between the European price and the world price. That means that the cost goes up every time that the relative world price falls. We have the paradox that, whenever food in the rest of the world gets cheaper, our agricultural policy becomes dearer. Seeking to hold this structure in check by some form of annual or triennial declaration of intent is like bailing out with a sieve. The only way that costs can be brought under control is by reforming the structure, and we will not get that reform of the structure if we remove the financial pressure on our partners to examine the painful choices that are available as options.

I conclude by noting the extraordinary irony that the increase in payment that the House will be invited to vote for in the winter will be sought by a Government who, more than any other, have elevated the control of public expenditure to the central role in economic management. In the pursuit of reduced public expenditure they have brought our housebuilding programme to a dead halt, they have cut the benefit paid to the unemployed, they have sold off the nation's oil assets and they have garrotted the freedom of the local authorities with their purse strings. However, with spectacular perversity, the same Government assure us that they can find an extra £700 million to enable Brussels to fund an agricultural policy which is in disrepute. It is an irony that the one area in which one could probably find consensus across the nation that there is room for retrenchment is the common agricultural policy of the Community, yet that is the one area in which the Government propose to increase expenditure.

Time and again in the past five years, we have been lectured from the Dispatch Box that one form of increased expenditure means that another form of expenditure has to be cut, and they have to be balanced against each other. If the Government cannot afford to buy the school books that we need and cannot afford to open the hospital beds that we need, they cannot afford to fund ever larger mountains of food that we do not need. Therefore, we shall be inviting the House tonight to save the Government from their own folly by voting for our amendment.

5.4 pm

Mr. Terence Higgins (Worthing)

The original objectives of the Government in the negotiations of which the Fontainebleau summit forms part were to secure a permanent settlement of the budget problem based on each country's ability to pay, a reform of the common agricultural policy and an effective budgetary discipline. Yet, at the end of the Fontainebleau summit, it seems clear that we have not a permanent settlement, but proposals for a series of stages in negotiations that are to continue into the future. We have not a system that is based on each country's ability to pay, but merely an ad hoc basis on which our own contribution shall be judged. We certainly do not have any reform, in effect, of the common agricultural policy, and the question of improvement in the budgetary discipline is to be deferred until a future occasion.

That being so, I must express grave concern about the outcome, because, in addition to the points that. I have made, we are now being asked to increase own resources, a matter that was not raised when we were originally seeking to secure a fairer share for Britain's contribution to the EEC. Indeed, as I suggested when the Prime Minister made her statement on return from Fontainebleau, it can be argued that we should not increase own resources unless agricultural spending is reduced, and, if agricultural spending is reduced, it may be that there will be no need for an increase in own resources. I leave on one side the question of enlargement, with which I shall deal later.

I believe that Britain's membership of the Common Market is profoundly important. I was involved on the Front Bench when the original legislation went through the House. Indeed, I believe that it would be disastrous if there were any question of our withdrawal.

The common agricultural policy and its disadvantages have always been a cost that we have had to bear to secure the other advantages that I believe are very important. Thus, we have come to the point where, for the first time since we joined and, indeed, since the Common Market began, we have a real chance to secure a reform of the common agricultural policy for the simple reason that the money in the Community has run out, and that puts us in a strong bargaining position. However, I do not think that it is sufficient to say, as the Government are now saying, that the increase in agricultural spending will continue at a slower rate than the increase in the VAT contribution, because that still means that agricultural spending in the EEC is going up. For those who, like me, believe in the importance of using the market mechanism, the message of the surpluses in agriculture is clear, the message of the excessive storage costs is clear, the message of imposing quotas is clear and the message of subsidising exports to Communist countries is clear—namely, that we ought to spend less on agriculture. However, this is apparently not even the objective of the Government in the further negotiations that are to take place following the Fontainebleau summit. These are clearly complex subjects.

I believe that the work that the Select Committee on the Treasury and Civil Service has done in taking evidence on this matter—and we are grateful to the Minister and to his officials for giving it—helps to provide the House with some general background.

Before I deal with one or two specific points of substance, I should like to say a brief word about the negotiations and the way in which they have been presented to the House. I do not think that it is satisfactory, following the Prime Minister's statement, for no more to be done than to place a scruffy duplicated document in the Library. It was not laid before the House and it was impossible for those trying to obtain evidence from Ministers even to read the dates in the document, some of which are crucial. The Government's general approach to keeping the House in touch with what is happening is very inadequate.

Mr. Nigel Spearing (Newham, South)

The right hon. Gentleman may be interested to know that a question tabled for answer on 2 July requested the Government to print the communiqué in the Official Report. That invitation was declined and the answer referred the questioner to the Library.

Mr. Higgins

As we said in our report, this is, as far as we can establish, a document of considerable significance, because it is the only record of what is said to have been agreed at the summit. Yet we find that the presidency says that some of the passages in the communiqué that it issued were agreed, but our Treasury Ministers say that they were not agreed. That is a highly unsatisfactory situation.

Our report refers to the passage that says that the maximum VAT contribution may be increased to 1.6 per cent. on 1 January 1988 by unanimous decision of the Council and after agreement has been given in accordance with national procedures". We were told in evidence that that was not a commitment of the Government and they had not agreed to the inclusion of that passage. It is a fairly well established principle in these matters that silence signifies assent, and it would be naive to suppose that when a passage refers to a particular day and to figures down to one percentage point that does not prejudice the Government's future negotiating position. That passage brings out clearly the fact that it is not a permanent settlement. The Commission and the presidency, at any rate, envisage further negotiations.

I am worried that the outcome of the negotiations is not clear. It is not helpful to proceed on the basis of fudge and hope—fudge the issues and hope that the outcome will be all right. That is a dangerous course, as our experience illustrated when we thought that we had a firm agreement on the refund—certainly the Prime Minister thought that she had such an agreement—but we could not secure it without making additional concessions on the increase in own resources.

At future summit meetings there should be a document subscribed to by all those taking part, and we should not be left in the uncertain position in which we have been left this time and on previous occasions.

It is important that the House should know to what we are assenting. We do not know what will be the outcome of the negotiations on the budgetary discipline proposals.

The Select Committee was unable to ascertain the Government's objectives in that respect. It is important that we should not be rushed prematurely into a decision.

My right hon. and hon. Friends may feel that the own resources problem, which is not referred to in the motion, can be decided in the autumn, but there is a danger that if we vote we shall prejudice our position. That is a matter for my hon. Friends to decide, but I think that it might be as well not to come to a decision at this stage, lest that seems to prejudice our ultimate view on own resources.

My main point is that no case has been made for an increase in own resources. When we asked Treasury Ministers what share, in the broadest terms, might be allocated to the cost of meeting our rebate, the cost of agriculture and the cost of enlargement, they were unable to provide us with figures.

It does not seem to me that the Commission, the EC or the other member states at the summit have made a case for increasing own resources. With enlargement, more resources may be needed on a transitional basis, but that should have been dealt with on that basis, rather than by a permanent increase in own resources.

We must consider all these matters against the background of stringent public expenditure control in this country and increasing Community expenditure on agriculture. The Select Committee report refers to the problem of "the gap". It seems that the Government hope that they will be able to ensure that the expenditure and income of the Commission are brought back into balance so that there is no gap between the two by 1986 when the own resources deadline is reached.

There will be long transitional period, but the Prime Minister has ruled out any possibility of a loan, and the scope for bringing income and expenditure into balance when two thirds of the expenditure is on agriculture is limited. However, I hope that the Minister who is to reply will give us some information about how the Government proposes to close the gap. It would be wrong for the House to agree to temporary financial arrangements on the assumption that we shall increase own resources, without the Government having first come to the House with a guarantee on budgetary discipline.

Budgetary discipline can mean a variety of things. It can mean merely making sure that spending is properly authorised, accounted for and audited, and it can mean expenditure being limited. We run into a fundamental problem here. Agricultural support is demand-led and it is difficult to establish an effective system of budgetary discipline when agricultural support is open-ended and, therefore, we cannot tell in advance what it will be.

As a result of some changes that have been made, particularly in the dairy sector, there has been a move towards individual national support for dairy products. I had grave doubts about our proposal to spend an extra £40 million on dairy farm problems, but if we take a longer view perhaps we should restrain agricultural spending in the Common Market and turn increasingly towards national systems, with the national taxpayer paying for the national support that his country feels is right. There would be considerable problems of control of agricultural competition within the Common Market, but perhaps we should consider that possibility carefully.

We are not likely to reach a satisfactory conclusion in the negotiations on budgetary discipline unless they are combined with a change in the system of agricultural support. This is the best opportunity that we have had to secure that sort of change.

We face serious short-term problems, and I do not under-estimate the difficulty and complexity of the negotiations that are taking place; but the House is in a strong bargaining position and it is important that we try to secure the best outcome that we can against the background of an extremely difficult cash position for the Community.

We must await the further negotiations. I am not optimistic that it will be easy to find a solution, but the Community is in such a difficult position that we may see steps being taken in the right direction. What worries me about the Fontainebleau conclusion is that we are likely to see the Community going off in the wrong direction.

I sympathise immensely with those of my colleagues who have said that we need to spend more on co-operative projects. We must ensure that that is the direction in which the funds available to the Community go. We must also ensure that the projects to which my right hon. and learned Friend the Foreign Secretary rightly referred, where we need to take a European-wide attitude if we are to compete in world markets, are pursued. By and large, those projects require not an increase in own resources, but decisions to make the basic principles of the Common Market effective.

5.20 pm

Mr. Russell Johnston (Inverness, Nairn and Lochaber)

I agree broadly with what the right hon. Member for Worthing (Mr. Higgins) said at the end of his speech, but I shall come back to some of his earlier remarks. Sufficient attention has not yet been paid in the debate to the paper presented by the Prime Minister to the Fontainebleau conference. The Foreign Secretary referred to it almost in passing as if it was a document to do exclusively with political co-operation in foreign affairs.I do not know how many hon. Members have had an opportunity to examine this paper, but it is exceedingly interesting. I note that the hon. Member for Southend, East (Mr. Taylor) is shaking his head as if smitten by nausea. I am not surprised.

The document is by no means confined to political cooperation. I should like to quote from it. It begins: There will continue to be arguments over priorities in the allocation of resources. That would be true even in a fully-fledged federation. That the word "federation" should appear in a document to which the Prime Minister has put her name is remarkable in itself. Another quote: The Common Market is a means to an end, described in the Treaty itself as 'a harmonious development of economic activities' … We must create the genuine common market in goods and services which is envisaged in the Treaty of Rome and will be crucial to our ability to meet the US and Japanese technological challenge. There is much more of the same: we need to examine urgently whether more can be achieved, or can be achieved more economically, by action on a Community basis rather than nationally. Better co-operation on research and development will help avoid duplication and waste. These are the same points as we in the alliance have made in our amendment. To quote again: We should agree in the European Council that each Member Government should examine its priorities and policies in sectors covered by the Treaties in order to see in each case whether greater progress could be made by a co-operative approach at the Community level. It is a very Communautaire document all the way through. I find surprising the softly, softly approach that the Government seem to have adopted towards it, because it is a document well worth examination. The document continues: Member States must take more seriously their solemn commitments to consult and take account of partners' views and work for common positions. This is not the normal language of the Prime Minister. It is very much a document to do with consensus, that terrible word, and compromise, that awful idea. Yet this apparently was the basic attitude that underlay the Prime Minister's approach to the summit conference. That by itself is almost worth a debate in the House.

There are very interesting gaps in the document. There is practically nothing on social policy, as the hon. Member for Livingston (Mr. Cook) on the Labour Front Bench will not be surprised to hear. Indeed, one of the interesting outcomes of the Fontainebleau conference was the communiqué on social policy which, because it is very short, I shall quote in its entirety: The European Council asks the Commission to carry out the work programmes set out in the Community's medium-term social action plan and to forge ahead"— note these words— with the work stemming from the Council's conclusions on technological change and social adjustment and with that on production organisation. Perhaps later in the debate someone will explain what that means. One thing is certain: whatever it means, there is no evidence whatever that the Community is forging ahead on anything to do with social policy. The United Kingdom Government, contrary to the style and approach which I quoted in the Prime Minister's document, have been a major brake on any activity in this sphere. They did not accept the restrained advice on working hours which even the Germans were able to absorb in the middle of a difficult strike on that very subject.

Of course, on the advice of the CBI and the multinationals, our Government blocked Vrederling, which is enormously diluted anyway. In the social area the United Kingdom remains isolated and, perhaps strangely in one sense but not in another, there is no reference to social policy in the Prime Minister's document.

There is nothing on a uniform electoral system. The House will not be surprised if I make a brief reference to that; I certainly make no apology for it. At one point the Prime Minister's document says: In a grouping of democratic European states the directly elected European Parliament must reflect with increasing responsibility the pre-occupations and priorities of our peoples. That is not what one might call a zinging phrase but presumably it means that there must be some effective way of reflecting what people think. Without a uniform system, that cannot be done. It is wrong that 10 million people throughout the European Community who vote Liberal get only 32 seats in the European Parliament while 6 million who vote Conservative get 50. This distorts the Parliament itself and distorts the job of the Parliament, which is to reflect so far as possible the political views of the Community as a whole.

There is nothing on the European monetary system, which incidentally was not referred to either by the right hon. Member for Worthing. I continue to be puzzled by the determined refusal of the Conservative party to involve itself in the exchange mechanisms. I know that we are otherwise involved, but this would previously have been of advantage when the value of our pound was perhaps too high, with consequent damaging effects on exports. One would have thought, looking to the future when there will be a downturn, that there would be equal advantages which we appear to be denying ourselves, for reasons that I cannot understand.

Mr. Alan Howarth

Does not the hon. Gentleman's frustration, evident in his commentary on the document, not really arise from the fact that the Prime Minister is leading opinion in the European Community towards a recognition that the origins of jobs, of greater wealth and of better welfare lie not in increased bureaucratic intervention here, there and everywhere and not in a proliferation of new and expensive policies but in the establishment of a properly functioning market?

Mr. Johnston

That was a ringing declaration. As in most things there was an element of truth in it. I do not think that it is particularly a criticism of what I have said thus far.

I find it slightly encouraging in one sense that the Prime Minister's paper refers to the decision-making process, which has been much criticised. To quote again, it says: The voting provisions of the Treaty must be fully honoured. Unanimity must be respected in all cases where the Treaty so provides. The same applies for majority voting. At the same time, Member States must be able to continue to insist where a very important national interest is at stake on discusion continuing until agreement is reached. But they should be required in each case to set out their reasons fully. That is a very different approach to the so-called veto question from that which was in evidence during the European election. Indeed, most of the attacks on the alliance position which came both from the Government party and from the official Opposition were on the veto. It was suggested that the alliance was prepared to sell our capacity to protect ourselves and was not concerned in any way with British interests.

I find the veto argument very peculiar. Often one has the impression that the Secretary of State and other Ministers, en route to Brussels, are almost like a lot of little children who pass through No. 10 and say, "Nanna, can we use our veto this week?" It is almost like a virility symbol.

The people who are in favour of a veto should be those who are in favour of the status quo. A veto is about stopping things, not about allowing things to happen. We are not in favour of the status quo, I gather that the Prime Minister is not in favour of it, and I am certain that the Labour party is not. In emphasising our ability to stop things, we must not forget that nine other countries can also do so.

On the basis of enlightened self-interest, the countries most interested in the veto are Denmark and the Netherlands, who are not doing too badly out of the European Community.

We should look much more sensibly at the more frequent use of weighted majorities. If we are unable to persuade a weighted majority of the Community of the sense of a number of our proposals, we are not proceeding very effectively within the Community.

The veto argument has been used very superficially and simplistically throughout the European election campaign and at other times. We should stop doing that and look a little more sensibly and constructively at the fact that many decisions within the Community are bogged down at bureaucratic level and do not even reach the level of political decision making.

The Prime Minister's paper suggests that each Government should explain why they oppose a particular measure. That is a very sensible suggestion. It is one that the European Liberal Democrats made about a year ago. I am not claiming authorship or anything like that, but it is a sensible approach. At present we often have not the faintest idea who has blocked what, at what level or why. That makes no sense whatever.

Mr. Teddy Taylor

Is the Liberal party in favour of reducing agricultural spending? If so, how does the party think it should be done?

Mr. Johnston

I was about to turn to that very question of budgetary control, which was central to the speech made by the hon. Member for Livingston. His points were perfectly valid. There is no doubt whatever that the Government—and certainly the Foreign Secretary today —have not given any kind of convincing explanation as to how a buget which is largely composed of compulsory expenditure, which in turn is related to climatic conditions and the efficiency or otherwise of farmers, can be controlled.

As I said in an intervention, if we are to have a system of agricultural production in the Community which ensures continuity of supply and some stability for farmers, inevitably we shall have some surpluses. To pretend otherwise is stupid. What is undoubtedly wrong is that those surpluses have gone completely out of control, notably in the dairy sector, but there is every sign that the same thing will happen in other sectors. Indeed, it is already happening to some extent. I should have liked the Foreign Secretary to deal with that. Perhaps the Minister of State will do so. I hope that he will agree that the only way in which we can effectively achieve budgetary control —which is mainly a question of controlling excessive agricultural expenditure —is to mount a commodity-by-commodity control system, analogous to but not necessarily exactly the same as the agreement of the Agriculture Council on quotas in the dairy sector. I do not know any other way in which it can be done.

We could have a Europe-wide standard quantity system similar to that which operated very successfully at the end of the 1960s within the United Kingdom. One simply sets a figure and says, "That is it," and if it is exceeded the cake is simply divided up more. That would be a very good approach and I should be in favour of it.

It is a mirage to imagine that somehow or other we can so squeeze agricultural expenditure that we can then find a great deal of money to spend on regional and social policies. We can and must reduce agricultural expenditure but it is possible only to a certain degree. I think that the Labour Front Bench are deluding themselves if they feel that it is possible to do much more.

The right hon. Member for Worthing spoke from his experience on the Treasury Bench and from his experience within the Select Committee, and he said that there was no case for increased resources. I think, with respect, that he will agree that it is very difficult to release resources on any scale, even if we are successful in cutting agricultural expenditure. If there is no access to more resources from another area, there are many things that it is not possible to do.

Spain and Portugal were mentioned only in passing by the Foreign Secretary. I am still not clear whether the budgetary balance system, which the Foreign Secretary said was fair for Britain, would be fair for Portugal. Portugal is in an even worse position than Britain because her agricultural sector is much smaller. She could end by being a much higher net contributor pro rata than Britain has been. I am not certain whether the system covers Portugal. All the emphasis has been on the fact that it deals with the British problem. Does it deal with the Portuguese problem? Perhaps the Minister of State will answer that question.

Expenditure on regional and social policies is running at 6 or 7 per cent. of the total budget of the European Community, which is itself 2 per cent. of the total aggregated budget of all countries. It can be little more than cosmetic in its effect. Portugal, to a much greater extent than Spain, will expect on entry some economic support. Greece also expects it. If Portugal does not succeed in getting it, all the high-falutin' talk about political stability and welcoming people back from the days of dictatorship into the democratic family of Europe will he wind in the air and worth nothing. We must do something practical.

We shall not be able to do anything practical unless we have access to own resources. As we say in our amendment, this is also an imperative laid upon the advanced technical countries. If we are to compete effectively with the United States and Japan in technology—to be fair, the Prime Minister's paper states the problem very clearly and well—we must put much more money and effort into co-operative exercises such as ESPRIT than we have so far been either willing or able to do.

If the hon. Member for Livingston were to talk to Ivor Richard, a man with very good Socialist credentials, and ask him, "Could you do something more if the social fund were at a decent level?", he would say yes, because much needs to be done about unemployment. I get weary when I hear people suggest that all we want to do by increasing own resources is to make more money available to agriculture. That is not so. Many aspects of regional policy, social policy and technological co-operation can be carried out much more effectively on a European scale than by ourselves.

Mr. Robin Cook

Can I tempt the hon. Gentleman to speak to his amendment, which states that his party would support a significant increase in own resources? Will he enlighten us on the thinking of his party on how much would constitute a significant increase? During our last debate on this matter, the hon. Gentleman suggested an increase of up to 2 per cent. However, the right hon. Member for Glasgow, Hillhead (Mr. Jenkins) thought that the figure should be rather higher. Where does the hon. Gentleman now put the balance? If it is still 2 per cent., can he reconcile that with the statement not only by Richard, but by all the Commissioners, that that would not be sufficient to fund any of the new policies, but would be used for existing policies?

Mr. Johnston

Regional and social policies are existing policies—it is a question of their operation. It would be ridiculous to put a figure on that. We know that 1.4 per cent. has been agreed. Gaston Thorn asked for 1.6 per cent. at Fontainebleau, but that was turned down. The Commission's current estimate is that it needs 1.6 per cent. to continue with what it is already doing and to take account of some enlargement. The Fontainebleau declaration states clearly that negotiations for entry should be completed on 30 September, and that entry is on course. Can the Minister confirm that? I understand that the date is more likely to be the end of October, but that it is still hoped that it will be on course. That is encouraging, considering the differences between Spain and France.

I stand by what I said about 2 per cent. It must be remembered that my right hon. Friend the Member for Glasgow, Hillhead (Mr. Jenkins) pushed for 2.5 per cent. However, he was not speaking as a Member of Parliament at that time, but as the President of the Commission. That was three and a half years ago. The figure must be about 2 per cent. if we are to begin to do anything at all. We look for more in the future, but the hon. Member for Livingston is right to suggest that we cannot fly before we can walk. It would be foolish and imprudent to commit too far ahead before we can demonstrate that what we are trying to do will be done more effectively than it is now done on a national basis.

I have spoken for longer than I had intended. That is the problem with giving way. It is right—

Mr. John David Taylor (Strangford)

An increase in own resources of 2 per cent. would mean an additional contribution by the United Kingdom of £2,000 million. How would that amount be raised—by an increase in VAT in the shops or by reducing public expenditure?

Mr. Johnston

Any increased contribution from the United Kingdom must be seen in the context of an increased involvement of European Community policies in the United Kingdom.

Mr. Austin Mitchell

How would the hon. Gentleman raise the money?

Mr. Johnston

It is not really a question of raising new money.

The other major question that we face in the Community is a redirection of thinking and energy from agriculture to the regional and industrial area. Currently, European expenditure in the United Kingdom in that area is very limited—

Mr. Mitchell

Where will the hon. Gentleman get the money to give to Europe?

Mr. Johnston

We would get back our own shale plus—

Mr. Mitchell

Where is the money coming from?

Mr. Johnston

The return in the end is better than the initial contribution.

Mr. Mitchell

The hon. Gentleman does not know where he will get the money.

Mr. Johnston

I most definitely do know.

Mr. Mitchell

So where is it coming from?

Mr. Johnston

If the Community had an effective regional and industrial policy, the United Kingdom would benefit greatly. It is in our interests, as well as in the interests of the Community, to proceed in that direction.

The agreement at Fontainebleau was a positive step forward. I am not saying that it was a complete step, because it did not produce a system that will last. The Treasury and Civil Service Committee said in its first draft that it was not a permanent solution, and then said that it was not a lasting solution. It may be even less than that. However, it is a positive step which, together with the Prime Minister's paper—about which the Government have said remarkably little, and should say more —makes me more cautiously optimistic than I was during our last debate.

5.45 pm

Sir Anthony Kershaw (Stroud)

I am broadly in sympathy with the remarks of the hon. Member for Inverness, Nairn and Lochaber (Mr. Johnston) about an increase in own resources. Great Britain would stand to gain a great deal from that. Some countries unjustly make a profit out of the operation of the CAP. We would become more interested in the amount of money being distributed to an industrial policy if more money came our way. However, many matters would need to be arranged before we would make a profit.

Like the vast majority of hon. Members—who do not seem to be here today—I want to congratulate the Government on the results at Fontainebleau. I congratulate the Prime Minister on her determination— sometimes called obstinacy—in making it plain that she would not be fobbed off with an unsatisfactory arrangement. I also congratulate my right hon. and learned Friend the Foreign Secretary on the persistence and skill—[Interruption.]—which the hon. Member for Carrick, Cumnock and Doon Valley (Mr. Foulkes) would not recognise—that he has so doggedly shown during the negotiations.

Mr. Budgen

And panache.

Sir Anthony Kershaw

That is true. The trouble about my hon. Friend is that he mistakes noise for panache, but that is common among such young fellows. I do not believe that any other team could have done as well. When they went to Fontainebleau I did not give them more than a 50:50 chance of success. They would not have succeeded if they had not made plain on a number of occasions their commitment to Europe — not least in the Prime Minister's document, which she circulated as a working paper before the conference.

The Select Committee on Foreign Affairs visited Bonn, Paris and Rome a fortnight before the conference. It found that parliamentarians in those countries were ill-instructed on the United Kingdom's position and on our adherence to Europe, which they considered minimal. That was not the impression among the Ministers, and the negotiations over the years have made that plain to the professionals on both sides.

The achievement is considerable. It settled the annual budget problem for the time being and undertook to control future expenditure. I am a tiny bit disappointed in my right hon. Friend the Member for Worthing (Mr. Higgins), who is the Chairman of the Select Committee on the Treasury and Civil Service. At the conclusion of his report, he said that Fontainebleau could not be regarded as proffering a lasting solution. Of course it cannot. The conference of Heads of Government is not part of the Brussels machinery. Its decisions are merely advice to Ministers for subsequent implementation. The Finance Ministers will now have to get together to provide proper guarantees for the expressions of hope about future control of finances. In the same way, the Agriculture Ministers have to get together about milk, and so on. That is common form. That is how these things have always been done. Therefore, to reproach the conference for not producing a final solution is asking too much of it.

Viscount Cranborne (Dorset, South)

Will my hon. Friend explain how it is possible to make a financial commitment on behalf of the British Government in exchange for no more than a pious expression of hope? If Brussels is ultimately to be the only disposer of a thorough-going reform of the system, should not our guarantees for cash depend on negotiations in Brussels rather than in Fontainebleau? Is he not trying to have it both ways?

Sir Anthony Kershaw

No, my noble Friend reproaches me unfairly. I am saying that Fontainebleau should provide a directive as to the way in which negotiations should be conducted. That must then be implemented by the Finance Ministers. If they kick over the traces and refuse to do as they are told, we shall be back where we started and much worse off, but I do not believe that they will take that attitude. Therefore, I believe that we should await with some confidence the arrangements that they will make.

I believe that those who decry the arrangement do so merely because psychologically they are so averse to Europe that they find any negotiations with Europe unsatisfactory, regardless of the facts. I welcome it because I believe that it has cleared away some hurdles that have long blocked discussions on other important matters. In particular, I wish to refer to the non-tariff barriers to trade.

Harmonisation of standards is extremely important. There are endless examples of the way in which standards are used to stop rather than to encourage trade. For example, Germany insists on safety conditions for lorries which reflect exactly the construction of German lorries. As lorries not conforming to those standards cannot be used on German roads and as it would be extremely expensive to adapt other lorries, the German transport industry benefits greatly. The Dutch labour laws, which make Holland so unattractive to investors, should also be examined carefully. Customs procedures may be a virtual farce. We all know how the Japanese video sets had to be stored for months in Poitiers. At the channel ports, the French authorities insist that our lorries wait for six days doing nothing. Meanwhile, we prevent French milk from coming into this country on the ground that it is likely to go sour and ensure that it does so by delaying it as long as possible. This country allows coastal trade to ply in and out of our ports without hindrance, although all the others put up non-tariff barriers against our ships. Anyone who has ever tried to set up a company in France—I am sure that no hon. Member has tried, as it is not worth the candle —discovers that it takes a great deal of time and money and there is almost no chance of making a profit out of it.

Mr. Hugh Dykes (Harrow, East)

I think that my hon. Friend may have misunderstood the restrictions on Japanese video sets. The purpose was to oblige the Japanese to reach agreement on quotas and on kits. Once that was done, the Poitiers restrictions were lifted.

Sir Anthony Kershaw

Yes, but that shows what can be and is done. The other examples that I have given are typical of what is still going on.

The mutual recognition of professional standards is extremely important to Europe as a whole. It is clearly a matter of culture and civilisation that we should recognise other countries' standards. Banking and insurance services are vital to this country, but we are virtually precluded from operating in those sectors on the continent.

I believe that these changes are even more important for Europe than for the United Kingdom because at present Europe is going the best way to ensure that no one could wish to invest there. In the United States, the rate of return on investment in manufacturing industry is twice what it is in this country. Yet the European Commission—waffling on about Vredeling and the rest — occupies itself trying to promulgate pettifogging laws which hinder business in every way. The lack of similar obstacles in the United States has meant that in the past 10 years 12 million jobs have been generated there compared with only 1 million in Europe.

European investment in high technology is ludicrous compared with the situation in the United States and Japan. Firms in Europe invest about 12 per cent. of their profits in research and development. In the United States and Japan, such investment is often as high as 50 per cent. and the average is more than 30 per cent. Just as Khruschev once said that he would bury us and was proved utterly wrong, Europe is trying to do the same to the United States and Japan. They are forging ahead faster all the time. In the United States, advances have been achieved through the activities of entrepreneurs in a climate that favours such activity rather than discourages it as in Europe.

All those facts are somewhat obvious, but they are worth stating because if one grants that material progress is desirable one can reasonably maintain that such progress cannot be achieved by one nation by itself. Technological progress requires heavy investment. In this context, small is not beautiful. Progress will be achieved only by making Europe a real common market, as was originally envisaged, instead of the squabbling national enclaves into which it has shortsightedly allowed itself to degenerate.

We must generate material strength so as to exert our united strength in world politics. We have serious economic problems with the United States and serious political problems with the Eastern bloc. We have problems all over the world which none of us can cope with alone and which we can scarcely influence at all if we try to stand alone. I appreciate that EEC states already work together a good deal and that in many capitals our diplomats routinely consult one another, but I should like that co-ordination of external activities to be increased a great deal. To be effective, we must speak almost of a European external policy. Such a policy can be established only with a solid economic background.

5.57 pm

Mr. Ron Leighton (Newham, North-East)

There is little for our comfort in any of the documents before us. They cover familiar ground and form a dreary catalogue of the costs and burdens being imposed on this country. In every quantifiable respect they are highly disadvantageous. Most of us long ago gave up all hope of seeing any of the elusive benefits that were promised. We now have an exercise in attempted damage limitation.

The first area dealt with is the European budget and Community finance. Page 4 of the White Paper states: The post-Stuttgart negotiation was launched as the Community, with agricultural spending moving 30 per cent. ahead of 1982 levels". In 1973, the budget amounted to £2,580 million. By 1984, it was about £14,920 million. The Government continually preach financial stringency in relation to our domestic Budget—they say that we must cut public expenditure—but there does not seem to be a similar view about community spending, particularly on agriculture. EEC agricultural expenditure is insatiable. It moves remorselessly upwards. There was a half-hearted attempt to dampen it down, but it is still increasing. We are told on page 4 of the White Paper: the problem of unfair budgetary burdens must be solved once for all on a lasting basis". We know that that has not been done. The right hon. Member for Worthing (Mr. Higgins) is right when he says that. As it has not been done, there is no case for increasing own resources.

If there is to be some fairness in the budget, why should this country pay anything? Are we not one of the poorest members of the Community? If that is the case, we should be drawing money from the budget. At the moment, only two member states pay anything substantial into the budget. We are being grossly exploited by our richer neighbours in the Community. What an irony this is—we are paying as much to our richer neighbours in the Community as we pay to the poorest countries in the Third world as part of our aid programme. How can that be justified?

Page 17 of the White Paper deals with the budget. We find that so far this country has paid £5 billion net into the budget. What justification can there be for that? We are told: In the context of the post-Stuttgart negotiation, the United Kingdom tabled a proposal for a safety net which would limit a member state's contribution to the budget in accordance with its relative prosperity and its ability to pay as measured by relative prosperity. No hon. Member can disagree that we have failed completely to do that.

We use the word "Community". If I refer in the debate to the EEC or the Common Market, it is translated in Hansard into the word "Community". It sounds a nice word. It sounds like a co-op where everyone helps everyone else and we all co-operate. That sounds good, but we are all aware that it is not the case. The Community is an area of fierce competition, where each state egotistically fights for its own advantage. That will become worse. At Fontainebleau the Prime Minister agreed to an increase of 40 per cent. in our own resources payment. That cannot possibly be justified. She said previously that it could only be done if there were a more equitable permanent arrangement—we do not have that — and if there were to be control over agricultural spending. We do not have that either.

We could have said that we would not agree to an increase in own resources unless those conditions were met. In other words, the Prime Minister had a veto. We had nothing to fear from using our veto because how do those countries obtain what the Prime Minister called "our money"? It is because we write the cheques. We had only to say that we would not write the cheques and would withhold payment and we would have had a trump card in the negotiations. The Prime Minister threw it away She gave the trump card to the other nations. She let them say that they would force the whole amount out of us and that if we did not pay there would be no rebate at all. She seemed to be saying that we had to accept any rebate or we would receive none at all.

After all the Prime Minister's huffing and puffing, all the talk about a strong voice in Europe, all the aggressive noises about "can't pay, won't pay", and despite having had a veto over an increase in own resources, she meekly climbed down and gave way. The Prime Minister is tough at home. She is tough when forcing through economies on the unemployed, the elderly, the Health Service and education, but when it comes to the bloated EEC and its agricultural budget, she gives way. The chance to alter that was destroyed.

What do we receive for the money we pay? We have the obligation to buy dear food at twice world market prices. We pay twice. We pay once as taxpayers and secondly as consumers. That is a net outflow of wealth from this country. It reduces our national standard of living, which hits the least well off.

The budget and its higher food costs do not exhaust the burden on and damage to this country. The table on the back page of the White Paper shows our trade in manufactured goods. In 1970 we exported £2 billion-worth of goods to the Common Market. We imported £1.4 billion-worth of goods. We had a balance of £500 million which, at 1984 prices, would be about £2 billion. That was a useful surplus. If we consider the export-import ratio, for every £100-worth of manufactured goods that we imported from the Common Market, we exported £137-worth. We were told in the White Paper which was issued in 1970 that the effect of membership on our balance of payments would be positive and substantial. It has been substantial, but it has been entirely negative.

The figures for 1983 show that we sent £15 billion-worth of manufactured goods to the Community and imported from it £22 billion-worth. In other words, we had a deficit of £7 billion on manufactured goods. This year it will increase to about £8 billion or £9 billion. For every £100 worth of goods that we import from the Common Market, we export only £68 worth to it.

We are told constantly by the CBI that the £15 billion-worth of manufactured goods that we send to the Community equals 2.5 million jobs. If that is the case, how many jobs does £22 billion equal? How many jobs have been displaced? Surely, if we switch purchases from British to continental factories, it must mean unemployment in this country. That is what has happened.

I can see no advantages. I can only hope that we draw the conclusion and the moral that it is time we drew up our own trading policies with countries such as Austria, Sweden and Norway. We should be far better off pursuing such policies outside the Common Market.

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

The hon. Gentleman said that we should pursue our trading policies with Austria, Norway and Sweden. Is he aware that the countries that he has mentioned are members of the European Free Trade Association which since the beginning of this year has had completely free trade with the EEC countries? Therefore, the policies which he is proposing would not have the slightest effect upon import penetration into the United Kingdom.

Mr. Leighton

Does the Minister accept that the countries that we have mentioned do not have the burden of huge payments into the budget and do not have the burden of the common agricultural policy which increases industrial costs? As they do not have those burdens, they are more competitive. We should do what is in the British national interest, and not what is in the interest of the treaty of Rome.

6.10 pm

Mr. David Howell (Guildford)

To bring the debate back from the Baltic, there are two very different ways in which we can look at this agreement at Fontainebleau which we are asked by the Government's motion to welcome. We have heard them expressed today from both sides of the House. The first is that my right hon. Friends have bought a ticket on a merry-go-round to catastrophe and that we shall see a more and more uncontrollable development of huge agricultural surpluses with vast additional calls on our funds. The opposite view is that at last the Community is in a position where it can begin to control the unhappy, costly and destabilising policy—and I know of no serious defence of that policy—into which the agricultural support system of the European Community has become mutated.

It will disappoint Opposition Members and, I suspect, some of my hon. Friends when I say that I join the second camp. My right hon. Friend the Prime Minister and my right hon. and learned Friend the Foreign Secretary have made a difficult and courageous decision and, while there will be much criticism—there are many loose ends and many ponts that can be made about the uncertainties of it —when it comes to the judgment of posterity on this Government, it will be influenced greatly by what my right hon. Friend did at Fontainebleau in settling for the proposals put to her.

We have heard already, and we shall hear again, those who take the view that it could have been better. The hon. Member for Livingston (Mr. Cook) will forgive me if I smile a little when he says these things, which he does eloquently and forcefully. He speaks for a party which did not get a penny piece in rebate and whose approach to the negotiation and to our country's interest in relation to Europe has been abysmal and appears to be getting worse still.

Those others who say that it could have been better can point to particular one-off, one-year settlements negotiated in the past which may marginally have been better. But this time round, although this is not a permanent settlement for the indefinite future—it is unrealistic to argue that a permanent arrangement could have been reached—it is at least a four-year arrangement. Beyond those four years, although all admittedly is darkness and hard to penetrate, any change is one in which the House and the Government will have a substantial and decisive say.

So although it could be argued that it is a pity that we have not got a perfect and everlasting system, we are a long way forward in the arrangements that we have now agreed from anything arranged on a one-year and uncertain basis in the past.

Then there are those who say that we have given the green light for more agricultural spending all round and for a growth in these monstrous surpluses that have grown up to the vast detriment of the agricultural trading system of the entire western world. However, I make one immediate point that should interest the House, which votes Supply and is rightly concerned, as was my right hon. Friend the Member for Worthing (Mr. Higgins) in his accurate and illuminating speech, about the agreement. The payments which will be voted and made by the Government to the Community over the next four years will decline in real terms between now and 1988. In approving of the Fontainebleau agreement, we are also giving our approval to proposals which will lead not to higher but to a decline in real terms in public expenditure. Right hon. and hon. members, including the hon. Member for Newham, North-East (Mr. Leighton) who spoke darkly of public resources being diverted within the Exchequer into further agricultural support in the Community, are not correct in hard statistical terms.

Then there are those who say that that may be so, but that the prospective increase in own resources, whatever conditions we put on it, will lead in the end to yet another crazy fanning bonanza and larger and larger surpluses.

Mr. Teddy Taylor

Hear, hear.

Mr. Howell

My hon. Friend the Member for Southend, East (Mr. Taylor), who is robust and consistent in his views on these matters says, "Hear, hear," because he looks at the surpluses and fears the future. So do I, but I believe that the courageous decision of my right hon. Friend the Prime Minister has provided the opportunity to get a grip on this monster in a way that was not open to us before.

My hon. Friend the Member for Southend, East and others will say, "Prove it. How do we know? Where is the agreement?" By definition, the agreement is not there yet. The work has yet to be done. The will, the opportunity, the energy and the effort have all to be put into creating and establishing the budgetary discipline that my right hon. and learned Friend the Foreign Secretary promised today. The promise of budgetary discipline is a very big one. If it is to be delivered, I suspect that it will involve more than marginal adjustments to price arrangements and ceilings in the Community's agricultural budget. If we are to satisfy ourselves and the needs of the whole of Europe, we are now headed on a path which must involve not merely discipline but reform, and that reform must involve a greater return to national support for agriculture. That is bound to come if we are seriously interested in developing Europe in a way that does not have this terrifying destabilising force at the heart of it.

Viscount Cranborne

My right hon. Friend expresses similar hopes to those of my hon. Friend the Member for Stroud (Sir A. Kershaw). In the event of his hopes not being fulfilled, would he envisage encouraging my right hon. Friend the Prime Minister to rescind the agreement at Fontainebleau and to impose the sanctions available to her then which she is not willing to impose now because of the promises forthcoming from our European partners?

Dr. Howell

My hon. Friend tempts me on to hypothetical ground and into areas of pessimism which it is not in my nature to occupy. Having achieved this first step at Fontainebleau, which has required much courage, we now have to work extremely hard to make the next step a success. But I do not know whether it will be a success.

Mr. Budgen

rose—

Mr. Howell

No, I shall not give way. My hon. Friend has made many excellent interventions, and I have no doubt will make more, but, please, after, not during, my speech.

In promising discipline, my right hon. and learned Friend the Foreign Secretary is also embarking with the rest of the Common Market on reform. But there is nothing inconsistent in criticising the fundamental dangers and weaknesses of the agricultural policy while welcoming the development and growth of the European Community. We are told by some that that is impossible and that we have only to look at the treaty of Rome to see that we are asking for the moon. I believe that that is no longer so. The mood in Europe is changing. The realisation of the dangers built into the CAP are now so great that we are beginning to see reality intrude, although the political difficulties are very large.

Looking at what has been called the Prime Minister's document, to which the hon. Member for Inverness, Nairn and Lochaber (Mr. Johnston) referred, and which was tabled just before Fontainebleau, we see a very good example of the theme and the note that I am trying to strike. It is a strongly pro-European document. No one can doubt its strong European credentials. We read in the statement: It must be our objective to aim beyond the Common Commercial policy through Political Cooperation towards a common approach to external affairs. That is a strongly pro-European, pro-Community aspiration. There can be no doubt about that.

When we turn to the objectives, which this document by my right hon. Friend the Prime Minister and her colleagues sets out at the end, we see that they make no mention of agriculture. Instead, they turn to the desirable aims of the stronger defence of Europe, a dynamic society in which industry thrives and activities which create wealth are encouraged, and of promoting policies which will improve the quality of life as well as the standards of life in the Community.

The only reference to farming and agriculture—and it comes by a side wind — is that they plead for the promotion of the improvement and protection of the environment. It would be difficult to prove that the CAP, as at present structured, does anything to help the environment. Many people feel that it does the opposite. That document is correct. It is correct, too, in a sense, to make only passing reference to agriculture and not to set it out as part of the objectives for the future. In the form which it has now assumed, the CAP should be recognised as an enemy of European unity. By its constant—

Mr. Budgen

Will my right hon. Friend give way?

Dr. Howell

My hon. Friend has made many interjections. No doubt he will do so again, but preferably after I have finished my speech. I hope that he will let me make my speech now. Some of my hon. Friends may find that I say things with which they disagree, but I hope that they will allow me the courtesy of doing so without making sedentary interventions.

Mr. Budgen

rose—

Mr. Howell

We must accept minimum standards of courtesy in this debate.

There is a constant emphasis in some elements of the CAP on higher and higher output as an end in itself. That is different from the emphasis that existed under the old deficiency payments system before the CAP was set up. The consequence of higher and higher input costs is fatal to efficient farmers. The truth of that is unfolding before our eyes.

It is also damaging to trade between Europe and the United States. Some of the worst difficulties in our quarrels with the United States — to which my hon. Friend the Member for Stroud referred — have their origins in difficulties over agricultural trade. That, in turn, leads to great difficulties over our financial relations which, at this very moment, are causing grave and serious difficulties and directly affect the living standards and prospects of many millions of families throughout Europe. We must approach the issue of where we should go after Fontainebleau with our eyes wide open to the severe weaknesses in the CAP.

I confess that I am one of the fans of my hon. Friend the Member for Holland with Boston (Mr. Body) who has written two books about the workings of the common agricultural policy, the second even more excellent than the first. The second book is called "Farming in the Clouds". It is a very pro-farming book. My hon. Friend has the interests of the farming industry in mind. He says that the mountains of agricultural surplus which we now contemplate are molehills compared with what is to come. My hon. Friend argues that we should seek to end—I would say "modify" rather than "end" — the uniform agricultural policy which has created this destabilising and thoroughly upsetting position.

I turn from what is wrong to what we should seek to put right. In seeking greater unity in Europe — which I strongly support — we must get away from this disunifying and divisive agricultural support system. We should put our energies into the kind of matters outlined by the Prime Minister, and in particular into combining our financial policies in order to cope with the shock waves and dangers that will otherwise hit us from the United States economy and, to some extent, Japan.

I am disappointed that the Prime Minister's Fontainebleau document did not go further and examine, and perhaps head us towards, membership of the exchange rate mechanism. We are already members of the European monetary system, but we have a country membership relationship because we do not operate within the exchange rate mechanism. At the moment, as we were reminded by an editorial in The Financial Times on Saturday, We are once again behaving like a shadow member of the exchange rate mechanism. I am disappointed that in the Fontainebleau document, there is no recognition of that as being the direction that we should take.

I am also disappointed in a report from the Treasury and Civil Service Committee, so excellently chaired by my right hon. Friend the Member for Worthing. I refer to the fifth report on international monetary arrangements. The Select Committee showed a marked lack of enthusiasm for membership of the exchange rate mechanism. With respect, the Committee's argument is a little thin. It boils down to a worry that we might get hooked on to an exchange rate which would abort our fragile recovery. In reality, the danger that we anyway face is that our fragile recovery will be aborted if interest rates are heaved up and currency pushed down both in the trade-weighted relationship against the deutschmark, and so on, and against the dollar.

We should dispose of any idea that my right hon. and hon. Friends may have that the United States is going to amend its policies quickly and that therefore the European countries can slog it out individually and we can hold our own. An official United States Treasury document flatly denies that any systematic relationship exists between budget deficit and interest rates. That is the view expressed in a document signed by the United States Treasury Secretary in March. The Americans take the view that there is no connection and that there is therefore no need to correct their policies. If we imagine that the European countries can ever look the dollar in the eye separately, we are in for further nasty experiences—even nastier than the one that we are going through now. The restoration of financial stability will require a huge extra European effort and co-ordination of a kind that is essential for the future strength of Europe.

My right hon. Friend the Prime Minister and my right hon. and learned Friend the Foreign Secretary have opened the way for European recovery, competitive vigour and serious agriculture reform in place of the rhetoric of the past. I hope that they will now open the way for Europe to be financially strong enough not to be crushed by the volatility of the American economy. There is a long way to go on all these fronts — especially budgetary discipline—but it is to the Prime Minister's vast credit that this step has now been taken.

6.26 pm

Mr. Austin Mitchell (Great Grimsby)

I shall not follow the right hon. Member for Guildford (Mr. Howell) in his panegyric on the Fontainebleau settlement, nor would he expect me to. Alone of all the ex-Ministers, the right hon. Gentleman has learned to love the lash when it is applied to his own back and to become, in his exile on the Back Benches, an exponent of the inexcusable. But, as he justified the real concessions made at Fontainbleau by reference to the hypothetical gains that will result from later negotiations, I felt that he would have justified any settlement which the Prime Minister brought back, just as he has praised this inadequate settlement.

This debate must be extremely puzzling to people outside the House. There are claims and counter-claims, and today there has been yet another emission of Euro-gas to add to the clouds of mythology which surround the Common Market. This must all be baffling to the public. the whole subject is wrapped in confusion and mythology, because of the need to create myths that surround the whole subject of the market. There is the myth-making propaganda machine of the Commission itself—which we help to finance—to bamboozle us about the reality of the Common Market and put out inaccurate and distorted information to our public.

After negotiations, all the participants need to be able to claim a victory when they go home. Each country claims a different victory, and the claims bear no relation to each other. Each Prime Minister from each country has to go home proclaiming triumph, success and a benefit for the people. The original exponents of entry to the Common Market gave far too many hostages to fortune and made far too many claims about what it would achieve. They now have to justify the unjustifiable and to claim, even if it is not true, that we have benefited. There is also a group of people who do not understand the reality of the Common Market. That is especially true of Liberal and Social Democratic Members, whose approach seems to be, "My market, right or wrong." Their negotiating stance is that of a spaniel which lies on its back to have its tummy tickled.

Today, the Foreign Secretary justified the settlement on the basis of all of the old hoary myths about the market. He bleated the praises of free industrial trade as if we were still in the age of Cobden and Bright. Free industrial strength favours the strong and the growing and weakens the weak. It is a distorting and destabilising process in circumstances such as those of Britain. Free industrial trade was in our interests in the days of Cobden and Bright because we were industrially strong. It is not in our interests now because we are industrially weak and declining. Industrial free trade is rapidly relegating us to the status of a colony market for the surplus production of German industry. That is our future.

Free trade can work effectively only when there is a strong central authority where the free trade operates to redress, by political, administrative or economic processes, the distortions that free trade produces. That is the case in the United States where a big free market has a central Government which, by defence contracts and Federal spending in individual states, can redress the distortions of free trade. That used to be the case in the United Kingdom, where regional policy could be used to redress those distortions by concentrating development in the west midlands and the south. The same is not true of the EEC, in which we get the worst of all words. We get the distortion of free industrial trade without any of the redressing factors.

The Foreign Secretary told us about the harmonious relationships that will develop in the market; yet it can never produce harmonious relationships between states because it reduces everything to commercial self-interest and haggle. Because we started off with inadequate terms, like Sisyphus we are constantly trying to roll the stone back up the hill, only to see it fall back on us. The relationship will never produce goodwill between nations because the Common Market is an agricultural protection society which does not suit our interests. We shall, therefore, constantly negotiate at a disadvantage.

The relationship does not suit us, has never suited us and will never suit us because the Common Market is essentially a deal between the interests of French agriculture and German industry. The essence of the deal is agricultural protectionism and industrial free trade, both of which are the very opposite of what Britain needs now. We do not want agricultural protectionism as we cannot and never will produce all of our own food. We still have an interest in buying food on the cheapest market—world food prices are about half of what we have to pay to buy the Common Market's overpriced produce—and sending our manufactured goods in return. Nor is industrial free trade in our interests because we need the slight separation that we previously had of the tariff against them being slightly higher than their tariff against us. In those circumstances, our exports to the EEC rose more rapidly than has been the case since we joined.

The tariff change is important and provides the basis for my assertion that industrial free trade is not in our interests. We have exactly the wrong combination of policies. Because of the way in which the budget is financed, we must pay for the pleasure of suffering disadvantage in agriculture and in industry. Joining the EEC has had disastrous results for Britain. We have cut ourselves off from our old markets and having to pay twice the world price for food puts a burden on industrial costs. As we have support by price, farmers are encouraged to produce, so we have to support the over-production and the mountains that result, or dump the surplus on the world market, to the ruin of our old suppliers with whom we still have strong emotional and trading contacts. Those factors will produce the follies of the common agricultural policy. It is no use the Liberals, Social Democrats and supporters of the Common Market bleating about reform of the CAP. It is unreformable. Its structure is inevitable, bearing in mind the basis of its financing. Moreover, manufacturing free trade has been uniformly disastrous. Adjusting the figures to 1983 terms we find that, in 1970—before we entered the Common Market — we had a surplus of about £3 billion in manufactured trade with the Six. By last year that had turned into a deficit of £8 billion. All the indications are that, this year, the deficit will be even higher—probably more than £10 billion.

In its excellent report, the Trade and Industry Select Committee drew attention to the deficit and asked what would be done about it. We must face that central question. We cannot watch our trade balance in manufactures deteriorating at that rate as it is an export of jobs. I do not know the calculations but it has been suggested that every £15,000 worth of trade equals one job. Whatever the calculations, a turnaround from a surplus of £3 billion to a deficit of £8 billion must mean more than 1 million jobs. They have been exported, especially from the west midlands, to the golden triangle in the EEC. There must have been a massive export of jobs. In 1970, we imported five cars from the EEC for every eight cars that we sent there. Last year, we sent one car for every eight that came here. That must have had a disastrous effect on our car industry.

Mr. Mark Robinson (Newport, West)

Will the hon. Gentleman concede what others who have spoken before him might have conceded—that whatever agreement the Prime Minister brought back from Brussels would have elicited the same speech from the hon. Gentleman? In the context of the rock of Sisyphus, the Prime Minister's achievement is infinitely more than his party ever achieved when in office.

Mr. Mitchell

Because of the transitional arrangements, the Labour Government were not faced with this kind of problem. I do not think that I would make the same speech in the circumstances that the hon. Gentleman described. I try to examine the settlement in terms of what it does to change the EEC. A settlement that allows the Common Market to harden in its present mould will be disastrous in the long term. It devotes two thirds of its expenditure to agriculture, which is like the National Farmers Union being turned into a system of government or an agricultural protection society. It is hardly a great adventure into international idealism. Because the settlement does not change the EEC, I criticise it strongly. I am an even stronger critic because of the enthusiasm with which an inadequate settlement is projected as an enormous triumph.

What do the Government envisage happening in industrial trade? How shall we rebuild British industry and jobs when we are exposed to the full blast of intense competition and to a trade deficit that has increased every year and shows all the signs of continuing? In those circumstances, what are the prospects for jobs in Britain?

It is all right for us to talk about new industries, technology and developments if they come to a healthy and expanding economy. They will not come to a derelict industrial scrapyard with a heavier burden of unemployment to be supported by its taxpayers and industries than that of any of our continental competitors—and they are competitors. In that situation nothing but further decline lies ahead for us.

Mr. Johnston

What would the hon. Gentleman do? As the Minister of State explained earlier, EFTA already has a full free trade relationship with the European Community. Therefore, EFTA has an escape route. What would the hon. Gentleman do to contain the drain that he is talking about? Would he slap on strong protectionist controls?

Dr. Mitchell

It is no use the hon. Gentleman asking that question. I am asking the Government how they propose to get benefit from the Common Market in terms of jobs so long as the decline continues. All the signs are that it has increased every year and that it will continue to increase.

The hon. Gentleman asked me what I would do and presented the horrendous possibility of a siege economy. We have more to gain from replacing Community exports to our market based on our market than we have to lose from sanctions that it cares to apply. But that is not the position.

I was asking essentially for the position that we had before, when we had a slightly higher barrier against the Community than it had against us. That allowed the healthy development of our industry and the growth of trade. We can never trade effectively unless it is done on more equal terms than at present. The terms that we are working on now reduce us to an economic colony of West Germany. There is no future for a manufacturing economy in that situation. The hon. Member for Holland with Boston (Mr. Body) wants us to be a semi-retired economy living on handouts from the Common Market. That is the only destiny that lies ahead of us.

Mr. Phillip Oppenheim (Amber Valley)

I appreciate the hon. Member's concern for British manufacturing. Does not the failure of British manufacturing have something to do with the fact that, during most of the 1970s, we did not produce goods of a sufficiently high quality to be able to sell them in the home market, let alone to export them?

Dr. Mitchell

There are a number of problems. Paramount among them is the over-valuation of the currency during most of the 1970s. That problem existed inside and outside the Common Market.

We should have greater freedom to control our exchange rates for competitive purposes outside the Common Market. That concern should be the central aim of Government. That sort of control is outlawed by the treaty of Rome, not just by membership of the European monetary system or through a peripheral relationship with the EMS, such as we had, but by the treaty of Rome itself.

For the answer to the hon. Gentleman's question, we must ask, if British industry is so incompetent at supplying the products that people want, why did that problem emerge only on entry to the EEC, and not before? Why were we doing quite well and why are we continuing to trade well with the rest of the world, with which we are running a surplus in manufactured trade that will be used to pay for our deficit in manufactured trade with the EEC?

Dr. Spearing

I said that we were in surplus anyway, before we joined the EEC.

Mr. Mitchell

Precisely. Such changes do not emerge on their own. Failings in national character do not become glaringly obvious on entry to the EEC. If the hon. Gentleman cares to abandon all hope for Britain, he might subscribe to Government policies, as they certainly compound the effects of that abandonment.

While we suffer these disadvantages, should we be asked to compound them further by paying a substantial contribution to belong to an organisation that causes the problems? The answer should be obvious to us. We should be paid to belong to such an organisation, to suffer these "advantages". If Conservative Members tell me that we should pay for the advantages, I ask them to list them. It will not take them long because the list must be very short.

What are the positive advantages and economic returns that we get from membership? We always hear of hypothetical changes, that the Common Market will go bankrupt or that the CAP will become less important. Those changes never materialise, whereas the disadvantages are real, omnipresent and oppressive.

I shall move on to the essence of the argument on Fontainebleau. It must be emphasised that, in conceding the increase in own resources, we have abandoned our only sanction to force the institution to change. The CAP ceiling was becoming increasingly important, given the mounting pressure on the budget, the own resources sanction was one of our few weapons, perhaps the only one that the Government had left to force the institution to change and to force changes on it. That weapon has been abandoned.

The abandonment of that weapon and the Government's failure to use it effectively to produce the changes that the country needs is a dereliction of duty and a failure. It is all very well to talk about cutting back the CAP. Until that is done why should we abandon our weapon to force that process? The escalation will continue automatically. It must cast serious doubts on the Government's desire to achieve changes if they abandon their only weapon.

I see no prospect of cutting back on the CAP, of strengthening regional policy or of transforming the Common Market from an agricultural benefit society that devotes two thirds of its revenue to supporting eight million farmers. It does not even support them adequately. The benefit of the CAP, as the hon. Member for Holland with Boston has pointed out, has gone through into land prices rather than benefiting the working farmer. It has caused a huge escalation in land values. Much of the capital value of agriculture is tied up in land. That is inefficient.

All that revenue goes to 8 million farmers, whereas 14 million people in this country are out of work, and get peanuts from the Common Market. It is true that, if the Prime Minister had used that weapon, our only weapon, she would have had to suffer odium and become unpopular. She would have been accused of being non-Communautaire and of behaving reprehensively. Collective pressure would have been put on her. People might not have spoken with the willing and warm friendliness that we always associated with the Common Market. The Prime Minister is, after all, a very determined lady. It looks as though the Foreign Office, always one for good relations with the EEC, took the Prime Minister by the arm and said, in its friendly and homely way, "Look, love, enough is enough. Call it a day." She has done so.

I am surprised that that has happened. It means that a Prime Minister who is prepared to do down the miners in this country and who stops spending increasingly high sums on the coal mines, who starves men back to work and treats their families and kids in the way that she has done is not prepared to show the same toughness and firmness towards a few Heads of State, towards Francois and Helmut. She is not prepared to treat those leaders in the same way as the people of this country.

Over there it is, "Be fair, give way, show good will and be part of the team." Here, it is an entirely different story. She has abandoned her responsibility, and our only weapon. She has accepted an increase in own resources to 1.4 per cent. of the notional VAT.

For what? What new control do we have over the budget? The system is still based on the folly of subsidising products, not people. I should have thought that the Tory party, with its business mentality, would have seen the folly of subsidising products rather than people, but it has not. We are faced, therefore, with automatic escalation. As output goes up, subsidies go up. It is demand-led. Last year, we had a very successful harvest. This year the signs are that it will be even better and more successful. Expenditure will go up automatically. It cannot be controlled. Why talk about controlling expenditure on the CAP when increases are automatic?

The attempt to control the CAP has produced howls of pain in this country and on the continent. Given the political power of the agricultural lobby, and the political pressure that it can assert in countries where it is more powerful than it is here—and it is powerful here—that must cast doubt on whether the present process of restraining expenditure can be reversed. We have no guarantee that it will not be. As a result of the Fontainebleau settlement the Germans are now effectively allowed to subsidise their agriculture nationally in a way that no other country is permitted to do. It is allowed to rebate 5 per cent. of VAT to its farmers. That is unique, but it was part of the deal. As a result, German farmers will be paid more. If farmers are paid more, they produce more, and so the mountains increase.

Mrs. Elaine Kellett-Bowman (Lancaster)

That particular deal was part of the price that the Germans had to pay for the alignment of the green currencies. It is a once and for all thing, and otherwise the Germans would have suffered particularly badly because of the realignment of the currencies. They will not be paid more.

Mr. Mitchell

I am delighted that the Germans obtained that agreement, and that there is that subsidy for the poor German farmers, but the fact remains that we shall pay for it. The mountains produced will have to be supported by the CAP. Although it might be a national measure, the consequences of production will fall on the CAP. It is as simple as that.

Therefore, expenditure will escalate, and will do so again with the admission of countries whose agriculture will have to be supported in the same way. Indeed, the Prime Minister told us that the increase in own resources was primarily in order to pay for enlargement. But that turns out not to be so. Let me refer to the excellent report of the Treasury and Civil Service Committee. After examining the cost of enlargement, the Economic Secretary to the Treasury was asked whether the Prime Minister's statement that the increase in own resources was primarily to pay for enlargement was true. Indeed, the following question was asked: So we cannot say as of now what percentage of the increase in own resources to 1.4 per cent. of VAT is needed to cover the cost of enlargement? The Economic Secretary replied: We cannot say that without knowing all the arrangements, which are still to be agreed". Thus, we do not know the cost of enlargement, although the Prime Minister tells us that the increase in own resources has been made primarily to pay for that. That must be mythology.

However, it remains true that the cost of the CAP will increase with enlargement. Thus, there is no guarantee that expenditure will be controlled. It will and must increase and we shall pay more. That is the essence of the arrangement. Therefore, we have no effective control but rather a guarantee that in that automatic escalation we shall pay more. That is unsatisfactory, because there is no provision for any adjustment on the basis of gross national product or the relative wealth of a country and its ability to pay. The essence of our argument was that we could not afford to pay more because we are one of the poorest countries in the Common Market. Consequently, our contributions should be viewed in the light of our ability to pay. But that argument has now been thrown out of the window and has been abandoned by the Government.

This arrangement is not permanent. We are tied to the settlement just as we are tied to the 1.4 per cent. increase. That extraordinarily tatty document, entitled "The Conclusions of the Presidency" states: The correction formula… will be part of the decision to increase the VAT ceiling to 1.4 per cent., their durations being linked. That does not sound like permanency to me. The document continues: The council will re-examine the question as a whole and will take the appropriate decisions ex novo"— or de novo, as my hon. Friend the Member for Livingston (Mr. Cook) said— at the appropriate time. That does not sound like permanency to me. We have got not a permanent arrangement but the prospect of a semi-automatic escalation from 1.4 per cent. to 1.6 per cent. The conclusions that the President of the Commission tagged on, as though they had been agreed by the Heads of State, say: The maximum rate may be increased to 1.6 per cent. on 1 January 1988 by unanimous decision of the Council and after agreement has been given in accordance with national procedures. That is a very clear statement. Apparently, it was not agreed, but it is still in the document as though it had been.

Mr. Mark Fisher (Stoke-on-Trent, Central)

Does my hon. Friend accept that that paragraph—paragraph 2—has been agreed by the Heads of State and so we must conclude that the Prime Minister has specifically agreed to the provision for an increase to 1.6 per cent. on 1 January 1988?

Dr. Mitchell

My hon. Friend has momentarily thrown me. I am not sure which paragraph is which in this extraordinarily tatty document. However, I am afraid that my hon. Friend is right. Therefore, we have agreed to do that. The President's gloss merely tightens up that agreement still further and only adds fuel to the flames and tries to strengthen that commitment. But that serves only to add force to my argument. Everything is set out in that document, which has been rightly and substantially criticised by the Treasury and Civil Service Committee. I shall not go over the ground again, as hon. Members can read the very damning criticism made of that poorly drafted and scruffily produced document.

However, my hon. Friend the Member for Stoke-on-Trent, Central (Mr. Fisher) is quite correct, because the President said: The European Council agreed that… steps will be taken at the next (Budget) Council meeting to cover the needs of the 1984 budget. That is stated as though we were going to renege on our refusal to provide the money for that budget. The President is putting those words into our mouths.

Mrs. Kellett-Bowman

But the President of the Commission also said: It is not asking them to accept the principle of automatic regular increases in Community revenue generation.

Mr. Mitchell

As I have already detained the House by thumbing through that extraordinary document to see whether the President said that on behalf of the Council or whether the Council agreed to it, I shall not be diverted by that intervention. As I have demonstrated by my own confusion, it is a very confusing document. How can we distinguish between what has been agreed and what the President says?

The summit was not a victory. The Prime Minister will project it as one, but at best all she has is a hope. As has been said, it is rather like agreeing to give an alcoholic an increased supply of whisky on his promise to sign the pledge. That is the essence of the settlement. Our hope is that because other countries—notably France—are now paying, expenditure will be controlled. But that is only a hope and not necessarily a reality. The Prime Minister has realised that people are becoming tired of her Eurobashing routine of proclaiming strength and determination and yet coming back each year with a settlement that is less adequate than the last one. It is not a closed door procedure like the annual expenditure review, in which the haggling can go on in this country, but is, instead, public, and is broadcast by all the media. People are beginning to see through it.

The Prime Minister goes out proclaiming toughness and determination yet comes back battered and with something that is less satisfactory than she had before. She, too, is beginning to tire of that, so she has opted for a longer-term settlement of two or three years to avoid the public humiliation that she has been exposed to.

Several Conservative Members are rightly strongly critical of the EEC, and I must warn them of the situation in which the settlement puts them and their party. If it is going to be projected as the good deal that it manifestly is not, the Prime Minister and the party will have to defend it as an achievement. Conservative Members will thereby be enmeshed into having to justify and defend an EEC that is, and will remain, unsatisfactory and bad for this country.

By this settlement, the Prime Minister has allowed the Common Market to harden into the mould in which it was set—that of an agricultural support system or protection society. She is depriving us of the annual spectacle of a brave Boadicea against the market because she has come down in favour of a decision that fell off the back of her chariot and is unjustifiable. She now has to justify a relationship that is bad for Britain because she has projected this decision as the triumph that it manifestly is not. She will be justifying the relegation of this country to a declining periphery of the EEC outside of the golden triangle of the industrial machine of West Germany. That is the logic of an enlarged market.

It is all very well to proclaim a few pathetic bits of Japanese investment — the assembly of their outdated technology, such as video recorders, in this country—as an inward flow of investment. The facts are that we attracted more investment, particularly from the United States, when we served the imperial preference area of the Commonwealth market, or in the 1960s when our economy was growing, than we have attracted since. The EEC has maintained its share of outward investment by the advanced industrial nations while ours has declined.

Mr. Bryan Gould (Dagenham)

I can reinforce my hon. Friend's point. Is he aware that in 1973, when we joined the EEC, we attracted 84 per cent. of Japanese investment in the EEC, but in the past five years, that average has fallen to 21 per cent.?

Dr. Mitchell

I am particularly interested in that statistic. The Prime Minister's approach to Japanese investment seems to be that we should fall on our knees and gibber with gratitude whenever a passing piece of assembly work comes our way. The decline shown in my hon. Friend's statistics casts a cold light on the assertions that the supporters of the EEC have been making about the benefits of the enlarged Common Market and what it does to attract investors to this country. It does not. The whole logic of investment in such a market is to go where the purchasing power is, where the people are, and where the productivity centre of the market is. Why produce in this country and have to put a large portion of the product one exports on lorries that have to go on ships to Europe when one can produce at the centre and send the small proportion of production that has to go to this island by ship? That makes no sense.

The logic of a large market is to attract development to the centre. Just as my north, of which I am so proud, was drained by development of the south and the west midlands when Britain was an independent country, so now Britain has relegated itself to a position in which it is being drained in the same way by the logical dynamics of an enlarged Community. We are now compounding that by exporting our capital in an enormous and apparently accelerating scale to invest in the productive industry of the EEC.

I conclude by saying that the market — [HON. MEMBERS: "Hear, hear."] If Conservative Members do not like hearing the truth at length, I shall never be able to help them. The Common Market has been bad for us and for the European economy. The advanced developed countries face two central problems, to both of which the EEC makes a negative contribution. The first is the slackening of demand from the developing world, caused by the fact that developing countries are burdened by debt, high interest rates and the need to damp down their domestic markets because of the pressures from the banks and the IMF to improve their trade balances. That has led to industrial stagnation in the advanced countries. The EEC compounds the problem of the developing world because, however much aid it sends to developing countries, it does more harm by diverting trade. A classic example is the sugar trade, and the folly of producing sugar in this country to the ruin of the West Indian economy. Rape is produced here to the detriment of oil producers in the third world. That diversion of trade helps to weaken the economies of the developing world to our detriment as well as theirs.

The second major problem facing the developed countries is the need to expand the European economies in particular, and those of all industrial countries in general. The French Government tried in a brave effort, but inevitably ran into the problems of Keynesianism in one country, particularly as France is part of a large market in which an expansion in one country simply produces an inflow of manufactured goods to take the benefits of that expansion away, particularly to West Germany.

If the EEC as a machinery for collective management of a larger market has any contribution to make, it is to expand the European economy at a time of massive and, in this country, rising unemployment. The EEC has before it the example of the United States where the Government, despite the Prime Minister's assurances that Keynes is dead and Keynesianism does not work, and that we have to wait for real jobs to come falling from Heaven as a sign of a benign God who has approved monetarist policies, have thrown into reverse the policies that this Government are advocating.

America has gone for deficit financing like it was going out of fashion and has printed money like it was going out of fashion. The result has been an enormous drop in unemployment and the creation of 4 million real jobs. The right hon. Member for Guildford shakes his head, but the millions of people who are in those jobs must be grateful and must regard them as real jobs. It must cause people in this country to ask why, if America, by doing the opposite of what our Prime Minister tells us is virtue, can bring down unemployment, stimulate the economy and get it growing again, and create 4 million jobs, we cannot. What is so wrong with this country that what works in America does not work here?

The Chancellor of the Exchequer was rather perverse in his Mais lecture. I take all this student politicking seriously because students are a serious lot these days, but that Mais lecture was a rather knockabout turn, in which the Chancellor tried to attribute the improvement in the American economy to circumstances that were there through the 1950s, the 1960s and the 1970s but have come to fruition in the 1980s. He did not attribute it to what the Americans are doing in the 1980s, such as deficit financing and expanding the money supply, which shows that Keynesianism works and can work here.

The Government are absolutely determined not to follow that policy. Unfortunately, that means that other European countries that are not doing that either are ossified in their refusal to do what is necessary. Therefore, the EEC is not being used for the one serious contribution to progress that it could make—a collective expansion of the European economy.

Why are we not urging this aim? Why was it not agreed at the Fontainebleau summit? Why is it not our central preoccupation? That is our only prospect, and it is being thrown away. We need to do more in this country because our problems are more severe, our industrial decline has been worse and our opportunities, because we have oil and the others do not, are greater. We would benefit from a collective expansion and we have to ask why it is not taking place and why the market is not being used in this way.

The answer to this relationship, which never suited us and has failed, is withdrawal. I think that we should come out of the EEC, as we should be better off outside, controlling our trade in our own way and adjusting our relationships on equal terms, without the burden of agricultural protectionism, which makes us odious in the eyes of much of the world, and which is a burden we do not need to carry. Clearly, the Government will now be dedicated to staying in, praising the Common Market and saying how wonderful it is. In that case, we have to explain how we can reconstruct the British economy with the burden of high food prices, and exposed to the full blast of intense competition from the most powerful manufacturing nation in western Europe—the Japan of western Europe — West Germany. What is the Government's answer to the huge deficit in manufacturing trade?

We have to solve that problem and, if the Common Market is to be of any benefit, we have to go for expansion of the European economy and a revival, which does not mean being able to sell our insurance. That must come about not when the City has untrammelled access to the Common Market, nor when the regional budget has been increased by a meagre 1, 2 or 3 per cent., but now. The requirement now is for expansion, for jobs for our people.

7.9 pm

Mr. Teddy Taylor (Southend, East)

In these sparsely attended European debates the same hon. Members often talk to each other and sometimes they say exactly the same things. But I am sure that the party Whips will accept that over the past 12 months there appears to have been a marked change in the general attitude of the House of Commons to the Common Market and the current negotiations.

Recently, two Select Committees — the Trade and Industry and the Treasury and Civil Service Committees — have produced reports attacking the structure and development of the EEC and pointing to enormous problems that are still unresolved. That shows a new attitude of concern and worry about the EEC. That concern and worry were shown by the voters during the recent ridiculous Euro-elections, where a tiny poll revealed a concerned and massive depression and disillusionment with the EEC.

Tonight we must decide a simple issue—whether the negotiations, as outlined by the Foreign Secretary, are a successful outcome to the European Council. All reasonable people will accept that the minimum we can say is that the case has not been proved.

When we embarked on these negotiations the Government made their intentions quite clear. They said that three points had to be resolved. First, they wanted a permanent budget settlement to ensure that the nations of Europe contributed according to their ability to pay. We certainly do not have that. We merely have another cobbled-up deal to sort out the "British problem". There is no certainty whether this will be better or worse than the old arrangements.

The second crucial element was control of spending by the Common Market on its various activities. Here again, most hon. Members will accept that we have not achieved that. We have only a broad general assessment by the Government that they want to do this, but there is no explanation of how they hope to do it.

The third major objective was the reform of the CAP. Not even the Government will accept that we are any way towards that. In fact, at the Stuttgart summit Britain foolishly accepted to seek not a reform of the CAP, but modifications and adjustments. However, there is not even a semblance of unity or agreement on those.

The Government ask us to accept that there has been a successful outcome, yet on those three essential demands we have made hardly any progress.

Some hon. Members, like my right hon. Friend the Member for Guildford (Mr. Howell), are so keen about the Common Market that, like him, they are prepared to say, I am sure sincerely, "We may not have achieved anything, but at least there is a new burst of realism in the Common Market which we hope will lead to great things." These are only hopes and expectations, and on our three basic aims—a permanent structure that is fair to all member states, control of spending and the reform of the CAP—we have made no progress at all. We have not given up or failed; we have not got there.

My worry is that we appear to have agreed to a major increase in Common Market public spending. Bearing in mind what we have heard, it seems that, in addition to the CAP, we are likely to get a whole series of Euro-wide De Lorean projects. How can it be sensible to preach the need to control spending and not waste it on daft projects when it seems that we shall get involved in such projects in the vain hope that it will redress the balance of our contribution?

I have a number of specific questions, and it would help the House if the Minister answered them. First, do the Government intend to ask the House of Commons to give more money to solve this year's financial problem before we have seen the detailed budget disciplines that have been promised? The Foreign Secretary kindly said that the Government would not ask us to vote for increased resources until we have these budgetary disciplines, which are due to come into effect on 1 Janaury 1986. We are also entitled to know whether the Government will be asking for more money to bridge this year's gap before we have those budget disciplines.

Secondly, how do the Government think that we can stop overspending on the limits that they hope the Finance Ministers will impose? As is well known, there are supplementary budgets year after year, and we do not have the slightest indication of how those will be stopped.

Thirdly, and just as important, the Government have said that they do not want agricultural spending to increase by more than the increase in own resources. However, it seems that they have agreed to increase VAT resources by 40 per cent. and, consequently, the total resources of the Common Market by 25 per cent. In limiting the increase in agricultural spending to no more than the own resources rate of increase, are the Government including the 25 per cent. on top of the natural increase in VAT and own resources? If so, they are saying that, come 1986, agricultural spending will not be increased in real terms by more than 25 per cent., but that is not an enormous achievement, given that agricultural spending last year went up by 27 per cent. and the year before by 11 per cent.

Out of this depressing debate, in which nothing is really clear, I hope that several things will happen. I hope that there will be a greater realism on the Government Benches about the actual effect of the Common Market. Things have gone wrong for many reasons, not just because of the Common Market.

We have been desperately anxious to prove that the Common Market has been a great thing. There have been plently of examples. There was all the money spent during the Euro-elections on two-page advertisements telling people to bear in mind all the splendid firms that have invested in Britain because of the Common Market. When we checked, we found that this included firms such as Standard Telephones and Cables, which has been operating successfully in Britain since before the Boer War. Hoover was also mentioned, but that has been operating successfully in Britain since 1930.

Equally, there was the nonsense—one hon. Member was actually convinced of it—of the gains in Japanese investment. How many hon. Members have heard the claim that the Japanese now invest 40 per cent. of all their Euro investment in Britain? That is totally bogus, because our share of Japanese investment has declined steadily from 80 per cent. in the year we joined the Common Market to 12 per cent. now. Because of a statistical freak, Japanese investment was 40 per cent. in 1980, but that is the only year we ever hear about. We are all aware that a whole pile of cash — Conservative party money, Liberal party money and money from Common Market taxpayers—is spent on promoting absurd myths about the Common Market.

The same is said of trade. We have been repeatedly told about all the trade and jobs that have flowed from the Common Market, yet the simplest things should tell us what is happening. According to the Government's own figure, we now have a smaller share of the market in manufactured goods than in the year before we joined. That is serious. We now have 6.1 per cent. of that market, whereas we had 6.3 per cent. in the year before we joined.

Had it been anything other than the Common Market, the Government would have been agitated and would have set up Royal Commissions, and so on, to discover what was going wrong with our trade with the Common Market which must involve the loss of at least 800,000 jobs based on normal estimates.

In every year before we joined the Common Market there was a profit in manufacturing trade. That has got worse and worse, until over the past 12 months there was a deficit of more than £8,000 million. That effectively means that for every £3 we send we get £2 back.

The easy answer is to say that it is our own fault because our workers are lazy, our managers hopeless and our products no good. If that is the straight answer, why are we able to compete with the Germans, the Japanese and others in Third world trade? Why do we have such a good positive trade balance in the Third world where we compete with the Germans and the French?

There is something seriously wrong which is destroying British jobs. We should at least consider this objectively. I accept that some of us have been complacent, and have often considered the statistics by asking whether they prove that the Common Market is a good thing. Faced with a serious trade problem, which is destroying many jobs in Britain, and a smaller share of the Common Market than the year before we joined it, we should be examining the matter urgently. We should accept that things have not gone well for us in the Common Market, and we should try to find some way of resolving this problem.

It is not only trade that is involved. It is clear what has happened in the steel industry. In this country we have reduced the number of jobs by more than the rest of the Common Market put together. We have to ask why we seem to be doing badly in keeping the rules while others make them.

A similar situation exists with regard to agriculture. I do not think that there will be a reform of the common agricultural policy. However, if there were one, surely it stands out a mile that British agriculture will get its throat cut because of the continental surpluses. This is a serious problem. The same thing will happen with milk. I can envisage that we will pay our super-levies and keep our quotas, but we all know deep down that these will not be enforced with the same rigidity by other countries of the Community, and thus we shall come off worst.

In these circumstances, we must ask what we can do to make things better. In the meantime, we must stop talking about the old argument of getting in and staying in or pulling out of the Common Market. We must stop trying to kid ourselves, and most of us know that we have been trying to kid ourselves. We have been putting forward bogus arguments and statistics that are a load of rubbish to try to convince ourselves that the Common Market is a good thing. We must look at things objectively and consider how we can improve them. We have a better chance of doing this if we accept things as they are.

Faced as we are with these kind of problems, and with the failure in the negotiations to achieve any of the objectives with which we set out, what are we proposing to do? We propose to put cash into the Common Market. I accept that we do not yet have all the details of what will happen, but how will it help the Common Market to put more money into it? Either we will spend a lot more on agriculture, which seems certain, or we will be looking round for daft social or regional enterprises on which to spend more cash in Britain. I cannot see the logic of the Conservative Government saying that we will not solve our problems by increasing public spending at home and at the same time saying that we will pour more money into the Common Market which pours money away like water.

Why should we give more resources to the EEC? How is it spending the money? The simple fact that we cannot run away from is that the Common Market spends one third of every penny of its total expenditure on destroying or dumping food surpluses. In such a situation, how can one justify putting more money into the Common Market? We all know that the Soviet Union and its allies are major beneficiaries. The exports of cheap food to Russia have increased by more than 400 per cent. since the Conservative Government came to power. It would not be so bad if the result of selling food to Russia was that Russian housewives were able to get food at cheaper prices than we pay. However, we know what happens. We know that the Russian Government put a massive mark-up on the food and make a large profit, which helps to finance their defence programme. I do not mind my taxes being spent to pay for bombs and rockets to safeguard us against Soviet aggression, but I strongly object to paying more in taxes to enable the Soviets to buy weapons to invade Afghanistan and to buy SS20s.

I recently received figures that confirm what I say. Each week we send 164 tonnes of cheap food and wine to the Soviet Union and to its allies. What are the prices? The price of beef is 40p per pound. Britain's consumption of beef would soar if we offered our people beef at such a price. The cost of wine is 7p per litre. As I have said before, this may be a plot to make all the Russians alcoholics, and thus to undermine their defence drive. The cost of flour is 5p per pound, sugar 7p per pound, and butter 53p per pound. This not chicken feed.

One third of every penny of expenditure of the Common Market is spent on destroying or dumping food. How can the Government suggest that more money should be put into the Common Market to be spent in this crazy way, in the hope that it might try to reform its spending programme, when we know it will not?

Last week I visited one of our nice little schools in Southend, called Temple Sutton junior school. The school has not been painted for 27 years, and, while I was there, water was coming through the roof. We are told that nothing can be done because there is no money. I am sure that my hon. Friends could relate similar situations in their constituencies, for which they are told no money is available.

Mr. John Stokes (Halesowen and Stourbridge)

There is a school in my constituency which is in a bad state of repair, but it has taken the sensible step of doing the work itself.

Mr. Taylor

The answer to public expenditure problems may well be to make parents entirely responsible for schools, and patients responsible for hospitals, but that is not yet Government policy. Indeed, there is a splendid parent-teacher association in my constituency which wanted to do the work itself. but it was told by the medical authorities that, because the paint contained so much lead, it would be dangerous for anyone but a professionally qualified person to do the job.

My point in referring to the school in Southend, is to illustrate that we all have needs in our constituencies, but we are told that there is no money to meet them. Nevertheless, the Government anticipate being able to pluck out of the air £700 million a year to put into the Common Market pool, and to say, "You spend it, and we hope that you will spend it wisely." We all know how it will be spent. More money will be allocated to agriculture, although we are well over the limit already. Alternatively, we will look round for schemes, which are the European equivalent of De Lorean, on which to spend public money in a wasteful way.

If we are seeking the right answer, bearing in mind the intervention of the Minister a short time ago, I suggest to the Government that the right answer is not to say, "Let us give the Common Market more money, and hope that it will give us something in return", but to ask ourselves why the blazes the Common Market is spending money at all. Does such expenditure help European unity? My hon. Friend the Member for Stroud (Sir Anthony Kershaw), who is chairman of the Select Committee on Foreign Affairs, in a splendid speech spoke of the problems of the barriers to trade in Europe between France, Germany and other countries, and suggested that it would be wonderful to get rid of them. We are not getting on with that job because we are wrangling, as we will continue to wrangle, about the carve-up of public expenditure. How would the Common Market be weakened if it were decided that there would be no public spending, no regional policy, no social policy and no agricultural policy, but co-operation to get trade barriers down and to work together? Is it essential to have public spending built into the Common Market, because all this will achieve is waste, extravagance and the expansion of Socialism?

It may be suggested that that is a pipe dream, but it is not. It exists just next door to the Common Market. I appeal to any hon. Member, before he considers supporting increased resources, to consider the example of EFTA, which has a splendid success record. The Common Market, we are told, has approximately 12,000 to 14,000 civil servants. EFTA in Geneva has 52 civil servants. EFTA has no common agricultural policy, no regional policy, no spending, and no pretence of becoming any kind of union. Its rate of growth is greater than that of the Common Market, and its unemployment level is about half that of the Common Market. It might be asked: how can one compare small countries like Austria, Norway and Sweden with such giants as Germany and France? While it is difficult, one can consider the relative position. EFTA has been a success, and, of greater importance, the member countries are co-operating to a greater extent than ever before.

Mr. Michael Fallon (Darlington)

Will my hon. Friend explain why two members of EFTA have applied to join the Community?

Dr. Taylor

I think that my hon. Friend knows why Portugal has applied to join the European Community. It believes that there is a status and respectability for a country which was formerly a dictatorship to join a major European organisation. There is also undoubtedly an expectation in Portugal that there might be extra money and certainly great advantage from the CAP.

There is no such advantage in being a member of EFTA, which does not pretend to be a gigantic organisation heading for political union. It is simply a group of countries that want to break down trade barriers and encourage the development of trade.

The Government are asking us to say that there has been a successful outcome to the negotiations. We must all know that there is no proof that we have succeeded. Is our initial aim of reforming the CAP any nearer achievement? We have only hopes and dreams of controlling Community expenditure. We do not have even a sign of how the Government think we should go about that.

As the Select Committee said in its excellent report, there are so many unanswered questions that it is far too early for us to judge whether the negotiations have been a success. We should stop misleading ourselves and look at things more realistically. I wish that we were members of an organisation that will not spend the next 20 years haggling over the division of extended or expanded agriculture, social and regional policies. The EEC will undoubtedly be doing that. If only we could co-operate in getting trade barriers broken down, we would create more jobs, more investment and certainly more unity in the continent of Europe.

7.31 pm

Mr. Mark Fisher (Stoke-on-Trent, Central)

It is a pleasure to follow the hon. Member for Southend, East (Mr. Taylor), who has fought his corner over the years with such tenacity and eloquence. He said that these debates are usually conducted among the same hon. Members, but he achieved almost the impossible by producing an original idea and characterising the CAP as a military mole funding the Kremlin. The idea of butter bombs must add a new dimension to our debates on the CAP.

If only the same energy and drive as impelled the speech of the hon. Member for Southend, East had characterised the Foreign Secretary's speech, we should have had a better debate. The Foreign Secretary introduced the Government's case with his usual somnolent flair, proving himself to be a master of platitude and little else.

I presume that among all the verbiage and the few facts that the Foreign Secretary gave, he was attempting to convince the House that the Government had got a good deal. The House could be excused for wondering whether the Foreign Secretary, with such eloquence and energy and with such a silver tongue, could get a good deal on anything except perhaps selling soothing sleeping pills. He left the House in a damp fog of uncertainty which did no credit to his position in the Government.

There is considerable uncertainty over the document entitled "Conclusions of the Presidency". That is an accurate title, because only sections 1, 2 and 4 have been agreed by the heads of government. Sections 3, 5, 6 and 7 appear on the authority of the President. I hope that the Minister who is to reply will explain what that authority is and the relationship between the President's authority in issuing the document and the Prime Minister's authority in speaking about it. If there is a division, where does it lie?

Perhaps the possibility of a division does not really matter in some parts of the document. For example, section 5 on social policy says that we are forging ahead with a programme that has already been established. There is nothing there. Section 6 on a people's Europe is vacuous rubbish, as are the references to equivalents of universal diplomas and such crucial matters as flags, anthems, sports teams, frontier posts, the minting of ecu and the twinning of school classes. Section 7 refers to an ad hoc committee on institutional affairs. Perhaps it does not matter whether those sections are issued on the say-so of the President or of the Prime Ministers.

However, section 3, to which apparently the Prime Minister did not put her hand, is extremely important because it relates to the financing of the 1984 Budget. We need to know whether the Prime Minister agreed to the wording in that section. I hope that the Minister who is to reply will clarify that aspect.

We gather that the Prime Minister agreed only on section 1, dealing with the refund, section 2, dealing with own resources and enlargement, and section 4, which is an incomprehensible section on the dismantling of positive monetary compensatory amounts in the Federal Republic of Germany.

What has been decided in the first two key areas? The one fact that has come out is that the Government have agreed to an increase of 40 per cent. in the proportion of own resources represented by VAT. No juggling with percentages and proportions by the Foreign Secretary can alter that fact. The Government have agreed to increase own resources. To be fair to the Government, they have also negotiated a lump sum for 1984 of 1,000 million ecu and a formula for the future. However, it is interesting to read the wording of that formula: The corrections foreseen in paragraph 2 will be deducted from the United Kingdom's normal VAT share in the budget year following the one in respect of which the correction is granted. The resulting cost for the other Member States will be shared among them according to their normal VAT share, adjusted to allow the FRG's share to move to two thirds of its VAT share. Unless other hon. Members are much better than I am at following EEC jargon, that formula will leave the House little wiser.

It is clear that the Government now wish us to refer to an "abatement" rather than a "refund". I welcome that, because the word "abatement" has more to do with relief and we should understand that we are not a net beneficiary. It is a refund only in the sense that there is net damage limitation to this country and the Treasury. "Abatement" more accurately reflects the idea of stopping banging our heads against the wall.

Apart from those areas of apparent certainty, all else is uncertain. We have not achieved a permanent solution. Contrary to what the Prime Minister said, it is not a five-year solution. It is not even a four-year solution; indeed, it is not even clear for this year. The only clarity about the time scale is that it relates to the period between 1 January 1986 and 1 January 1988, when there could — and almost certainly will—be a rise to 1.6 per cent. in VAT payments. It is perhaps significant that the Prime Minister did not mention that in her statement last week.

We do not know when the next increases will come after 1988 and on what terms they will be made. The hon. Member for Inverness, Nairn and Lochaber (Mr. Johnston) said that permanency was impossible. The reason is that the agriculture and food budget is demand-led. Therefore, as permanency is impossible, the Government should not have claimed that they would get a permanent solution and that they had got such a solution. They have not, and they should recognise that fact.

The other certainty is that there will be an overspend on the EEC budget in 1984. It is likely to be £1.26 billion and is likely to be repeated in 1985. How will that be funded? The Heads of Government did not address themselves to that problem. I hope that the Minister of State will explain how that overspend is to be funded.

The Prime Minister assured us that there would be no bridging loan. We welcome that. However, no other suggestions were made by the Prime Minister. When the Select Committee pressed the Economic Secretary to the Treasury on that point, no other suggestions were made by him. Today, no other suggestions were made by the Foreign Secretary. Do the Government have any ideas about how the overspend is to be funded? If there will not be savings in the demand-led agriculture budget, there cannot be swift savings. Will the Minister tell us that there will be advances on next year's revenue or that the payments will be postponed until 1985 and then presumably again from 1985 to 1986? What other suggestions does he have? He must address himself to that point.

If it is a question of deferring payments to following years, there will be a deep suspicion in the House and the country that the absurd reason for the increase in own resources is the deferred payment of the budget deficit that we have at the moment but which the Government will not face up to and have no ideas about how to resolve.

What is also not uncertain, as my hon. Friend the Member for Livingston, (Mr. Cook) said, is that this is a bad deal. It means an increase in own resources and, if the document is to be understood correctly, lesser refunds for abatements than under the old system. If not, why does the Treasury not produce the figures? If the figures were to its advantage, I believe that the Treasury, with the emminent people working in it, could have managed to produce them. Is there just a suspicion that the figures would not support the Treasury case?

Dr. Rifkind

As the hon. Gentleman has repeated the nonsense put forward by the hon. Member for Livingston (Mr. Cook) I must respond to that point. It is absurd to suggest that the refunds that the United Kingdom receives will be reduced in the next few years. In 1983, the refund that the United Kingdom received was £440 million. It has already been agreed that the ad hoc refund for 1984 will be £600 million and that for the future there will be a refund of 66 per cent. of the VAT share expenditure share gap. That is much higher than the 46 per cent. of the same share which we received in refunds in 1983. Therefore, the suggestion of the hon. Gentleman and of his hon. Friend is baseless.

Mr. Fisher

That is not the case. My hon. Friend has already disproved that point. If the Minister was correct, why can he not produce the figures?

Dr. Rifkind

I have.

Mr. Fisher

Those are not the figures at all. It is not a question of not liking them; they are simply not adequate. It is absolutely extraordinary that not only is the Minister not able to substantiate his argument, but he does not seem to be in a position to produce the figures that the Treasury and the Government were working on when negotiating the deal. It is extraordinary that the Government were negotiating from an unsubstantiated position.

Mr. Robin Cook

Perhaps I may refresh my hon. Friend's mind by drawing to his attention what the Prune Minister said in March when she returned from Brussels. The comparison she used to explain why she rejected the deal on the table in Brussels was with the average refund which we received in the years 1980–83. If that comparison was good enough in March of this year, why should it not be a fair comparator to apply to the deal that has been struck in June?

Dr. Fisher

I am grateful to my hon. Friend.

The next point on which there seems to be no uncertainty is the lack of control mechanisms from the Government. The Foreign Secretary assured us that we would not accept the deal unless there were satisfactory budgetary disciplines. The crucial question is: what are those disciplines to be and will they be satisfactory? Hon. Members on both sides of the House find it most disturbing that today the Foreign Secretary could not give even the slightest indication of what the budgetary disciplines and the control mechanisms would be. When the Economic Secretary to the Treasury came to the Select Committee on the Treasury and Civil Service last week, he similarly was unable to give anything. When asked the specific question: what mechanism is our Government going to be putting forward as satisfactory? the Economic Secretary said: We are working towards a system which will work and be effective. There is better to come. He went on: what we are proposing to do is to get a system which is effective as a system". With platitudes, truisms and tautologies like that he may even end up as Foreign Secretary in an Administration like this. If that is the intellectual grasp of the sort of mechanisms that will be satisfactory and if that is the sort of thinking that the Foreign Office and Treasury are bringing to bear, the House should be very sceptical about the mechanisms that will be arranged.

Mechanisms could be arranged. We could seriously consider quotas and penalties. A reduction in storage costs would be crucial, because they are disgracefully high. it is nothing but a cruel trick on consumers in this country that such surpluses of food should exist, that the storage of that food should be so appallingly expensive, that subsidised sales of surplus foods to Russia should take place so flagrantly under the noses of our consumers, and that the cost of our food should be so high when world food prices outside the European Community are far lower. That is a cruel trick being perpetrated on the British people by the Government. Only strong budgetary discipline will even begin to tackle that problem.

As well as addressing himself to that, the Foreign Secretary should, if worrying about disciplines, consider the discipline of knowing himself what the increase that he has negotiated on our behalf will be spent on. We put that question to the Economic Secretary to the Treasury last week and he could not say. Today, the Foreign Secretary at least had a shot; he said it would be spent on the introduction of Spain and Portgual into the Community. That is nonsense because that will be a temporary charge. The Minister shakes his head. Does he believe that the accession of Spain and Portugal will be a permanent drain on the Community? If so, that is a different matter. Most of us would understand if there were to be a temporary cost, but not a permanent cost.

The Foreign Secretary also talked about the expansion of the social and regional funds, but there is nothing in the document about that. It is not justified. We do not know in what countries or on what programmes the expansion is to be. The Foreign Secretary had the cheek to make the only joke in his speech by saying that the increase was to pay for our own rebate. It was a pretty poor joke. I am glad that my hon. Friend the Member for Carrick, Cumnock and Doon Valley (Mr. Foulkes) enjoyed it. The Prime Minister mentioned the other day that it was to pay for ESPIRIT but, of course, it has its own budget.

The final conclusion that the House will have to reach is that probably the increase in own resources to 1.4 per cent. will be for the expansion of the common agricultural policy expenditure. The Foreign Secretary's assurances that we will have budgetary disciplines were awaited impatiently by the House. If he achieves them, I believe that even my hon. Friends will congratulate him and will be extremely pleased. If he fails, we will hold him to what he has said and to what the Economic Secretary told the Treasury Select Committee last week: without those disciplines, the deal is off. Unless he can produce the disciplines, we will expect him to cancel the deal because it is not adequate and does not face up to the problems of the Community or to the economic problems of this country.

In short, this is another flaccid fiasco from the Prime Minister and the Foreign Secretary—the Mr. Nice and Mrs. Nasty of the European negotiating table. During this year they have achieved a surprising combination of alienating our farming community, getting less rebate than they promised and offering greater contributions to be paid for by the British taxpayer, without any apparent idea of where the budgetary disciplines to control that expenditure will come from. They have sold our country and our taxpayers very short indeed.

The people of this country and the Community expected from Fontainebleau a restructuring of the budget and a move towards a reform of the agricultural expenditure. What they desperately needed, and lamentably did not get, was a call for reflation of the European economies. If there had been a move to get Europe and this country back to work, that would have been a serious response by the Prime Minister. In this document there is no mention of employment, of hope or of recovery. There is only a feeble and ineffective deal, which the House will reject. It will await with apprehension the results of the meeting of Finance Ministers later this year.

7.49 pm

Mr. Michael Knowles (Nottingham, East)

My hon. Friend the Member for Southend, East (Mr. Taylor) referred to the comparison between EFTA and the EC. That point has arisen in various speeches. The EC, as stated in the preamble to the treaty, was determined to lay the foundations of an ever closer union among the peoples of Europe". In the Government motion the final line refers to a sound basis for the further development of the Community. There is a real difference between those aspirations. My hon. Friend disagrees fundamentally with them. I agree fundamentally that we need a closer union in Europe, and it is to that point that I should like to address myself.

In looking at the document "Developments in the European Community", and especially at section II, dealing with political co-operation, one would not believe that it was produced by a bloc which, in economic terms, is very strong in the world.

On the middle east, the document says: The Community has continued to follow closely developments … and has made clear its concern". There are several references in the report to showing concern and taking a close interest. Expressions of concern are very nice as far as they go, but what can they do? The answer is that they can do remarkably little, because union has not gone very far.

In one or two Opposition speeches we have heard criticism of the Community as it is, but generally, at the end of those speeches, it has been said that the European economy should be expanded. Of course, a much closer union would be needed for the Community to have that kind of economic power. Hon. Members cannot have it both ways.

There has been reference to rebuilding the British economy. The question now facing Europe is whether the European Community can survive except as a techonological colony of the Japanese and the Americans. We are moving rapidly in several spheres, as can be seen in regard to information technology.

It is also true of the automobile industry. We are talking about world industries. No longer can one buy a British car as such. Most hon. Members make valiant attempts, out of political loyalty—and probably to safeguard their own backs in their constituencies—to buy what they believe is a British car. The simple truth is that there is not a car to be bought that is made in Britain. It is very difficult to buy one that is made in Europe. Oddly enough, one can buy a Swedish car with a greater British content than British Leyland cars, which have many Japanese components. That is the way in which the world economy is moving.

If we wish to influence the world economy against the economic giants of Japan and the United States, the only hope for the small nation states of Europe is to combine together to do it. That was one of the original intentions behind the Community.

There was the fear of renewed conflict in western Europe. That was certainly the first of the springboards. The fear of the Russians was another springboard, and that still remains. But, increasingly, people have realised that only Europe as a whole has a chance of hanging on to a place in the world. As individual nation states we stand little hope.

A draft treaty of union is going round the chancelleries of Europe. In Britain, I think it has disappeared into the Foreign Office and is being examined in great depth. I am not surprised, because it contains some fairly startling ideas for Britain, especially in relation to the tone of the debate today.

The rest of Europe wants to move towards closer cooperation and unification. I believe that the Prime Minister's paper was partially a response to that. As was said earlier, it is much more encouraging than one might have thought it would be.

Mr. Teddy Taylor

It was a Liberal Member who said that.

Mr. Knowles

It was.

My fear is that Britain will try to stand back and that we shall have Messina again. When we stepped back, the other countries of Europe signed the treaty. They had designed it to meet their own needs taking — quite reasonably —no notice of our position. Then, by the inexorable forces of history, we had to join the Community later. To make such a mistake once might be permissible, but there is no excuse for doing it a second time. The rest of Europe wants to get on with unification. If we hang back and are left behind and have to join later it will be on unfavourable terms, when the Community has expanded. If that happens, we shall have no excuses whatever. Therefore, we should learn from our mistakes.

There are many interesting parts in the Prime Minister's paper, especially that concerned with security. It is obvious that we shall have to look again at defence in western Europe. Inevitably, the Americans are looking more to the Pacific. This year, for the first time, American trade with the Pacific basin is higher than its trade with western Europe. Its interests in the Pacific are obvious. The Pacific basin is the technological growth point.

In Congress this year a proposal was drafted —although eventually it was not tabled — to withdraw American troops from Europe. For 30 or 40 years in Europe we have been used to the idea of looking to the Americans for our defence. I believe that the Alliance is reliable and will continue for many years, but in 30 or 40 years' time Europe will have to do the job itself. If we do not grasp that nettle now and stop squabbling about the price of butter and everything else that divides us, rather than doing the essential job, there will be a penalty to pay.

The obvious historical analogy is that the nation states of western Europe are like the Greek city states that were trapped between Rome and Persia. The dangers from the USSR are obvious and stark—they are military. There are technological dangers from America and Japan. Some people seem to be happy with the idea that the day of Europe is over; that Europe as a whole has already made its contribution to history, and will now slide gently off the stage, as we have already slipped from centre stage to the wings. Some people think that Europe will just disappear. I do not agree. We are a small collection of nation states squabbling over butter prices while the reality of power slides even more inexorably away from us. However pleasant and hedonistic it might be, history has a hard fate for such nations. There is no welfare state of history. Sooner or later such states are expunged.

The alternative is to recognise the hard, cold world that we live in; to recognise that power actually matters; that time is running out. This generation will decide on history's verdict. What will that verdict be on the movement for European unification? Will it be seen as a grand hope on the part of people who have grown too soft, effete and hedonistic, and who could not make the most of their opportunities? Or will the verdict be that they did seize the moment; that they took their fate into their own hands so that a great civilisation could move forward again? That is the prize, not the arguments that we constantly have about whether we get more out of the pot than we put into it. The movement for European unification means more than that. I look forward to that sort of dedication from the Government. It is no good our thinking that we can edge slowly forward with such an idea. We cannot. Both the idea and the vision need selling. But there is in politics a prize even greater than that.

All too often in politics we do not have enough vision. We do not sell ideas to people. We should be concerned with greater things than balancing the books or squabbling over handouts. There is a danger of denigrating politics. In Proverbs, we read: Where there is no vision the people perish. If we sometimes wonder what is wrong with our politics, perhaps it is our fault. As politicians we do not offer our people enough or ask enough of them.

8.10 pm

Mr. Nigel Spearing (Newham, South)

I do not want to follow the hon. Member for Nottingham, East (Mr. Knowles) too far down the road that he travelled. As he knows, I fulfil a particular function in the House as Chairman of the Select Committee on European Legislation. That legislation comes before us week by week, and we produce reports on it. The documents currently before us are to be found in HC78, and are referred to in the motion. On Thursdays, the Leader of the House often refers to documents that will appear in the Official Report—which they do—and they are numbered in the Government's motion.

I wish to refer briefly to only a few of the documents, and highlight some of their points. I shall refer to the Treasury and Civil Service Committee in relation to some of the remarks made in a previous report of the European Legislation Committee, because I believe that it is procedurally important.

Our report HC78-xxx relates to the budget of the European Community in 1985, and is one of the documents referred to in the motion. In presenting the preliminary draft budget, the Commission is budgeting for a VAT rate of 1.12 per cent. In other words, for 1985 it is breaking the barrier, irrespective of any shortfall in 1984 that must be made good next year. The European Community is assuming that all member states will ratify the Fontainebleau agreement—if that is what it is—and that new resources will be available.

The second feature of the budget is that the maximum is based on the new maximum rate of increase in expenditure. That maximum rate is based on the trends in member states, especially in gross national product, public expenditure and cost of living indices, and is fixed by the Commission in accordance with the treaty. Its significance in relation to the budget is that it provides a ceiling on any increase in non-obligatory expenditure that might emerge in discussions between the Council, the European Parliament and the Commission. The amount of non-obligatory expenditure proposed in the preliminary draft budget implies the need for a maximum rate of increase of 12.75 per cent., which would need the Council's approval.

Therefore, not only is the preliminary draft budget projecting the breaking of the 1 per cent. barrier, it is taking a maximum of 12.75 per cent. increase on the non-obligatory part of EEC expenditure. As hon. Members will know, that is often the part that attracts the most attention because it involves the social and regional funds. In the end, it is fixed not by the Council, but by the Assembly.

Our report includes a table, that has been provided by the Commission, of the likely increase in expenditure. It is especially marked in agriculture. In the budget for 1984 —we do not know the outturn yet—the budget for the EAGGF guarantee section was no less than 16,150 million ecu, and for 1985 that is increased to 19,235 million ecu. In its document, the Commission makes it clear that it is looking for a decrease in the stocks held to make room for what it might think is a bumper harvest. The point of the reports is that next year there will be a bumper budget.

I want to draw attention to our report on one of the earlier documents from the Commission about future financing of the Community. It was a communication to the Council, No. 5427/84, or Com.(84)140. In it the Commission lays out some of its expectations on the use of own resources. It makes it clear that the requirements of the Spanish/Portugese accession could take up to 0.2 per cent. of the harmonised VAT base. On the basis of 1984 figures, between 1,500 million ecu—some £900 million —and 3,000 ecu—£1,750 million—could be taken up in that manner.

The Commission also points out—and this bears on the Fontainebleau agreement—that it may take up to two years to achieve formal agreement by Member States' national legislatures to increase the VAT Own Resources ceiling. In the meantime 'there is bound to be an accumulation of commitments and deferments of expenditure which will have to be on honoured later' … and 'it could be that the Community Budget will have to be temporarily increased for so long as it takes to implement the arrangements for properly containing farm spending'. That quotation has been one of the themes of the debate. The theme is the possibility—or impossibility, as some hon. Members have said—of containing farm expenditure.

I want to quote a statement about the Fontainebleau communiqué. It is important to know precisely what the Treasury and Civil Service Select Committee said about the communiqué. Paragraph 4 says, among other things: Furthermore, he conceded that the conclusion had not been agreed by the United Kingdom delegation"— that is the conclusion to the Fontainebleau negotiations.

We believe that in a document of such significance (it is, so far as we can tell, the only official written statement of the terms of the settlement) the insertion of unagreed 'conclusions' is a practice which is dubious and even dangerous. Earlier experience of summit meetings suggests that ambiguity in what has or has not been agreed can cause serious problems at a later stage. It would seem important that after future 'economic summits' a text authorised by all parties should be published. That is an important paragraph in the report. Britain has an extremely high and strong tradition of public business and of the authorisation of money. We have a firm procedure for appropriation, accounts and Votes. We have Select Committee reports and an interlocking system in the House—achieved over centuries and not without some cost—of the control of the Executive. Whatever our views of the European Community—and there are hon. Members in the Chamber holding different views—all, I think without exception, believe in the ultimate control of the Executive by the legislature. We, by vote, have taken upon ourselves an additional Executive across the Channel, which is now asking for more money in much the same way as a certain monarch used to come to the House to ask for more money and threaten hon. Members with imprisonment if he did not obtain it. The reaction of the House to the monarch, and the procedures of the House since that date, have been the foundation of public confidence and trust and, I suggest, of public business in the United Kingdom.

A Select Committee is now telling the House that the procedures for issuing the communiqué on the Fontainebleau meeting were grossly defective and casting doubt on whether we can really believe what the minutes say. According to the Select Committee, there are no official minutes—or, at least, none that were agreed by those present. That is hardly a suitable method to run a tennis club, let alone a country and it is an extremely unsuitable way to run the Community.

The Select Committee goes even further. Paragraph 8 of the report states: The Committee attempted to ascertain the justification for the increased VAT ceiling and the areas to which the extra revenue would be directed. The main elements are clearly the costs of enlargement, extra expenditure on agriculture and the financing of the UK's abatements. However the Treasury are not able to apportion the share of these factors even in round figures. This raises doubts concerning the whole basis on which the proposed increase in own resources from 1 per cent. to 1.4 per cent. of VAT revenue was negotiated. That conclusion, too, is of major constitutional significance. For centuries, the battle between the House and the Executive has concerned appropriate expenditure and appropriation. That is why we have Estimates and Votes and why we now have three extra days for what are known as Supply debates when we discuss issues brought to the attention of the House by the Liaison Committee. No less a body than the Treasury and Civil Service Committee is now telling us that in connection with the raising of revenue to 1.4 per cent. VAT it is not even sure what headings, Votes and appropriations are involved. That highlights the difference between our domestic procedure and the procedure that has now been adopted by the Community.

My final procedural point has not so far been mentioned. I do not know whether the Minister of State or the Parliamentary Under-Secretary of State is to reply, but no doubt the ever-present Whip, the hon. Member for Watford (Mr. Garel-Jones), will convey my question to him. It arises directly out of the sixth report of the Select Committee on European Legislation, "Future Financing of the European Community", document HC 78-vi, published last November to give guidance to the House on the negotiations that have now taken place. In setting the scene, the Committee quotes the Foreign Secretary's words to the House on 14 November 1983 at column 611 of Hansard. Paragraph 7 of the Select Committee report states: The United Kingdom would be prepared to consider an increase in own resources provided: 'first, that agreement was reached on an effective control of the rate of increase of agricultural and other expenditure; and, secondly, that it was accompanied by an arrangement to ensure a fair sharing of the financial burden.' I think that that is a fair statement of what have become known as the Stuttgart conditions.

The conditions were, first, that an effective agreement was reached on controlling rates of increase in agricultural and other spending and, secondly, that there was effective sharing of financial burdens. The Prime Minister has told us that in her view there is now a fair sharing of financial burdens. Even if it does not command universal agreement in the House, she has come back with an agreement that might be called the 66 per cent. share. The Foreign Secretary, however, could not tell us much about effective control of the rate of increase in agricultural and other spending. There is a formula related to increases in resources available, but I do not think that even at his most optimistic the Foreign Secretary would say that there had been an agreement. Originally, it was thought that some agreement might be reached before the summer recess but press reports now suggest that it will not be achieved until the Dublin summit in December.

My procedural question, without going into the merits of the matter, is this. Can the Minister confirm that the promised treaty on the increase in own resources will not be achieved until after the Dublin summit? That seems to be the sequence of events that the House would prefer. Even if things happened in that order and the treaty was achieved in late December or early January it seems from what the Prime Minister and the Foreign Secretary have said that the first Stuttgart condition would not have been achieved. We were told that they would be prepared to consider an increase in own resources so long as such an agreement was reached. We are now told that there is no such agreement, but that some kind of agreement should he forthcoming by December. It is clear that the first Stuttgart condition has not been fulfilled and today's Order Paper throws doubt on whether the second condition has been met. Perhaps the Minister will confirm in his reply that an effective agreement has not yet been reached.

8.17 pm

Mr. Robert Jackson (Wantage)

My hon. Friend the Member for Nottingham, East (Mr. Knowles) reminded us of the real background and the issues of substance underlying today's debate. With what must be described as the silent majority on the Conservative Benches, I believe that the Government are to be congratulated on the Fontainebleau arrangements for the British net contribution to the European budget.

From the British point of view, it must be a source of satisfaction that two thirds of our net contribution is to be refunded. The fact that this is to be done by abatement rather than by supplementary measures is also welcome as it will avoid a great deal of unnecessary hassle. Moreover, despite the comments of the hon. Member for Livingston (Mr. Cook), in practice the system will endure for as long as the problem endures because, as my right hon. friend the Prime Minister pointed out, any revision of the abatement system must be unanimous, whether the expenditure is at 1.4 per cent. of VAT or at a higher rate.

From the European point of view, however, I am less well satisfied with the outcome. My right hon. Friend the Member for Worthing (Mr. Higgins) and the Select Committee on the Treasury and Civil Service were right to point out that in reality the settlement is merely a continuation of the ad hoc measures in favour of the United Kingdom that were agreed in 1980. They are not the long-term overhaul of the Community financial system on general principles which was promised in the May 1980 mandate. I regret a missed opportunity, although we must acquit the British Government of any responsibility in this matter because they have tried long and hard to achieve a settlement along those wider general lines.

I wish to deal with two of the budgetary issues which immediately face the Government. The first is the financing of the anticipated excess of Community expenditure over the limit presently available in own resources. That is the problem of the "gap". The second is the proposed agreement on financial disciplines.

Like the Treasury and Civil Service Select Committee, although perhaps from a different perspective, I do not believe that the Government's position on the "gap" is tenable. The Commission has estimated that there will he a shortfall of 2 billion ecu in 1984. That figure is disputable — I dare say that with tough measures of agricultural market management it will be possible to reduce the "gap" to, say, 1.5 billion ecu. I do not believe that there is any doubt that it will be a figure of that order —and there is no sense in postponing the payments, which seems to be the nearest thing that one can see to being the Government's present position. The bill for that expenditure will have to be paid sooner or later. Meanwhile, it must surely be important for us all to minimise uncertainty in what are already disturbed agricultural markets.

There is equally no sense in insisting that the "gap" should be financed by savings from the 1984 budget. Those savings would either have to come from revising the agricultural agreements for the present year, which were reached as recently as March—agreements which have formed the basis for investments and economic decisions by the operators and producers which are already being implemented, or they would have to come from savings derived from cutting the uncommitted payments in the non-obligatory sector, notably the European social fund and the regional development fund. I would point out the substantial net benefits for the United Kingdom which come from those funds. We fought long and hard for a rebate of 1 billion ecu for 1984. In this context it would be manifestly ridiculous for us to insist on savings from the 1984 budget which would cost us several hundred million ecu.

I believe that the Government are on sounder ground in objecting to the mechanism which the Commission has proposed for filling the "gap" — the proposal for advances to be made by a regulation under article 235. I believe—here I echo the words of the hon. Member for Newham, South (Mr. Spearing)—that it is undesirable to create a legal instrument for raising Community finance which has not been duly ratified by this House among others. I agree with the hon. Member for Livingston, but I should like to draw his attention and that of the Government to an alternative approach. That is that the best way to provide this money would be by way of an ex gratia payment specifically approved by the House and entered in the Community budget as a miscellaneous receipt.

I hope that the Government will not lose the argument about the form of the payment because it is important for control by this House, in the light of the preoccupation with what we must all accept is an unsustainable position on subsidies. I urge the Government to consider financial disciplines much more deeply than they appear to have done until the Prime Minister's paper from Fontainebleau, to which I shall return shortly. I do not want to comment upon the mechanisms of disciplines which are being discussed at the moment, except to say that I do not believe that a treaty amendment is possible or necessary.

The Government are right to insist upon the principle of keeping the rate of CAP guarantee spending below the rate of growth of own resources, but I do not believe that it is right for the Government to renounce the goal of a restructuring of the budget in favour of non-agricultural spending, if that is what is implied by insisting that the maximum rate of growth of non-obligatory spending should never be exceeded. There is inconsistency in urging the values and virtues of new Community policies and at the same time imposing an arbitrary budgetary limit on the funds available to finance those policies. That is an important point that the Government should bear in mind with respect to financial discipline on non-obligatory expenditure.

The Community badly needs a philosophy or a broad concept of how the public expenditure which will be carried out by the Community should develop in the perspective of the rise in own resources to 1.4 per cent. of VAT, and, in due course, to a higher amount. There is a danger that if the Government confine their interests in this area exclusively to measures of restraint, they will leave the budget to grow incrementally in its existing unattractive structure or they will cede the determination of the principle on which the budget grows to those other member states which have a positive idea of what they want for the Community budget.

In that respect, I am encouraged by the glimmerings of light that we see in the Prime Minister's paper submitted to the European council at Fontainebleau. It states: we need to examine urgently whether more can be achieved, or can be achieved more economically, by action on a Community basis rather than nationally. I believe that we see there the seeds of a positive philosophy for Community spending, particularly if we take that proposal with the suggestion elsewhere in the document that more should be done to create a sense of common purpose and momentum needed to hold together a Community of 12. Those are only glimmerings. I do not believe that that philosophy goes far enough. The criteria of cost-effectiveness and common purpose are fine as far as they go, but they do not go far enough. They are too general to offer any real guide to the future development of the Community budget. They are a recipe for a Christmas tree budget to which all kinds of items are attached in an ad hoc manner in the light of the combination of national interests in the Council of Ministers.

We must ask how we can avoid such a development. In my view, the only way to ensure that the growth of the Community budget takes place on sound lines is to see that it reflects an agreed definition of the expanding role of the Community.

The fundamental definition of the Community's role which underlines the present budget structure is that of a common market. That is why the budget is structured as it is. As is so often pointed out in debate and elsewhere, the tariff and non-tariff aspects of a common market do not cost anything in the Community budget except administration. Agriculture is what costs money from the Common Market—the common agricultural policy. In short, so long as we think of the Community as being essentially and only a common market we shall be faced with a Community budget structure in which agriculture will inevitably take the lion's share.

We must look for a wider and better definition of the role of the Community supporting a more broadly based and better structured budget. I agree with my right hon. Friend the Member for Guildford (Mr. Howell) that the Community needs to develop an increasingly effective and common concerted economic policy focused on the convergence of national economic policies based on the stabilisation of exchange rates.

I believe that it is from a new definition of the Community along those lines that we could see growing a philosophy for the Community budget which would be more attractive and more comfortable for us in the United Kingdom, yet the one great defect of the Prime Minister's paper at Fontainebleau is that it does not mention the European monetary system which is bound to be at the centre of such a development in the Community.

Mr. Peter Lilley (St. Albans)

Will my hon. Friend amplify that? If he seriously believes that the European monetary system will generate spending on a scale commensurate with agriculture, the idea becomes even more horrific than anyone imagined.

Mr. Jackson

In my view, if we are to have an effective and concerted economic policy in Europe, it will involve a large transfer of expenditures through the regional and social funds and other mechanisms of industrial policy which will have the effect of counterbalancing the CAP.

I fear that I must repeat what I have said before in our debates on these matters. Until the Government face the real dimensions of a European economic policy, they will get no lasting satisfaction in Europe either in terms of the revival of the British economy or in terms of the narrower question of the reform of the Community budget.

8.30 pm

Mr. Roland Boyes (Houghton and Washington)

When I asked a question of the Prime Minister recently and received what I considered to be a disgraceful reply, I pointed out categorically that this settlement or agreement was an abject failure because it still meant that the United Kingdom, one of the bottom four countries in terms of poverty, was giving cash through the EEC mechanisms to five of the richer countries. Only Germany and Britain will be net contributors, and Germany features higher up the league table than we do.

The second comment that may be made about the agreement is that it is either a short-term solution, which is unsatisfactory because it means that at some time in the future we shall again have to go through a series of negotiations, including the inevitable discussions about the level of VAT ceilings, or, as my right hon. Friend the Leader of the Opposition described it, it is a sell-out.

I refer right hon. and hon. Members to what some of the heavier newspapers said about it. Even they agreed that to some extent it was not a good deal for Britain. They said that one of the reasons why this occurred was primarily due to the negotiating style, or lack of it, of the Prime Minister. In its editorial, The Guardiansaid: Mrs. Thatcher's aggressive and alienating tactics throughout this negotiation have ultimately given her less than the 'half a loaf' which she so contemptuously rejected in 1980, in stark contrast to the enduring success of Italy's settlement of a similar-sized Budget problem. Having been a Member of the European Parliament and met representatives from all 10 countries, I know how much the Prime Minister was an isolated figure in the Community because of the way that she carried out these negotiations. As a result, it was a fair forecast that the Prime Minister would not be able to get what she wanted for Britain.

Those of us who have had to work with our continental colleagues over the past five years have learnt that, in a Community of 10 countries, to go in with a heavy hammer and hope to get some kind of settlement is not the way to approach these problems. It is regrettable that it was this Government who tried to get some kind of agreement to resolve some of Britain's major problems.

One of the primary problems is the common agricultural policy, which is eating away at the cash poured into the Community. It is out of control, and our settlement should have been related directly, without any compromise, to a restructuring of the common agricultural policy in the Community.

It is very interesting that one of the few organisations to welcome this agreement, ranging from the Liberal and Democrats group in the European Parliament right through the political spectrum, was the Committee of Agricultural Organisations in the EEC, which is known as COPA. The chairman of that organisation, Mr. Hinnekens, noted that the Summit of Heads of State and Government of the EEC Member States had at last managed to make decisions which should bring the Community out of the doldrums in which it had been caught for a number of years and which threatened its survival and that of the Common Agricultural Policy. In other words, the farmers and their representatives realised that, by getting an agreement on Britain's budget problems without a total restructuring of the agricultural aspect of it, they had a triumph.

What is more, linked to this deal is the inevitable demand for a rise in VAT payments. In an article written from Fontainebleau on the day of the settlement, The Times said: Agreement on the deal means that Britain is now committed to ask Parliament to allow the Community ceiling on its resources to be raised. In other words, to pay for this intolerably inefficient agricultural policy we shall have to pour more money into the EEC. But, as a result of that, the farmers will be able to carry on with their inefficient policies because more cash is available to sustain those policies.

It is not often said in this Chamber, but many of the people who talk about the CAP also talk about the French and make anti-French speeches. But it is not the French farmers who are benefiting from the CAP. Those who are benefiting are the big multinational companies that produce the chemicals, the tractors and other hardware, and the big farmers. The small peasant farmers of France are doing very badly and being driven into the cities. Just as we have a high level of unemployment among industrial workers, the massive pool of unemployed in France comes from agriculture.

The failure of this summit meeting was that it did not tackle the problems affecting not only Britain, but the whole of Europe. As a result of my own experiences in the European Parliament, I believe that the resolution of the problems that I have described can be reached only with a European-wide programme. They cannot be resolved country by country. We have a minimum of 12.5 million people unemployed in the EEC states now, the greatest number being in Britain. But Britain cannot resolve this problem alone. We need a proper European economic and industrial policy to get the economies of the European states regenerated and so get us out of the mess in which we live.

A Community document—it is about the only one to do so, and I was the rapporteur responsible—tells us that the number of people in poverty has increased. It says that perhaps this is the result of the EEC. A conservative estimate of the number living in poverty is 35 million in the 10 countries of the EEC. No one in the House would consider 12.5 million people unemployed and possibly 50 million people living in poverty a satisfactory state of affairs.

The other problems that have not been resolved are the regional differences — partly the north-south regional differences with very poor areas in countries such as Italy and Greece, but also the regional differences in a single country such as Britain as between the north-east, Scotland, south Wales and other parts. No part of the agreement which the Prime Minister negotiated in Fontainebleau helps to tackle any of those problems. I would use words similar to those used by my right hon. Friend the Leader of the Opposition—

Mrs. Kellett-Bowman

Will the hon. Gentleman give way?

Dr. Boyes

My right hon. Friend said that the agreement is a sell-out, because the major problems facing this country have not been tackled in any way. As I stressed earlier, in order to pay for this the House will be asked to agree to raise our own resources to 1.4 per cent. According to the economists, by 1988 that will not be enough, and the House will be asked to agree to further increases.

I do not mind. I am one of those Opposition Members who would not mind our contributions being increased. I would not mind paying 1.4 per cent. if unemployment were brought down to under 1 million or if poverty were drastically reduced; but we are paying more and more, and those problems are getting worse and worse. That is the absurdity. That is what is ridiculous and stupid. That is why the agreement—

Mrs. Kellett-Bowman

According to the hon. Gentleman, the new arrangement does nothing to help the social fund or the regional fund. He knows better than that. He knows that one of the points stressed repeatedly in the European Parliament and at Fontainebleau is that more will be spent on the regional and social funds to reduce regional differences. A smaller proportion will be taken by agriculture, so the regional and social funds will benefit.

Mr. Boyes

The hon. Member for Lancaster (Mrs. Kellett-Bowman) and I have been members of the European Parliament for five years. It is not my style to be insulting or personal. I will say only that the hon. Lady's reading of the position is completely different from mine and that of the vast majority of hon. Members of this House. The hon. Lady knows that the regional and social funds account for minute percentages of the budget. Even if they were given a massive increase, they would still be totally inadequate to solve the problems. Every penny that the Community receives would not solve the problems that I have outlined.

I have said before that it is absurd to spend time talking about European anthems, European sports themes, European passports and other peripheral matters. I hope that next time the Prime Minister attends a meeting of such critical importance, the problems of Britain—poverty, unemployment and regional differences—will be tackled in a way that will contribute towards finding solutions to those problems for all the countries of Europe. The countries of Europe cannot survive alone. We need each other. We must regenerate our economies together. We cannot do that if the Prime Minister returns without finding adequate and lasting solutions. She must go back and find solutions to the problems. Otherwise, the Fontainebleau agreement will be labelled for all time as a sell-out of British interests.

8.44 pm

Mr. John Stokes (Halesowen and Stourbridge)

This is yet another debate on EEC matters, and I must confess that I find it increasingly difficult to express any original ideas, and that I have not heard many original ideas today.

The debate has been serious and sombre. There are still some who are inexorably opposed to the whole concept of the Community and who tell us that it will all end in tears. On the other hand, there are those who still have great hopes of the Community, even though they admit that there have been disappointments. There are certainly fewer starry-eyed people around now than there were before we joined the Community.

I never had great hopes of the EEC, but I never opposed it. My main concern was to cement the nations of the West as close together as possible as a buttress for NATO. The EEC itself sometimes seems to feel the sense of disappointment and inadequacy. We have now heard suggestions about a European anthem or flag, which I find peurile. The anthem and the flag are precious to a country. They express the deepest emotions of a nation, going back far into its history. When I think of the cross of St. George, I think of the Crusaders, Crecy and Agincourt. When I think of the union flag, I think of Trafalgar and Waterloo and much else since then, up to the time of the Falklands war. To replace all that—or attempt to replace it—with a new EEC emblem of some kind would be, in this country, impossible and quite absurd. Like France and, to a certain extent, Holland, we are an old nation with a long history. Germany and Italy, on the other hand, are new powers. They both have an unhappy recent past which, on the whole, they wish to forget. This country, on the other hand, cherishes its history and its roots.

The EEC needs to walk before it can run. There is so much more that it could do. Some of the matters have been remarked upon in the document under discussion. Frontier formalities are absurdly cumbersome. Air travel is laden with red tape. Lorries are still held up on the roads. Trade is not nearly as free as it could be. Certain services, such as insurance and banking, could be greatly liberalised. There is not much sense of belonging to a community.

The idea of EEC passports is to the fore. Surely the point of a passport—at least to an Englishman—is that when one is abroad one feels that behind the passport there lies the power of Britain and the British Navy.

Mr. Budgen

And a gunboat.

Mr. Stokes

One feels that, if the worst comes to the worst, a British cruiser—perhaps not a gunboat—will call at the nearest continental port and take one off. The EEC has no army or police force, no protecting ambassador or consul. Its document would not be of the slightest use in a crisis.

I have read the documents. They made somewhat painful reading. Much of it was fairly turgid. However, I greatly enjoyed the seventh report of the Treasury and Civil Service Committee. I am not particularly friendly in general towards Select Committees, but this one has done a very good job.

The report doubts whether there is, or will be, effective budgetary control in the EEC. It also expresses anxiety about overspending in the immediate future and about controls on agriculture spending. Nevertheless, unlike some of my colleagues and many Opposition Members, I believe that the agreement which my right hon. Friend the Prime Minister brought back should, on the whole, be accepted, although with some doubts, as—one might say—an act of faith in the Prime Minister. To practical people and practical politicians, the question boils down to whether one trusts my right hon. Friend to have done the best that she could in a difficult situation.

Some of my hon. Friends, and perhaps others who may support them tonight, have certainly drafted a very clever amendment which I fear has some force. I regret that I cannot go along with them because of larger interests that are involved.

I sympathise with my right hon. Friend the Prime Minister. I believe that she did the very best she could over the budget problem—far better than anyone else has ever done and far better than her critics have done. It is easy to be a critic. Some of my cleverest friends seem to be critics time and again. In the end, I believe that my right hon. Friend had to settle in the interests of what Bismarck called realpolitik. We simply could no longer have gone on antagonising almost all of our partners.

It is extremely serious that growth in Community spending will mean more agricultural spending. The milk producers have now been slightly curbed. They must have seen that coming for years, but what was done was quite right. I only hope, especially during this gorgeous summer, that barley and rape producers will also suffer the same fate. I represent an entirely industrial seat that has hardly a field within it. I share my constituents' exasperation that so much money goes in subsidies to farmers while industry in the midlands continues to shrink. It is in agriculture spending that the real crunch in the Community might come one day. We might then have to face an awful choice between accepting ever-increasing farm subsidies or breaking away from the Community, with all the horrendous results that that would have politically, economically and militarily.

Perhaps as time goes on, we might be able to influence our EEC partners more and more and make them see that excessive farm subsidies will, in the end, kill the Community. Above all — this is where I differ most profoundly from the critics—we must have a continuing British presence in the EEC. That is vital for the free world. I am very new to the world stage and international politics. I have been a member of the Council of Europe and of the Western European Union for only nine months —and very dull and dreary many debates are, especially in the Council of Europe. But, my goodness, our European colleagues need us. We must stay there, tiresome, difficult and wrong-headed though our colleagues often are. Surely my right hon. and learned Friend the Foreign Secretary and my brilliant hon. Friend, the Minister of State, Foreign and Commonwealth Office, who is to reply to the debate, can use their great intellectual powers to influence the Europeans in the right way.

On general matters, the EEC is making a sensible stand. It was excellent on Poland and on Afghanistan. We must never forget what the Soviets have done in those two countries. I especially welcome the EEC's realism on the middle east and its insistence that a home be found for the Palestinians.

I now want to say something that might upset those of my colleagues who, at one time or another, might have been Members of the European Parliament. I simply cannot understand what that body is or does. The EEC elections were so poorly supported in Britain because, I believe, people either do not know what that Parliament does or, like me, do not want it to have any more powers. Members of the EEC Parliament seem to me, to use Disraeli's phrase, rather like embarrassed phantoms. We do not need them. Indeed, they are in some ways a hindrance to the concept of the EEC being accepted here. No doubt the Commission needs reformation. I am sure that it does. No doubt the Council of Ministers could do better and try harder but I would be happy to see the Parliament disappear. I want to be represented in Europe by a Minister who is responsible to this House rather than by MEPs who perhaps swan about a bit without being responsible to anyone. The EEC desperately needs to become more popular in Britain but I am afraid that its Parliament stands in the way.

8.55 pm

Mr. Richard Caborn (Sheffield, Central)

Perhaps I might suggest that the hon. Member for Halesowen and Stourbridge (Mr. Stokes) is sent on six months' secondment to the European Parliament. Three of us on the Labour Back Benches have just had five years there. The hon. Gentleman would make an impression, if not confuse MEPs, if he delivered the type of speech that he has made today.

The discussions of the Heads of State were a golden opportunity missed. The European Parliament, and especially the European Democrats who are Conservative Members, have discussed Europe running out of money. That would be the time at 'which some form of permanent settlement to the budgetary arrangements, which everyone accepts have been utterly unfair, could be reached. We have examined the ability of member states to pay, a permanent restructuring of the budget and reform of the common agricultural policy. On none of those three issues have the Government come up with the goods. The issue has been fudged and there will be no control of the most important element—the CAP.

I wish to address myself principally to the hopes of the European trade union confederation which hoped that, as a result of discussions on the budget, massive resources would be made available to regenerate the European industrial base. Such initiatives, if not a cash injection, have been discussed for a few years and will now founder because of a lack of resources. On 5 and 6 April, there was a major conference in Strasbourg which tried to influence the summit meeting by a programme, proposed by European trade unions for reflation and regeneration of the European manufacturing base. To some extent, that conference resulted from a report—the the Alberson and Ball report—that had been commissioned by the European Parliament. Although I disagree with that report's conclusions, nobody could disagree with its analysis. It said that, in the past 15 to 20 years, lack of capital investment and lack of industrial competitiveness throughout western Europe had reached the level at which industrial decline and the fall in employment would accelerate. The Heads of State failed to discuss employment. My hon. Friend the Member for Great Grimsby (Mr. Mitchell) spoke sense when he talked of the Foreign Office holding the Prime Minister's arm in the negotiations.

That did not happen in these negotiations alone but when, for example, we were talking about the harmonisation of beer and wine prices, the United Kingdom came off worst. That happened when we discussed whether to put VAT on take-away food, which is a move towards hannonisation. That trend will continue. In the election, we said that VAT would be levied on children's clothing. That, too, is part of the harmonisation process.

The Conservative group in the European Parliament has now accepted the movement to federalism and the removal of the veto.

Mrs. Kellett-Bowman

Nonsense.

Mr. Caborn

It is not nonsense. If the hon. Lady wishes to challenge that, she can do so by all means. I can tell the House that the majority of the Conservative group in the European Parliament voted in favour of the Spinelli report. Implicit in that was the removal of the veto.

Mrs. Kellett-Bowman

The majority of the European Democratic group voted to maintain the veto. The hon. Gentleman can check the records.

Mr. Caborn

The removal of the veto is implicit in the Spinelli report. There was a majority vote, and the majority of the European Democrats who were present in the Chamber at that time voted in favour of the Spinelli report. That vote was consistent with the group's view in the European Parliament in the past five years. It is moving progressively down the road to federalism, and would clearly accept full involvement in the European monetary system.

On top of that, we have suffered the decimation of our steel industry. One hundred thousand people working in the United Kingdom's steel industry have been made unemployed in the past five years. That is 45 per cent. of all the steel redundancies in the Community. At every turn, when the Government have gone in to bat for Britain in the Community, they have come out with the worst possible deal. Underlying all that is the move towards a federal system. That is in line with the type of deal that has come out of the Fontainebleau discussions. All the rhetoric was used before we went there, but at the end of the day no deal came out, except promises and more promises. That is consistent with the type of attitude shown by the Democrats in the European Parliament in the past five years. I shall end there because I know that other hon. Members wish to speak.

9.1 pm

Mr. John Browne (Winchester)

In the five minutes that are available to me, may I say that the Government were forced to negotiate in very difficult circumstances to which my hon. Friend the Member for Halesowen (Mr. Stokes) has just referred. It was a good achievement, in these circumstances, to obtain the agreement on abatement and on the abatement mechanism, which is good as far as it goes. However, it still means that countries such as Portugal, one of the poorest countries in Europe, will be net major contributors to the budget.

I support the enlargement of the Community, particularly because of its security implications. It means growing responsibilities and increasing responsibility for the security of Europe in general. We have a Community budget of roughly £17 billion in sterling equivalent, with a massive overspend. I join the many right hon. and hon. Members who have already said that there is no correction of the CAP in sight. Restructuring is not in sight either. Restructuring is absolutely vital. There must be restructuring if we are to achieve a correction and we must achieve correction to be able to assert any real control over the budget. The Fontainebleau communiqué illustrated several good intentions but did not put forward convincing arguments to show that effective control will be instituted. We need control more than anything.

Hon. Members have mentioned federalism. I should like to ask my hon. Friend the Minister and, through him, our right hon. and learned Friend whether federalism within Europe is the ultimate aim of Her Majesty's Government in Europe. Many people in my constituency are concerned at what they regard as the back door growth of federalism. They voted enthusiastically, by a large majority, to join the Common Market. It is a great ideal and has great potential benefits for all of its members. However, many of my constituents now feel that the Market is neither true nor free, that it contains massive distortions and barriers, especially those painful barriers against British service industries.

For example, Mr. Boz de Ferranti, our local MEP, has had to institute a group called the Kangaroos to try to jump over those barriers. It is very worrying to people that such barriers still exist. Yet, even while such trade barriers remain, there are growing beauracratic pressures from Europe as if a federal Government were already in being. At the same time, we see not controlled and planned expenditure, but massive expenditure that is out of control. That causes my constituents serious worry, particularly those who voted enthusiastically for a Common Market, which we support.

I shall soon conclude, so that the hon. Member for Cynon Valley (Mrs. Clywd) has time to speak.

I would support a common currency. In the right circumstances, it would probably be a good idea. However the most critical of those right circumstances is a common economy. It is foolhardy to issue a readily and freely exchangeable currency in coin to a community without a common economy. I have yet to find a successful example of that in history. Thus, although we should work towards a common currency, it is not feasible until we have a common economy.

I should like to suggest a name for that common currency whose establishment is, after all, a laudable aim. The word "ecu" is totally uninspiring. Obviously we should move towards something that reflects the unity of Europe. I should like humbly to suggest a name that is synonymous with unity: Charlemagne or Charles the Great —namely, that of Karl der Grosse, the great unifier of Europe. The currency should be called the Karl. The numeric sign, like the sterling sign, would be unique. It would be a "K" with a short horizontal line through the middle of it. I suggest that my right hon. and learned Friend the Foreign Secretary should put that forward as an inspiring name and as a unique and most interesting sign for the currency.

9.6 pm

Mrs. Ann Clwyd (Cynon Valley)

The Common Market summit has come up with the expected compromise deal on the budget, but at a very high cost. The Prime Minister will get some of the rebate that she asked for, although it will be far short of the sum that she first demanded. In return, she has agreed to a formula to give the EEC Commission the extra funds that it desperately needs. Yet the money will allow the CAP another four years of expensive life, and help to temper demands for its urgent reform.

It is, of course, significant that the fudged deal should be struck immediately after the European elections, with nearly five more years to go before the next test of public opinion in the EEC. Whatever the Prime Minister may claim, it is a bad deal for Britain. The Prime Minister set out to win a new net contribution, but she has ended up with a deal that will mean that Britain's budget contribution will increase.

The other Governments, of course, welcomed the deal and felt that Britain had to make major concessions and drop many of the conditions that the Prime Minister had demanded. The new arrangement still leaves the Community extremely short of funds and in danger of defaulting on payments by the end of the year. The major reform of the Community's finances has been shelved yet again for a short-term formula that gets round the impasse created by the Prime Minister's budget demands, but does little more than that. As one commentator said, it is a ceasefire, not a real peace.

We have half a loaf, which will last as long as the next 0.4 per cent. tranche of EEC VAT revenues keeps the farmers happy—probably for about three years. Then it is back to the trough.

Conservative Members are probably not aware of how the Prime Minister is seen in the eyes of other countries. When we first went to the European Parliament and mentioned the Prime Minister and Britain, people shouted at us to sit down. They said, "This is not a national Parliament." Now they use the Prime Minister as an example of something to avoid in every other country. One result of our treating our European partners as if we were preparing for another Normandy landing was revealed recently in an opinion poll. Not surprisingly, the British Prime Minister was voted as the third least popular foreign person in France, after Ayatollah Khomeini and Colonel Gaddafi.

The Prime Minister constantly complains about the lack of return from EEC funds, but we are ignoring an important part of the social fund that could have been used for the retraining of women. Why is it that we take only 7 per cent. of the money available for the retraining of women when, for example West Germany has 55 per cent.? It is—

Mrs. Kellett-Bowman

rose—

Mrs. Clywd

No, I shall not give way, as time is too short.

The Department of Employment says that it does not advertise the existence of this fund for the retraining of women because it considers that it discriminates against men, although the Sex Discrimination Act allows for discrimination in favour of women because they have been discriminated against.

9.10 pm

Dr. Oonagh McDonald (Thurrock)

The Minister of State, Foreign and Commonwealth Office, will find that the agreement reached at Fontainebleau has hardly any support in the House. Hon. Member after hon. Member has spoken against it or looked at it critically, even if some of them have criticised and then modified their criticisms, thereby having their cake and eating it.

The Foreign Secretary indulged in his great political gift of fudging the presentation of the issues in such a way that he obscured what happened at Fontainebleau. He then expressed the hope that agricultural spending would be controlled. However, as he did not tell us by what means this would take place, one assumes that some kind of magic will take place in 1984 to make sure that the Finance Ministers come up with an acceptable and legally binding system that all countries are prepared to accept, and that this is effective in controlling agricultural spending. There was little in the Foreign Secretary's speech to tell us what it was and how it would work out.

It is not only hon. Members who have found the agreement reached at Fontainebleau unacceptable. I am always interested to study the verdict of The Economist, as I do not regard it as a Left-wing magazine. However, from some of the comments that it has been making recently, I wonder whether some kind of subtle change has taken place. In a fascinating article on 7 July 1984, which was beautifully accompanied by a picture of a female foot on a banana skin, which is particularly apt after the first year of the second term of the Prime Minister's office, the magazine said: The deal she brought back from Fontainebleau was not the one she adamantly—and con-ectly—put before the country a year ago. It was neither a permanent settlement of the budget nor did it embrace a fundamental reform of the common agricultural policy. It was merely another, slightly better, slightly less temporary deal reducing Britain's budget contributions, won by cashing in one of Britain's two main EEC bargaining levers—no increase in the community's revenue. However, that no increase in the Community's revenue was the Prime Minister's major weapon, which she has been brandishing for the past year or so. She started to threaten with it at Athens, but when she got to Fontainebleau she suddenly threw the weapon away, and went back on everything that she said at Athens. We have ended up by paying more in spite of the agreed abatement. That mechanism must be fully spelt out, because it contains some nice features that account for increases in payment, quite apart from the fact that the budget will increase over the years to come.

Had that mechanism applied last year, £170 million of our payments into the EEC budget would have been disregarded in calculating the amount of our abatement in that year, yet £170 million is more than the Prime Minister was quarrelling about at Brussels. It is extraordinary that she should suddenly throw away such a weapon and give in for no good reason.

The Prime Minister proudly claims again and again that she has regained more in rebates than the last Labour Government. It is time that this claim was quietly buried. There is nothing in the claim. Conservative Members know perfectly well that the transitional arrangements continued until 1979. That is part of the reason why the problem over excess payments did not occur until 1980.

Mr. Budgen

Hear, hear.

Dr. McDonald

I am glad that at least one Conservative Member realises that his Government have been in power since 1979. One becomes sick and tired of Conservative Members—

Mr. Rifkind

Will the hon. Lady give way?

Dr. McDonald

No. The hon. Gentleman will have an opportunity to make his point in a moment. I wish to continue with this argument.

I remind Conservative Members—[Interruption.]—including those who are making loud and repeated interventions from sedentary positions—

Mrs. Kellett-Bowman

Because the hon. Lady will not give way.

Dr. McDonald

That is correct. I shall not waste my time. The Conservative party has been in government since 1979 and is therefore responsible for what has happened since then.

Mr. Rifkind

rose—

Dr. McDonald

I am sorry to disappoint the Minister, but I shall not give way.

The problems about the budget have occurred since then, because agricultural spending has got completely out of hand in the last two or three years. The budget has hit the own resources ceiling, and the threat of that in previous years has caused the whole problem of our contribution, coupled with the fact that transitional payments have come to an end.

Mrs. Kellett-Bowman

rose—

Dr. McDonald

No, I shall not give way to the hon. Lady.

Mr. Budgen

Give way, because my hon. Friend may help the hon. Lady.

Dr. McDonald

The most important point about the Fontainebleau agreement is that nothing was decided to put an end to the constant overruns on agricultural spending. Everyone is agreed that these will get out of hand this year.

The Economist—my favourite reading—has reported that in 1983 farm prices rose by 8 per cent. on average and that that resulted in a 28 per cent. increase in farm spending. The EEC will even run out of cash later this year to pay for its mildly reformed CAP.

The 19th report of the Select Committee on European Legislation published in March this year makes the same point. It states: Developments in agricultural markets since July"— last year— have led to a further deteriorating situation; difficulties of market management are now more severe than at any stage since the CAP was instituted. According to one source or another, there is likely to be an overspend this year. At present the estimate is that there will be a £1.26 billion overspend, equivalent to 37 per cent. of increased income derived from the 1.4 per cent. increase in the VAT ceiling which will take effect in January 1986.

The Foreign Secretary made a passing reference to Spain and Portugal, but said nothing about the problems that this will pose for increased agricultural spending, and the problem that Portugal will face, as rightly mentioned by the hon. Member for Winchester (Mr. Browne). The problems arise in this way. Spain's membership will create further problems for agricultural policy. It will by itself increase EEC fruit production by 48 per cent., and vegetable output by 25 per cent. Nothing was said about the future problems, and nothing serious has been said about what will be done to control agricultural spending. It is all very well to talk about tighter financial controls, but they cannot restrain agricultural spending when that is demand-led spending and is influenced by factors such as world market prices and the kind of harvest, matters which are out of the control of the Commission and the Ministers.

What will happen about the overspend this year? The Government have so far been remarkably modest and quiet about that. It was not fully discussed at Fontainebleau, but there are a number of ways in which that overspend can be financed and in which Gaston Thorn, for example, expects it to be financed when the money runs out in October.

The Prime Minister said in June, with regard to regional expenditure, that it was hoped that expenditure on the economic and social funds would take a bigger proportion of the European budget, not a lesser proportion, as it had in the past.

According to the report of the Treasury and Civil Service Select Committee published today, the Economic Secretary to the Treasury said that he thought that one way of financing the overspend this year would be to defer expenditure from this year to next year. One kind of expenditure that can be deferred—agricultural spending, of course, cannot be deferred in this way—is regional and social spending. In itself, that is a mere 10 per cent. of the proposed budget this year, but it could just disappear in order to finance yet more subsidies to farmers and yet more overruns on the agricultural spending budget.

We need from the Government a clear commitment that, whatever happens, they will refuse to cut this year's regional and social fund, but that they will make sure, if there is an overrun in the budget, that that is not one of the ways that they will adopt, or allow the Community to adopt, to finance such an overspend. We had nothing from the Government about their commitment in that respect. That did not prevent them from advertising their wares during the election campaign by saying: We can press for money to help our inner cities and to train our unemployed youngsters. And we can demand a reasonable reduction in our cost to the budget to the benefit of the taxpayers. As to the first, that has been broken. As to the second, we do not know whether the Government will break it in the agreement that they will inevitably have to make about how to finance any overspend that might take place this year.

In April, Gaston Thorn spelled out three other possibilities—supplementary payments, loans to be paid back after 1986 and the waiving by member states of the 10 per cent. collection charge that they receive on customs duties and levies. Which of those will the Government support? None of the options can be adopted without the unanimous agreement of all 10 Governments, but what will be the thrust of the Government's negotiating position and why have they not told us what it is likely to be? Will they continue with the pretence that agricultural spending will be controlled by the financial mechanisms that will be set up?

The Prime Minister missed an opportunity at Fontainebleau. We had a whole year of summit meetings designed to find a lasting solution. I suspect that the Minister of State, Foreign and Commonwealth Office, who is to reply to the debate, foreshadowed his reply in a recent article in The Times in which he set out to "explode the myths" surrounding Fontainbleau. I know that he believes that a lasting solution to the budget problems has been found.

Mr. Teddy Taylor

Withdraw.

Mr. Budgen

The hon. Lady should not undermine the Minister.

Dr. McDonald

No one else shares the Minister's belief. I do not know what interpretation to place on that article. If the Minister did not believe what he wrote in The Times, what was his motive for writing it? We can indulge in interesting speculation about that. There may be ministerial vacancies in the autumn and perhaps the hon. Gentleman has his eye on those. Perhaps that is why he pretends—in the teeth of all the evidence and with few friends and supporters around him—that he believes that a lasting solution has been found.

The Prime Minister shares many of the political views of Chancellor Kohl and I am puzzled by the fact that she did not undertake far more bilateral work than appears to have been done between the summits to join Chancellor Kohl in searching for a joint solution. Britain and Germany have some similar interests—both are net contributors to the Community—but the Prime Minister did not make those diplomatic moves. Instead, having made some sort of agreement with President Mitterrand, she saw it torpedoed by Chancellor Kohl. An opportunity was missed because tire Prime Minister failed in her diplomatic endeavours

The Foreign Secretary was reticent about the control mechanisms. In fact, he was so reticent that he was unable to say what they would be. The right hon. and learned Gentleman was interrupted a number of times early in his speech and he kept telling us that he was coming to the control mechanisms. I do not know whether he sat down earlier than he had intended, but he never came to the point.

The Foreign Secretary produced no examples of the sort of measures that will be taken to control agricultural spending. To be honest, it is difficult to see what those measures can be, because the fundamental failure in the agreement is the failure to achieve any reform of the CAP. Without that there can be no control of farm spending. The Prime Minister had effective weapons in her hand to bring that about. She could have persistently refused to agree to an increase in own resources. Yet she threw away that weapon and did not not use it to get the essential fundamental reform. Without that, farm spending will increase. The reason why this will not and cannot be a lasting solution is that once farm spending gets out of hand, as it will this year and again next year, the increases in own resources that we get in 1986 will not be enough to cope. That will be the end of the agreement. Once the issue of raising the ceiling is inevitably brought up again, that must jettison agreements that have been made about the amount of the British repayment.

There is a final question to be put to the Minister. The increase in own resources must be agreed by January 1986. At the moment we pay 11 per cent. of our VAT take. That amounted to £15 billion in 1983. How is the increase in own resources to be met from the Exchequer? Will the Chancellor widen the VAT base? He has already done that once in this year's Budget. Surely that will be a tempting source for him to look to for the extra money to pay to the EEC. What will it be?

Can the Minister give an assurance tonight that that money will not come from an increase in VAT on food? Can he give art absolute and categorical assurance that in the planning unit of the Customs and Excise Department the VAT liability division is not examining the raising of VAT by 5 per cent., 8 per cent. or even 15 per cent. on certain processed or packaged food? Can he give an assurance that the VAT liability division is not carrying out calculations of that kind at present to ensure that further revenue is available to meet the increased payments that he will have to make to the EEC? That is a question to which we want a straight answer—no more fudging, no more expressions of hope, no more stories that the economy will pick up and that the revenue will flow naturally into the Exchequer so that we shall be able to meet the increased costs.

It is no wonder that the agreement made at Fontainebleau did not find friends in the House who were prepared to speak in its favour, apart from one or two who have their reasons. The majority who spoke were against one aspect or another of the agreement. They believed that the Prime Minister had failed to meet her objectives and the commitment to which my hon. Friend the Member for Newham, South (Mr. Spearing) drew attention. That commitment, given on 14 November 1983, was that agreement should be reached on effective control of the rate of increase in agricultural and other expenditure. Plainly, that condition has not been met. That is why the Fontainebleau summit was a failure for the Prime Minister. She has not achieved what she set out to achieve, and we shall have to pay for that failure in the years to come.

9.34 pm

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

We have listened to a debate which rightly has concentrated on the Fontainebleau summit, but certain speeches have looked very much to the future. I draw attention particularly to the profound remarks made by my right hon. Friend the Member for Guildford (Mr. Howell) in a speech which I believe all who heard it will consider to he of the greatest importance.

From the massed ranks of the Opposition we had what they chose to suggest was an onslaught upon the Government. It began when the hon. Member for Livingston (Mr. Cook) came to the Dispatch Box with, I think, seven of his hon. Friends present in the Chamber. Every time the hon. Gentleman has launched his attacks on the Government's European policy, his hon. Friends have totally failed to support him in the Chamber. It is a mark of the lack of sincerity with which the Labour party approaches the issue.

However, I shall begin by paying one compliment to the hon. Member for Livingston, to the hon. Member for Thurrock (Mrs. McDonald) and to others who have spoken. As my hon. Friends the Members for Stroud (Sir A. Kershaw) and for Newport, West (Mr. Robinson) both said, one thing of which we can be certain on this issue is the predictability of the Labour party. It was safe to predict that, whatever the Prime Minister brought back from Fontainebleau, the Opposition would find it a cause for carping criticism and a negative response.

The hon. Member for Livingston began by admitting that he did not come to the House and did not begin his speech with an open mind. The Opposition are the very embodiment of that 19th century Opposition which saw their duty as being to oppose everything and propose nothing. We have had contributions on that basis today.

I freely accept that if we wish to look for objectivity concerning the outcome of the Fontainebleau summit, the House must look further and beyond the Opposition. But I accept that some may also be unwilling to accept that the Government's view of the Fontainebleau summit is necessarily the accurate and objective assessment that we might like to suggest. For those who wish to look elsewhere for an assessment of Fontainebleau, I suggest that they look to the newspaper comments in other countries in the Community which have not traditionally been friends of Britain and which have not traditionally sought to give the finest interpretations to the achievements of my right hon. Friend the Prime Minister.

The Belgian press reported that my right hon. Friend the Prime Minister was the principal victor, and that in the end the Nine had to give her most of what she wanted.

In France, the Socialist newspaper Le Matin underlined that, by saying: The British Prime Minister left for London with money in her bag, not as much as she wanted, but this time the cheques are dated and signed". Most significant of all, the French Socialist newspaper Le Nouvel Observateur said: British diplomacy—flexible, subtle, discreet, and always on top of the subject — has in a few weeks succeeded in turning the situation around". It went on to describe the outcome of Fontainebleau as an unquestionable victory for Britain and concluded that Britain is back in the Community in a big way". We do not have to agree necessarily with every sentiment expressed by those newspapers, but if those hardbitten French Socialist journalists saw Fontainebleau as unquestionably a success for the United Kingdom, this House can also come to that conclusion.

During the debate several hon. Members, including some of my right hon. and hon. Friends, made criticisms of the Fontainebleau summit, to which I shall be happy to try to respond.

My right hon. Friend the Member for Worthing (Mr. Higgins), today and on previous occasions, has expressed his doubts about the satisfactory nature of the summit. My hon. Friend the Member for Southend, East (Mr. Taylor) also made his usual trenchant contribution.

One can sum up the various doubts and uncertainties that have been expressed by putting three questions that the Government have to answer. First, was Fontainebleau a good deal for Britain? Secondly, even if it was a good deal, was it good enough to justify a possible increase in own resources? Thirdly, have the Government given up an opportunity that will not return to reform the common agricultural policy? I freely accept that those are important questions to which it is right for the Government to respond.

The first question is whether Fontainebleau was a good deal for the United Kingdom. Some people have questioned the durability of the system that has been agreed. A number of hon. Members have said that they are not satisfied that it will be durable and lasting. The conclusions reached state that the 66 per cent. refund for the United Kingdom will last for as long as the increase in own resources to 1.4 per cent. [Interruption.] That is correct, and it is a valid remark.

It is equally true—if my hon. Friends wish to be fair —that that increase to 1.4 per cent. cannot be changed without the unanimous agreement of all the member states. Therefore, it is appropriate to say that the system will last unless and until the United Kingdom, together with other countries, agrees to any change in the 1.4 per cent. ceiling that was part of the conclusions of Fontainebleau.

If the United Kingdom did not agree to do so, the 66 per cent. refund that has been provided would continue indefinitely until any change is made. That may not be a durable system in form, but it is a durable system in substance—and must be of far greater importance to any realistic politician or commentator.

Mr. Fisher

Will the Minister confirm that the document also refers to an increase in own resources on 1 January 1988 to 1.6 per cent.? Did not the Prime Miniter conveniently overlook that point? I hope that the Minister will not make the same mistake.

Mr. Rifkind

If the hon. Gentleman has read the document, he will know that the reference to 1988 and to any further increase in own resources simply makes the obvious point that the Council of Ministers and member states may make a further increase. It involves no commitment by any member state to increase own resources. The Government's position is clear on that, as the hon. Gentleman well knows.

Mr. Budgen

Why was the specific figure of 1.6 per cent. mentioned? It might have been 2, 3 or 4 per cent. Was not some sort of moral commitment given?

Mr. Rifkind

Absolutely no moral commitment was given. Some Governments—by no means the majority — took the view that a 1.6 per cent. increase was justified at the present time. It is perfectly proper to signify what is quite obvious—that at any future date, if there is unanimous agreement among the member states, there may be further increases in the level of own resources.

The only commitment into which the Government have entered is to recommend an increase to 1.4 per cent. As that figure will remain constant and be the basis of the refund due to the United Kingdom, that offers the United Kingdom the protection it needs.

A further achievement at Fontainebleau was the 66 per cent. refund on the VAT share expenditure share gap. That will have a consequence quite different from that suggested by the hon. Member for Livingston, both in his amendment and in his remarks. He specifically suggested that a consequence of the agreement would be that refunds to the United Kingdom would fall in the years to come. He produced no substance to back that argument, and the facts point to the contrary. The refund provided for the United Kingdom in 1981 was £783 million, in 1982 it was down to £624 million and in 1983 to £440 million. It has already been agreed that this year it will rise to £600 million, and for the future it will represent the 66 per cent. share that is bound, on any basis — if the total expenditure of the Community is to increase — to represent a larger refund for the United Kingdom. Therefore, the hon. Gentleman's suggestion to the contrary was one of his more baseless contributions to the debate.

Mr. Robin Cook

I refer the Minister to table 225 of the Government's public expenditure White Paper, which forecast the negotiated refund for 1985–86 as £1,148 million and for 1986–87 as £1,251 million. Earlier today I said that the Chancellor has refused to answer questions from my right hon. Friend the Member for Bethnal Green and Stepney (Mr. Shore). If the hon. Gentleman is so confident that the mechanism will not reduce those rebates, will he name a figure for the rebates in those years on the revised formula?

Mr. Rifkind

One cannot predict the actual figure with certainty, but one can say with certainty that it will be an increased amount. Assessed on the basis that will apply in the future, this year's £440 million refund represents only a 47 per cent. VAT share. In future the same formula will be used but the refund will be 66 per cent. If Community expenditure increases, as the hon. Gentleman predicts, the United Kingdom net contribution will also increase so it must follow that the size of the refund will increase. The hon. Gentleman cannot gainsay that.

Mr. Jack Straw (Blackburn)

Will the Minister give way?

Mr. Rifkind

No, I must get on.

Another important factor to which insufficient attention has been given is that in future if the Community incurs increased expenditure the cost of paying for it will be determined on a basis quite different from the method applied in the past. Until now, any increased Community expenditure that will increase Britain's contribution has required a British contribution based on a VAT share of 21 per cent. For France, the VAT share will, from now on, be 27 per cent. and for West Germany 32 per cent., while for any increase in expenditure of that kind, Britain's share will be 7 per cent. instead of 21 per cent. The French and German shares will remain as before.

Mr. Lilley

Will my hon. Friend give way?

Mr. Rifkind

I will give way in a moment.

Mr. Straw

Will the Minister give way?

Mr. Rifkind

That is a crucial change in our favour and anyone with Britain's interests at heart should warmly welcome it. I give way to my hon. Friend the Member for St. Albans (Mr. Lilley).

Mr. Lilley

Does my hon. Friend agree that the reduction in our marginal contribution will occur only if not a penny of the extra Community spending takes place in this country?

Mr. Rifkind

In so far as extra expenditure takes place in this country, it will reduce our net contribution. All British Governments have been anxious to achieve that. If the problem could be solved by Britain no longer being a net contributor, I am sure that my hon. Friend would be happy with that.

Mr. Straw

Will the Minister give way?

Mr. Rifkind

No, I must get on.

Mr. Straw

The Minister gave way to his hon. Friend.

Mr. Rifkind

I must get on with my speech.

Hon. Members on both sides have said that although the deal has many good features it does not justify an increase in own resources. I should make it clear, however, that if no deal had been arranged Britain would have had no entitlement to any refund. This is the first time that there has been agreement on a system, whatever its durability, which provides for an automatic refund for the United Kindgom. For the first time, too, it will not be necessary to devise new means of spending in Britain subject to the approval of the European Parliament, which has been a major problem in the past, because the refund will be paid through an automatic reduction in our VAT contribution the following year. That is an enormous advantage for this country and should not be underestimated.

In considering the effects of the settlement, let us assume that the entire 1.4 per cent. is spent straight away —a highly unlikely event. As my right hon. Friend the Prime Minister said, even when that ceiling has been reached, with the refunds that have been arranged the United Kingdom will be paying half the amount that it would pay with a 1 per cent. ceiling but without a refund system. That is a crucial difference and a crucial protection for the United Kingdom.

There is a further point that I can make with equal conviction. The increase to 1.4 per cent., even when it has been fully reached, will still mean that the United Kingdom's effective VAT rate will be less that 1 per cent.

I can make that claim because, in the case of the United Kingdom alone, as our refund will be paid by reducing our VAT contribution, our effective rate of VAT, which will start well below 1 per cent., will still be less than 1 per cent., when France, Germany and other countries are paying up to 1.4 per cent. under the rules of the European Community.

Mr. Higgins

The Chancellor of the Exchequer always stresses the importance of cash terms. Can my hon. Friend say whether in cash terms our total net contribution will go up or down if we accept the settlement?

Mr. Rifkind

If, as we all expect, there is some increase in the total expenditure of the Community, then, as part of that, the net contribution in cash terms, but not in real terms, of the United Kingdom will increase. That was made clear by my right hon. Friend the Prime Minister when she reported to the House after the Fontainebleau summit. If the Community's total expenditure were to increase, it would be extraordinary if the United Kingdom did not bear some share of that increased expenditure.

We are not asking to be completely absolved from any increase in Community expenditure. We are insisting that any increases should be shared by other member states, and that would be the case for the first time.

One of the main questions asked by hon. Members was whether, if we agree to the deal, we would have lost the opportunity to reform the Community's total expenditure and bring it and agriculture expenditure, in particular, under control. The first point that I must emphasise is that the agreement that was reached—[Interruption.]

Mr. Speaker

Order. Only one speech at a time.

Mr. Rifkind

The point I was trying to make was that the agreement reached at Fontainbleau—[Interruption.]

Mr. Straw

On a point of order, Mr. Speaker. Is it in order for one hon. Member to sit on the knee of another?

Mr. Speaker

Order. I think that the House wishes to listen to the Minister of State.

Mr. Rifkind

The agreement reached at Fontainbleau —[Interruption.] I am grateful to my hon. Friend the Member for Grantham (Mr. Hogg).

The agreement reached at Fontainbleau is necessarily dependent upon the successul conclusion of the discussions that will take place between Finance Ministers on translating into effective budgetary procedures the agreement on the control of expenditure that was reached at Brussels by the Heads of State.

I emphasise one fundamental change that will take place on budget discipline for future Community expenditure. One of the clear and undoubted consequences of Fontainebleau will be that for the first time France will joint Germany and the United Kingdom as a substantial net contributor. The three major countries in the Community will therefore have a common interest in the control of expenditure. That is a phenomenon that we have not been able to enjoy since we joined the Community. It is a major advantage.

Mr. Robin Cook

I am grateful to the Minister for clarifying that point. As he has said that the agreement reached at Fontainebleau is dependent upon effective control of expenditure, will he help me and the House by guiding me to that paragraph of the communiqué which states that the increase in own resources depends upon any future agreement on effective control of expenditure?

Mr. Rifkind

The hon. Gentleman will be well aware — it was a point made by my right hon. Friend the Prime Minister — that the United Kingdom and, I believe, the Federal Republic, have made it clear that the control of expenditure and the proper translation into effective control of the conclusions of the Brussels summit are fundamental preconditions. The Government have also made it clear that they have no intention of bringing to the House a recommendation for an increase in own resources until the problem of budgetary discipline has been resolved satisfactorily by the Finance Ministers. We are confident that that can be achieved but, until it is, there will be no such recommendation to the House.

Mr. Fisher

Will not the Minister also concede that part of that budgetary discipline is an understanding of how we fund the deficit this year and next year? Will he address himself to the method that the Government see of funding that deficit?

Mr. Rifkind

In respect of this year, the Government have made it clear that at this stage in the financial year there must first be much further searching by the Community to find ways of saving, to reduce any potential overspend. It will also be necessary to find ways of deferring expenditure until next year, if necessary. Only when all these matters have been analysed exhaustively will we be in a position to know whether and to what extent there is likely to be an unavoidable overspend this year.

I listened with great interest to the speech of the hon. Member for Livingston. We have been colleagues for many years, if I may say so.

Mr. Robin Cook

No.

Mr. Rifkind

The hon. Gentleman denies it, but I remind him that it is true. Once upon a time the hon. Gentleman was a great believer in European unity and in the ideals of working for a closer Europe. A well-wisher sent me a copy of the membership card of the Edinburgh university European society. According to that, the aims of the society are to promote an interest in the concept of European unity. I was only an ordinary committee member of that august organisation in 1965, but the secretary of the society was none other than the hon. Member for Livingston. The House will be aware that it is the secretary who has the main responsibility for determining the programme of a club. What do we see were the activities of the society when the hon. Member for Livingston was secretary? On 18 November it discussed "The EEC Today." During the Easter vacation we find that the secretary had arranged a visit to Strasbourg. Most interesting of all, we find that on 3 February the speaker arranged by the secretary of the university European society spoke on the subject—wait for it—"Living in a federation."

I know that the House will share with me a great sense of sadness that the hon. Gentleman's youthful idealism is no more.

Mr. Robin Cook

rose—

Mr. Rifkind

I am happy to give way to the hon. Gentleman if he wishes to comment on what caused this change of heart.

Mr. Cook

I merely observe that the speaker on 18 November did not convince me. As the Minister will recollect from our discussions at the time, I made it plain that I did not accept the case for European unity. What is more, if the hon. Gentleman looks down the card he will get a hint about why a lad of 19 was secretary of that society, because he will see that my wife was the publicity officer at the time.

Mr. Rifkind

It is nice to know the sort of factor that influenced the hon. Gentleman's political judgment. But far be it from me to make any further comment. I do not wish to intrude on private grief.

This debate has been an opportunity for all the facts and circumstances of the Fontainebleau summit to be analysed fully by right hon. and hon. Members on both sides of the House. The Government have never sought to suggest that the settlement somehow met 100 per cent. of all our aspirations. However, we believe that if the Community is to prosper there has to be a financial arrangement acceptable to all members of the Community which creates a fair and equitable system that all Governments and all national parliaments can commend to their electorates and to public opinion.

We believe that this agreement meets those requirements. We believe that for the first time we have moved substantially towards a system in which a British Government can say, with hand on heart, that Britain's contribution to the Community will be based on a fair system that ensures that there is no disproportionate burden. We believe that we have the protection for the future that we need. We believe that the benefits that Fontainebleau provides will ensure—during examination of the crucial questions of Community expenditure between the United Kingdom, France, Germany and other countries concerned with questions of economic discipline — that the criteria are applied effectively and with conviction, and resolve the problems to which my hon. Friends have rightly drawn attention. The Government have earned the support of the House in what we have already achieved at Fontainebleau. We are entitled to the support of the House for what we shall seek to achieve in the months to come. I commend the motion to the House.

Question put, That the amendment be made:—

The House divided: Ayes 188, Noes 353.

Division No. 399]	[10.15 pm
AYES
Adley, Robert	Bottomley, Peter
Alexander, Richard	Bottomley, Mrs Virginia
Alison, Rt Hon Michael	Bowden, A. (Brighton K'to'n)
Alton, David	Bowden, Gerald (Dulwich)
Amery, Rt Hon Julian	Boyson, Dr Rhodes
Amess, David	Braine, Sir Bernard
Ancram, Michael	Brandon-Bravo, Martin
Arnold, Tom	Bright, Graham
Ashby, David	Brinton, Tim
Ashdown, Paddy	Brittan, Rt Hon Leon
Aspinwall, Jack	Brooke, Hon Peter
Atkins, Rt Hon Sir H.	Browne, John
Atkins, Robert (South Ribble)	Bruce, Malcolm
Atkinson, David (B'm'th E)	Bryan, Sir Paul
Baker, Rt Hon K. (Mole Vall'y)	Buchanan-Smith, Rt Hon A.
Baker, Nicholas (N Dorset)	Buck, Sir Antony
Baldry, Anthony	Bulmer, Esmond
Banks, Robert (Harrogate)	Burt, Alistair
Batiste, Spencer	Butcher, John
Beaumont-Dark, Anthony	Butler, Hon Adam
Beith, A. J.	Butterfill, John
Bellingham, Henry	Carlisle, Kenneth (Lincoln)
Bendall, Vivian	Carlisle, Rt Hon M. (W'ton S)
Bennett, Sir Frederic (T'bay)	Carttiss, Michael
Benyon, William	Cartwright, John
Best, Keith	Cash, William
Bevan, David Gilroy	Chalker, Mrs Lynda
Biffen, Rt Hon John	Channon, Rt Hon Paul
Biggs-Davison, Sir John	Chapman, Sydney
Blaker, Rt Hon Sir Peter	Chope, Christopher
Bonsor, Sir Nicholas	Churchill, W. S.

Clark Dr Michael (Rochford)	Hogg, Hon Douglas (Gr'th'm)
Clark Sir W. (Croydon S)	Holland, Sir Philip (Gedling)
Clarke, Rt Hon K. (Rushcliffe,)	Holt, Richard
Clegg, Sir Walter	Hordern, Peter
Cockeram, Eric	Howard, Michael
Colvin, Michael	Howarth, Alan (Stratf'd-on-A)
Conway, Derek	Howe, Rt Hon Sir Geoffrey
Coombs, Simon	Howell, Rt Hon D. (G'ldford)
Cope, John	Howell, Ralph (N Norfolk)
Cormack, Patrick	Hubbard-Miles, Peter
Couchman, James	Hunt, David (Wirral)
Critchley, Julian	Hunt, John (Ravensbourne)
Crouch, David	Hunter, Andrew
Currie, Mrs Edwina	Hurd, Rt Hon Douglas
Dickens, Geoffrey	Irving, Charles
Dorrell, Stephen	Jackson, Robert
Douglas-Hamilton, Lord J.	Jenkin, Rt Hon Patrick
Dunn, Robert	Jenkins, Rt Hon Roy (Hillh'd)
Durant, Tony	Jessel, Toby
Dykes, Hugh	Johnson-Smith, Sir Geoffrey
Edwards, Rt Hon N. (P'broke)	Johnston, Russell
Eggar, Tim	Jones, Gwilym (Cardiff N)
Emery, Sir Peter	Jones, Robert (W Herts)
Evennett, David	Jopling, Rt Hon Michael
Eyre, Sir Reginald	Joseph, Rt Hon Sir Keith
Fairbairn, Nicholas	Kellett-Bowman, Mrs Elaine
Fallon, Michael	Kershaw, Sir Anthony
Farr, Sir John	Key, Robert
Favell, Anthony	King, Roger (B'ham N'field)
Fenner, Mrs Peggy	Kirkwood, Archy
Finsberg, Sir Geoffrey	Knight, Gregory (Derby N)
Fletcher, Alexander	Knowles, Michael
Fookes, Miss Janet	Knox, David
Forman, Nigel	Lamont, Norman
Forth, Eric	Lang, Ian
Fowler, Rt Hon Norman	Latham, Michael
Fox, Marcus	Lawler, Geoffrey
Franks, Cecil	Lawrence, Ivan
Freeman, Roger	Lawson, Rt Hon Nigel
Fry, Peter	Lee, John (Pendle)
Gale, Roger	Leigh, Edward (Gainsbor'gh)
Galley, Roy	Lennox-Boyd, Hon Mark
Gardiner, George (Reigate)	Lester, Jim
Gardner, Sir Edward (Fylde)	Lewis, Sir Kenneth (Stamf'd)
Garel-Jones, Tristan	Lightbown, David
Gilmour, Rt Hon Sir Ian	Lilley, Peter
Glyn, Dr Alan	Lloyd, Ian (Havant)
Goodhart, Sir Philip	Lloyd, Peter, (Fareham)
Goodlad, Alastair	Lord, Michael
Gorst, John	Luce, Richard
Gow, Ian	Lyell, Nicholas
Gower, Sir Raymond	McCurley, Mrs Anna
Grant, Sir Anthony	MacGregor, John
Greenway, Harry	MacKay, Andrew (Berkshire)
Gregory, Conal	MacKay, John (Argyll & Bute)
Griffiths, Peter (Portsm'th N)	Maclean, David John
Grist, Ian	McNair-Wilson, P. (New F'st)
Ground, Patrick	McQuarrie, Albert
Grylls, Michael	Madel, David
Gummer, John Selwyn	Major, John
Hamilton, Hon A. (Epsom)	Malins, Humfrey
Hampson, Dr Keith	Malone, Gerald
Hanley, Jeremy	Maples, John
Hargreaves, Kenneth	Marland, Paul
Harris, David	Marshall, Michael (Arundel)
Harvey, Robert	Mates, Michael
Haselhurst, Alan	Maude, Hon Francis
Havers, Rt Hon Sir Michael	Mawhinney, Dr Brian
Hawkins, C. (High Peak)	Maxwell-Hyslop, Robin
Hawkins, Sir Paul (SW N'folk)	Mayhew, Sir Patrick
Hayes, J.	Meadowcroft, Michael
Hayhoe, Barney	Mellor, David
Hayward, Robert	Merchant, Piers
Heath, Rt Hon Edward	Meyer, Sir Anthony
Heddle, John	Miller, Hal (B'grove)
Henderson, Barry	Mills, Iain (Meriden)
Heseltine, Rt Hon Michael	Mills, Sir Peter (West Devon)
Hickmet, Richeird	Miscampbell, Norman
Hicks, Robert	Montgomery, Fergus
Hirst, Michael	Moore, John

Morris, M. (N'hampton, S)	Soames, Hon Nicholas
Morrison, Hon C. (Devizes)	Speller, Tony
Morrison, Hon P. (Chester)	Spence, John
Moynihan, Hon C.	Spencer, Derek
Mudd, David	Spicer, Jim (W Dorset)
Murphy, Christopher	Spicer, Michael (S Worcs)
Neale, Gerrard	Squire, Robin
Needham, Richard	Stanbrook, Ivor
Neubert, Michael	Stanley, John
Newton, Tony	Steel, Rt Hon David
Nicholls, Patrick	Steen, Anthony
Norris, Steven	Stern, Michael
Onslow, Cranley	Stevens, Lewis (Nuneaton)
Oppenheim, Philip	Stevens, Martin (Fulham)
Ottaway, Richard	Stewart, Allan (Eastwood)
Owen, Rt Hon Dr David	Stewart, Andrew (Sherwood)
Page, Sir John (Harrow W)	Stewart, Ian (N Hertf'dshire)
Page, Richard (Herts SW)	Stokes, John
Parkinson, Rt Hon Cecil	Stradling Thomas, J.
Parris, Matthew	Sumberg, David
Patten, John (Oxford)	Tapsell, Peter
Pattie, Geoffrey	Taylor, John (Solihull)
Pawsey, James	Tebbit, Rt Hon Norman
Peacock, Mrs Elizabeth	Temple-Morris, Peter
Penhaligon, David	Terlezki, Stefan
Percival, Rt Hon Sir Ian	Thatcher, Rt Hon Mrs M.
Pollock, Alexander	Thomas, Rt Hon Peter
Porter, Barry	Thompson, Donald (Calder V)
Powell, William (Corby)	Thompson, Patrick (N'ich N)
Powley, John	Thornton, Malcolm
Prentice, Rt Hon Reg	Townsend, Cyril D. (B'heath)
Price, Sir David	Tracey, Richard
Raffan, Keith	Trotter, Neville
Rathbone, Tim	Twinn, Dr Ian
Rees, Rt Hon Peter (Dover)	Vaughan, Sir Gerard
Ronton, Tim	Viggers, Peter
Rhodes James, Robert	Waddington, David
Rhys Williams, Sir Brandon	Wakeham, Rt Hon John
Ridley, Rt Hon Nicholas	Waldegrave, Hon William
Ridsdale, Sir Julian	Walden, George
Rifkind, Malcolm	Wall, Sir Patrick
Rippon, Rt Hon Geoffrey	Waller, Gary
Roberts, Wyn (Conwy)	Walters, Dennis
Robinson, Mark (N'port W)	Ward, John
Roe, Mrs Marion	Wardle, C. (Bexhill)
Rossi, Sir Hugh	Warren, Kenneth
Rost, Peter	Watson, John
Rowe, Andrew	Watts, John
Rumbold, Mrs Angela	Wells, Bowen (Hertford)
Ryder, Richard	Wells, Sir John (Maidstone)
Sackville, Hon Thomas	Wheeler, John
Sainsbury, Hon Timothy	Whitfield, John
St. John-Stevas, Rt Hon N.	Whitney, Raymond
Sayeed, Jonathan	Wiggin, Jerry
Scott, Nicholas	Wolfson, Mark
Shaw, Giles (Pudsey)	Wood, Timothy
Shaw, Sir Michael (Scarb')	Woodcock, Michael
Shelton, William (Streatham)	Young, Sir George (Acton)
Shepherd, Colin (Hereford)	Younger, Rt Hon George
Shersby, Michael
Silvester, Fred	Tellers for the Ayes:
Sims, Roger	Mr. Robert Boscawen and
Skeet, T. H. H.	Mr. Carol Mather.
Smith, Tim (Beaconsfield)

NOES
Abse, Leo	Benn, Tony
Adams, Allen (Paisley N)	Bermingham, Gerald
Anderson, Donald	Bidwell, Sydney
Archer, Rt Hon Peter	Blair, Anthony
Ashley, Rt Hon Jack	Boothroyd, Miss Betty
Ashton, Joe	Boyes, Roland
Atkinson, N. (Tottenham)	Bray, Dr Jeremy
Bagier, Gordon A. T.	Brown, Gordon (D'f'mline E)
Banks, Tony (Newham NW)	Brown, Hugh D. (Provan)
Barnett, Guy	Brown, N. (N'c'tle-u-Tyne E)
Barron, Kevin	Brown, R. (N'c'tle-u-Tyne N)
Beckett, Mrs Margaret	Brown, Ron (E'burgh, Leith)
Beggs, Roy	Buchan, Norman
Bell, Stuart	Caborn, Richard

Callaghan, Rt Hon J.	Hart, Rt Hon Dame Judith
Callaghan, Jim (Heyw'd & M)	Heffer, Eric S.
Campbell-Savours, Dale	Hogg, N. (C'nauld & Kilsyth)
Canavan, Dennis	Holland, Stuart (Vauxhall)
Carter-Jones, Lewis	Home Robertson, John
Clark, Dr David (S Shields)	Howell, Rt Hon D. (S'heath)
Clay, Robert	Hoyle, Douglas
Clwyd, Mrs Ann	Hughes, Dr. Mark (Durham)
Cocks, Rt Hon M. (Bristol S.)	Hughes, Robert (Aberdeen N)
Cohen, Harry	Hughes, Roy (Newport East)
Coleman, Donald	Hughes, Sean (Knowsley S)
Conlan, Bernard	Janner, Hon Greville
Cook, Robin F. (Livingston)	John, Brynmor
Corbyn, Jeremy	Jones, Barry (Alyn & Deeside)
Cowans, Harry	Kilroy-Silk, Robert
Craigen, J. M.	Lamond, James
Crowther, Stan	Leighton, Ronald
Cunliffe, awrence	Lewis, Ron (Carlisle)
Cunningham, Dr John	Lewis, Terence (Worsley)
Davies, Rt Hon Denzil (L'lli)	Litherland, Robert
Davies, Ronald (Caerphilly)	Lloyd, Tony (Stretford)
Davis, Terry (B'ham, H'ge H'I)	Lofthouse, Geoffrey
Deakins, Eric	Loyden, Edward
Dewar, Donald	McCartney, Hugh
Dobson, Frank	McCrea, Rev William
Dormand, Jack	McDonald, Dr Oonagh
Dubs, Alfred	McKay, Allen (Penistone)
Duffy, A. E. P.	Mackenzie, Rt Hon Gregor
Dunwoody, Hon Mrs G.	McNamara, Kevin
Eastham, Ken	McTaggart, Robert
Evans, John (St. Helens N)	McWilliam, John
Ewing, Harry	Madden, Max
Fatchett, Derek	Maginnis, Ken
Faulds, Andrew	Marek, Dr John
Fields, T. (L'pool Broad Gn)	Marshall, David (Shettleston)
Fisher, Mark	Martin, Michael
Flannery, Martin	Mason, Rt Hon Roy
Foot, Rt Hon Michael	Maxton, John
Forrester, John	Meacher, Michael
Foster, Derek	Michie, William
Foulkes, George	Mikardo, Ian
Fraser, J. (Norwood)	Millan, Rt Hon Bruce
Freeson, Rt Hon Reginald	Miller, Dr M. S. (E Kilbride)
George, Bruce	Mitchell, Austin (G't Grimsby)
Gilbert, Rt Hon Dr John	Molyneaux, Rt Hon James
Golding, John	Morris, Rt Hon A. (W'shawe)
Gould, Bryan	Nellist, David
Gourlay, Harry	Oakes, Rt Hon Gordon
Hamilton, James (M'well N)	O'Brien, William
Hamilton, W. W. (Central Fife)	O'Neill, Martin
Hardy, Peter	Park, George
Harrison, Rt Hon Walter	Patchett, Terry

Pavitt, Laurie	Snape, Peter
Pendry, Tom	Soley, Clive
Pike, Peter	Spearing, Nigel
Powell, Rt Hon J. E. (S Down)	Stewart, Rt Hon D. (W Isles)
Powell, Raymond (Ogmore)	Stott, Roger
Radice, Giles	Strang, Gavin
Randall, Stuart	Straw, Jack
Redmond, M.	Thomas, Dr R. (Carmarthen)
Rees, Rt Hon M. (Leeds S)	Thompson, J. (Wansbeck)
Richardson, Ms Jo	Thorne, Stan (Preston)
Roberts, Allan (Bootle)	Tinn, James
Roberts, Ernest (Hackney N)	Torney, Tom
Robertson, George	Walker, Cecil (Belfast N)
Robinson, G. (Coventry NW)	Wardell, Gareth (Gower)
Rogers, Allan	Wareing, Robert
Ross, Ernest (Dundee W)	Weetch, Ken
Ross, Wm. (Londonderry)	Welsh, Michael
Rowlands, Ted	White, James
Ryman, John	Wigley, Dafydd
Sedgemore, Brian	Williams, Rt Hon A.
Sheerman, Barry	Wilson, Gordon
Shore, Rt Hon Peter	Winnick, David
Short, Ms Clare (Ladywood)	Woodall, Alec
Silkin, Rt Hon J.	Young, David (Bolton SE)
Skinner, Dennis
Smith, C.(Isl'ton S & F'bury)	Tellers for the Noes:
Smith, Rt Hon J. (M'kl'ds E)	Mr. Don Dixon and
Smyth, Rev W. M. (Belfast S)	Mr. Frank Haynes.

Question accordingly negatived.

Main Question put:—

The House divided: Ayse 345, Noes 184.

Question accordingly agreed to.

Resolved, That this House takes note of the White Paper on Developments in the European Community from July to December 1983, Cmnd. 9214; and of Community Documents Nos. 4972/84 and 4972/1/84, a communication from the Commission to the Council on budgetary discipline; 5427/84, a communication from the Commission to the Council on the future financing of the Community; 4812/84, the Sixth Commission Report on the implementation of supplementary measures in favour of the United Kingdom; 6240/84, the Commission Report on the application of regulations 625/83 and specific measures of Community interest relating to energy strategy 7922/84 the preliminary draft budget of the European Communities for 1985; and 6681/84, a Commission proposal for a Council regulation introducing the measures to cover budgetary requirements in 1984 given the exhaustion of own resources; and welcomes the successful outcome of the European Council in Fontainebleau which secured a fair settlement to the problem of budgetary imbalances, a commitment to effective control of Community expenditure, and a sound basis for further development of the Community.