HC Deb 27 June 1984 vol 62 cc993-1009 3.30 pm
The Prime Minister (Mrs. Margaret Thatcher)

With permission, Mr. Speaker, I should like to make a statement about the European Council in Fontainebleau on 25 and 26 June, at which I was accompanied by my right hon. and learned Friend the Foreign and Commonwealth Secretary.

I am glad to tell the House that the European Council reached agreement on a fairer and more soundly based system for the United Kingdom's financial contribution to the Community. This is a successful culmination of our long and persistent efforts to correct the budget inequity and to put the United Kingdom's refunds on a lasting basis.

The main features of this agreement are, first, that it provides for a refund of about £600 million in 1984, with the new system in effect thereafter. Under the new system the United Kingdom will get a rebate of 66 per cent. of the gap between our share of VAT and our share of expenditure. This means that, in terms of our marginal net contribution, the United Kingdom will be contributing not about 21 per cent. as we are liable to do at present but about 7 per cent. to new Community expenditure. This arrangement is far better than anything previously on offer and far better than the offer of the other nine member states at the last European Council.

Secondly, this system can be changed only by a unanimous decision by all member Governments and ratified by their Parliaments. The benefits for the United Kingdom will continue unless and until we ourselves agree to change it.

Thirdly, the advantages of the system will be available to us from 1985. We shall have the arbitrary refund of about £600 million for the single year 1984 only. This is a substantially better situation for the United Kingdom than was on offer earlier.

Fourthly, the refunds will be implemented, as we have requested, by reducing the United Kingdom's VAT payments to the Community in each successive year. The House may recall that at the last European Council we reached provisional agreement that measures be taken on budgetary discipline. We considered it essential that the rigorous rules which at present govern budgetary policy in each member state also apply to the budget of the Communities. We went on to add that the Community should fix at the beginning of the Budget procedure the maximum level of expenditure which it considers it must adopt to finance Community policies during the following financial year; and further that net expenditure relating to agricultural markets should increase less than the rate of growth of the own resources base.

Finance Ministers are now working on the precise measures to guarantee the effective application of these principles. In the light of the agreement reached both on the United Kingdom refund and the future control of Community spending, the European Council also agreed that the own resources ceiling should be increased to 1.4 per cent. of VAT. The Government will be prepared in due course, and when the arrangements are in place on budget discipline, to recommend to the House that the own resources ceiling should be increased to 1.4 per cent. of VAT.

However, the net effect of such an increase and of the VAT refunds for the United Kingdom is that, although the ceiling will be increased to 1.4 per cent. for the Community as a whole, the United Kingdom will itself be contributing less than we are at present liable to contribute under the 1 per cent. limit.

It was further agreed that the refund of about £440 million due to the United Kingdom in respect of 1983 should now be released. The Council of Ministers yesterday approved the necessary regulations. It is now for the European Parliament to transfer the funds from the reserve chapter of the budget. We thus have the assurance of the successful implementation of our refunds for 1983, £440 million, 1984, £600 million, and for future years, for as long as the 1.4 per cent VAT ceiling lasts.

The European Council discussed current world political and economic developments. I described the outcome of the London economic summit. President Mitterrand and Chancellor Kohl spoke about their visits last week to the Soviet Union and Hungary respectively. It was heartening to find that the four keynotes of the London summit—unity, resolve, dialogue and co-operation — were unanimously endorsed as the basis for a secure and constructive relationship with the Soviet Union, which the visit to Moscow by my right hon. and learned Friend the Foreign and Commonwealth Secretary in July is designed to promote.

The European Council confirmed that the negotiations for the accession of Spain and Portugal should be completed by 30 September 1984. We also discussed the negotiations for the renewal of the Lomé agreement with African, Caribbean and Pacific countries. The European Council stressed the importance of bringing these negotiations to an early conclusion.

The European Council also discussed the future development of the Community. We have put forward specific ideas in a paper which I gave before the European Council to other Heads of Government. Copies have been placed in the Library of the House. I laid particular emphasis on the importance of achieving a genuine Common Market in goods and services, leading to the creation of new jobs throughout the Community.

The outcome of the Council is good for Britain and good for the Community. It will result in Britain's paying for the foreseeable future lower contributions than would have been due under existing arrangements with the 1 per cent. VAT ceiling, it will make possible a relaunching of the Community in which Britain will play a full role, will give an impetus to enlargement, thus strengthening democracy in Spain and Portugal, and remove what has been a constant source of friction in our relations with the Community ever since we joined.

Mr. Neil Kinnock (Islwyn)

I record our disappointment that yet another summit has passed with no significant reference to the major question of the need to expand employment and develop both the British and the European economies. Clearly, that should be at the top of any agenda for a European Council and I hope, as do many others, that it will be so in future.

The acid test of whether the Prime Minister has obtained a good and just deal for Britain at the summit will be her answers to the following two questions. First, can she deny that Britain's net contributions will rise as a result of the deal that she has accepted at Fontainebleau? Secondly, can she deny that the new method of calculating rebates that she has accepted will produce smaller rebates for Britain than have been produced by the previous formula?

At Fontainebleau, the right hon. Lady agreed to a 40 per cent. increase in VAT contributions to the Common Market. Will she confirm that the Government's public expenditure plans make no provision for that addition beginning from 1986? Therefore, where will that extra 40 per cent. come from? Will she be raising the rate of VAT, or extending the VAT base, or will there be extra public expenditure cuts in the welfare service, or will it be a combination of all three?

The right hon. Lady has repeatedly promised that agricultural expenditure will be brought under effective control. Can she deny that no progress was made at the summit to achieve that objective and to prevent agricultural expenditure this year from breaking its budget by 20 per cent., or as much as £2 billion? Will she accept from me, as she will be told by other hon. Members, that there is no justification for increasing the VAT own resources contribution in order to finance higher food mountains and the destruction of foodstuffs or to subsidise Soviet shoppers?

On 21 March, on her return from the Brussels summit—[HON. MEMBERS: "Oh!"] Oh, yes, I understand why Conservative Members do not wish to be reminded of that. On 21 March, on her return from the Brussels summit, the Prime Minister told us that the package offered there was an ad hoc arrangement which would have meant smaller rebates for Britain, discriminatory arrangements for milk quotas and an increase in VAT contributions to the Common Market. The right hon. Lady told the House that she had made it plain that neither the Government nor the British Parliament could accept such a package. Three months later, she swallowed those arrangements hook, line and sinker at Fontainebleau. Because of that, can I tell the right hon. Lady now that the Opposition do not believe that the increase in VAT own resources payments can in any way be justified by the summit deal, that we will oppose that rise in contributions by the British people with all our strength, and we invite any Conservative Member with courage to join us in that opposition?

The Prime Minister

I note what the right hon. Gentleman says now, but I note what he said when I returned from the Brussels Council and when he went to see Mr. Mitterrand and what he is purported to have said after his meeting there. He said: Mrs. Thatcher had better enjoy the sunshine at Fontainebleau because I do not think she is going to enjoy a hell of a lot else. She is not coming away with £475 million. That I do know. I cannot think that I need take very much notice of the right hon. Gentleman's comments. Firstly, I made it perfectly clear in my statement that the net contributions under the new VAT ceiling will be less than we would have been liable to pay under the existing VAT ceiling. Let me say this to the right hon. Gentleman. If he is going to vote against the new arrangements, what he will be voting for is an annual payment of something like £1,200 million under the renegotiated arrangements which his Goverment negotiated with the Community.

Mr. Terence Higgins (Worthing)

As this is clearly not a permanent settlement, should we not refuse to approve an increase in own resources until after the common agricultural policy is reformed and agricultural expenditure reduced? If agricultural expenditure is reduced, what need is there for an increase in own resources other than to cover the cost of enlargement which in any case would be done on a transitional basis?

The Prime Minister

As my right hon. Friend is aware, we have embarked upon the first steps of trying to reduce the amount of surpluses in the Community. They have been painful first steps with the farmers, as many of my right hon. and hon. Friends are aware. Nevertheless, they understood the need for them and we shall have to continue, sometimes with other products, to reduce surpluses, otherwise we shall not get down the vast proportion of expenditure which goes on agriculture. That is why we have been in Brussels, and Finance Ministers are now implementing the decision to set the total amount of expenditure for the European budget at the beginning of the year, and within the total amount to set the amount for agriculture. It is an attempt to have discipline on agricultural expenditure and, as my right hon. Friend knows, I am the first to say that we need to have such discipline. If we did as he said, may I make it perfectly clear that I believe that we should not have got the 1,000 million ecu refund for 1984 which is part of the existing settlement—that is, £600 million. I think that it would have been difficult to get the £440 million unblocked., and in 1985–86 we should be paying to the Community between £1,200 million and £1,500 million, which I think would be an enormous amount to pay.

Mr. David Steel (Tweeddale, Ettrick and Lauderdale)

Will the right hon. Lady confirm that, to reach that agreement, she reduced her demand for a rebate next year from £750 million to £600 million, which she gave no inkling of during the recent European elections? Will she also confirm that the agreement will enable policies to go ahead that were deferred from March, particularly on the ESPRIT programme and other areas of high technology and co-operation?

The Prime Minister

I should make it perfectly clear that at the moment there is no system and no formula. The formula was for the first two years out of a three-year agreement. It operated for two years: 1980 and 1981. Frankly, it operated rather better than the Community expected when it agreed to it. For 1982 we had to arrange an ad hoc refund, and for 1983 we had to do the same, on a falling basis. Therefore, for 1984 there was once again an increased basis. The right hon. Gentleman will recall that the figure for 1983 was 750 million ecu—it is easier to give the figures in the European currency—and that the figure for 1984 is 1,000 million ecu. So once more there is a rising basis. For 1985, those refunds will come out of the system that starts on 1 January 1986. As the right hon. Gentleman will recall, the system is such that one gets one's refunds for the previous year out of income in the following year.

Mr. Geoffrey Rippon (Hexham)

May I congratulate my right hon. Friend on the tenacity that has led to an agreement that she has been able to describe as good for Britain and good for Europe? Does she agree that the great advantage of it is that it opens the way to implementing the policies set out in the Stuttgart declaration, which she and the other Heads of Government signed last year? The Opposition often demand such policies but they are never prepared to pay for them.

The Prime Minister

I thank my right hon. and learned Friend for his congratulations. What he has said is true. As has been said, we were unable to go ahead with the many new policies agreed in the Stuttgart declaration. I also accept that policies on opening up the Community to services are very much needed. I know that my right hon. and learned Friend and the right hon. Member for Tweeddale, Ettrick and Lauderdale (Mr. Steel) are concerned, and even Opposition Members have written to me about the need for expenditure to be made from the Community budget on ESPRIT. Those things will now be able to go ahead, and we shall be able to do more on research, matters relating to the environment and many other things.

Mr. Robert Sheldon (Ashton-under-Lyne)

Is the Prime Minister aware that even more important than the exact fraction of the loaf with which she returned from Fontainebleau is the need that she faced to withhold her consent, at an historic moment, to an increase in own resources? Why did she not make use of that once-for-all opportunity?

The Prime Minister

If we had not made use of it, we would not have obtained the agreement for a refund and we would have been left without any right to a refund whatever. We should have had to pay the full amount liable under the VAT contribution, which is the full 1 per cent. As I have said, this year it would have amounted to about £1,200 million and next year it would have amounted to a similar amount—possibly up to £1,500 million. The right hon. Gentleman might have faced that prospect with equanimity, but I did not.

Mr. Norman St. John-Stevas (Chelmsford)

Will my right hon. Friend accept that most fair-minded people whose judgment is not affected by anti-Europeanism will agree that the compromise that she reached at Fontainebleau is reasonable, taking fully into account both British and European interests? Now that this problem is fortunately out of the way, what plans do the Government have for meeting, with our European partners, the technological challenge presented by Japan and the United States, for setting up a genuine common market in financial services and for joint foreign policy initiatives?

The Prime Minister

I thank my right hon. Friend, and I agree with him. The settlement is reasonable and fair. As I said, we have laid out a statement for the future development of Europe which I have placed in the Library. I shall let him have a copy.

We discussed matters such as ESPRIT and the airbus. Some things we join in on a bilateral or trilateral basis and others we join in on a Community basis because they are better done on a Community basis; otherwise they would be so expensive.

I totally agree that it is most important that we in Europe should regain, in the new era of electronic products, the technological initiative that has passed to Japan and the United States. That is to some extent significant, because those countries have been able to create new jobs more readily than any country in Europe, and we also discussed that. One reason for that is that they have embraced the technological age and another is their tremendous development in service jobs—both matters which my right hon. Friend selected in his question.

Mr. Roy Jenkins (Glasgow, Hillhead)

Has the Prime Minister, looking back on this five-year saga, considered why the Italian Government, who were confronted with almost the same scale of budgetary problem in 1978, managed to resolve it so much more quietly, completely and permanently?

The Prime Minister

I am not at all sure quite what the right hon. Gentleman's question is directed at. He will know that the Italians get an enormous positive benefit from being in the Community and have never really had to battle about a net contribution. [Interruption.] They have never had to battle about a net contribution. Only in one year did they have a net contribution and that was in 1978—[Interruption.]

Mr. Speaker


The Prime Minister

It was 330 million ecu — a very small net contribution—and that was the very year in which they joined us in our request. Ever since, they have had net benefits, because that is the way the system has operated for them. They have never had to do battle again. I will send the right hon. Gentleman the figures. I notice that the right hon. Gentleman was one of those people who said that I should have accepted the previous deal, although it was very much worse than this.

Sir Anthony Kershaw (Stroud)

Is my right hon. Friend aware that this agreement could not have been obtained except by a Government who are known, especially by our European partners, as strong in their commitment to Europe and in their defence of British interests? Is she further aware that the Leader of the Opposition could not have got this agreement by dinner last night? He would be lucky if he were not eaten for breakfast today. Finally, will my right hon. Friend agree that the country is lucky to have a Prime Minister who fights hard and gets an agreement at the end?

The Prime Minister

I agree with my hon. Friend. We should not have got this agreement unless it had been known that we were very pro-European and that Britain makes considerable contributions to the life of the Community and believes that it is right to be in the Community. I agree that the Opposition would have loved to get this agreement but never could, never did, and never will.

Mr. Merlyn Rees (Morley and Leeds, South)

It was announced in Dublin last night that the future of Northern Ireland was discussed at Fontainebleau in the context of the report of the New Ireland Forum. Should we not be told what was discussed? Can the Prime Minister confirm that there is to be an Anglo-Irish summit arising out of the those discussions in the autumn as was announced in Dublin? What is the summit for?

The Prime Minister

The subject of Northern Ireland was not discussed in the European Council of Ministers, as one would expect. The Taoiseach and I had a short bilateral meeting at which we had a preliminary discussion of the forum report and we also referred to the report produced by the Unionists. There will be the customary bilateral talks. I do not believe that the date has yet been fixed.

Sir Peter Blaker (Blackpool, South)

Having secured what is clearly an acceptable package agreement, is my right hon. Friend aware that she will have overwhelming support for her determination to secure a more complete common market, especially in the area of service industries? Is that not one of the objectives of the original treaties, and would it not be of great benefit to Britain?

The Prime Minister

Yes, my right hon. Friend is absolutely right. In the treaty, the aim of having a common market in services comes before the aim of a common agricultural policy. It is one of those parts of the treaty which people have been very slow to implement. We have often pointed out that services are one of the things in which Britain excels, and we shall carry on trying to secure a common market in services.

My right hon. Friend the Secretary of State for Transport has made a very good start with air fares in a bilateral arrangement between ourselves and Holland, and we are pursuing the matter of lorry quotas with the Federal Republic of Germany.

Mr. Donald Stewart (Western Isles)

Does the right hon. Lady deny, despite all the juggling of the figures, that the terms of the settlement are far below the aims that she set out in her previous tough rhetoric? Another chance has been lost to remove, once and for all, the albatross of the common agricultural policy. Will the right hon. Lady arrange to keep a white flag permanently at 10 Downing street, as obviously it will be in constant use in the EEC?

The Prime Minister

I believe that the terms of the settlement were fair and reasonable, and better than anything previously on offer. We had a formula for only two years. In the in-between ad hoc years, it has been much more difficult to secure any refunds. As I pointed out recently, some of them have been on a much lower basis than the one that we secured for 1984.

I note what the right hon. Gentleman said about the common agricultural policy. Is he really suggesting that Scottish farmers could have taken a bigger reduction in their milk quotas? If he is, will he say so?

Mr. Robin Maxwell-Hyslop (Tiverton)

As the Common Market can endure only if it is seen to be fair in all EEC countries, including Britain, and as my right hon. Friend has made a great contribution in that respect, will she now do a further job—which only she, with her pertinacity, can do—for the Common Market as well as for Britain, by ensuring that Spain is subjected to the same steel output disciplines as those to which Britain has been subjected? Will she ensure that Spain, when it enters the Common Market, will have the same base year for calculating its quota as every other country already in the Common Market?

The Prime Minister

As my hon. Friend is aware, the negotiations with Spain and Portugal are now taking place. It is hoped that the main decisions will be completed by September this year. That will be necessary so that they can enter the Community in 1986.

My hon. Friend has touched on some very sensitive points. There are several major matters still outstanding with Spain, of which steel is one. There are also matters concerning agriculture, wine and fishing, and some relating to industry. I shall bear my hon. Friend's points very much in mind.

Mr. Willie W. Hamilton (Fife, Central)

Can the Prime Minister say whether the deal will do anything to discourage the increasing growth of food mountains in the Community? As she is at pains to boast about the great attractions of VAT contributions, will she allow a free vote in the House on the matter?

The Prime Minister

With regard to the surpluses, as the hon. Gentleman will be aware, we started on guarantee thresholds for the first time this year, and for the first time there was a reduction in cereal prices. Those were fundamental changes. They have caused a good deal of trouble in various countries, including Scotland. I do not know whether the hon. Gentleman feels that we should have caused even more trouble by taking even sharper reductions. I doubt whether that would have been in keeping with what most people in this House would say about our agriculture. We have started, and we shall have to continue so that we do riot produce so many surpluses. The hon. Gentleman knows my views on selling them off cheap. I am very much against selling them in that way.

With regard to the hon. Gentleman's question about VAT contributions, we shall consider the matter in the usual way.

Mr. George Gardiner (Reigate)

The Prime Minister has clearly secured tangible benefits for Britain in her negotiations. Now that the impasse has been broken, can she tell us how strong the resolve is or was among other heads of Government at Fontainebleau to deliver other tangible benefits of the kind she has mentioned?

Can the Prime Minister tell us how and when the suggestions included in the paper that she has tabled will come under discussion?

The Prime Minister

The suggestions will come under discussion very shortly in a different Council of Ministers, and we hope that there will be a special working party to consider the many suggestions from different countries about how to proceed with the proposals that are before us at present. I do not disguise the fact that it is as difficult to keep down the level of public expenditure in the Community as it is in the House. Some of those who protest most about this settlement are those who are most anxious to put up public expenditure everywhere.

We shall have to make strenuous efforts to keep down the level of public expenditure. I believe that we now have more partners who wish to keep the level down. France wishes to keep the level of public expenditure down, because she is a net contributor. Germany, which is a very large net contributor, also wishes to keep the level down. I pay tribute to President Mitterrand and Chancellor Kohl for their help in getting this arrangement through the European Council. Holland is keen to keep public expenditure down. I do not disguise the fact that we shall have to keep a watch on each and every decision.

Mr. John David Taylor (Strangford)

The Prime Minister has said that she will not recommend to the House an increase of 1.4 per cent. VAT unless there is budget discipline. Will she tell us in general terms what kind of budget discipline she would expect to see before she makes that recommendation?

The Prime Minister

The right hon. Gentleman will have noted that I referred to two parts of the Brussels provisional agreement—first, at the outset of the financial year we shall set a total amount of expenditure, and, secondly, within that total we shall set an amount of expenditure, and, secondly, within that total we shall set an amount for agricultural expenditure which will not go as quickly as the increase in the own resources base. We have passed to the Finance Ministers the task of deciding the precise method by which those two principles will be guaranteed. Obviously, we should like the principles to be embodied formally and legally in the budgetary procedure, but it must be done in such a way as to guarantee them.

Mr. Nicholas Budgen (Wolverhampton, South-West)

Does my right hon. Friend agree that the EEC began to reduce expenditure on agriculture only when it realised that it was running out of money? If more funds are given to the EEC, what discipline will there be to prevent yet another increase in agricultural expenditure?

The Prime Minister

More EC member countries are becoming net contributors. Frankly, that is the best discipline that we can possibly have. There are, of course, farmers in every country who, having had unlimited amounts available for guaranteed prices, are finding it difficult to adapt to the new system. Nevertheless, we know that we shall have to adapt. The new increase in own resources, should it go through all the legislatures is primarily to allow for the enlargement of the Community by Spain and Portugal. Some of the moneys will undoubtedly go to other policies, and I am afraid that the overall amount given to agriculture will still increase.

Mrs. Ann Clwyd (Cynon Valley)

I was pleased to hear the Prime Minister's enthusiasm this afternoon for the accession of Spain and Portugal. Is the right hon. Lady aware that, because of her failure to achieve a permanent solution to the budget problem, Portugal, which will be one of the poorest countries in the European Community, will become the largest net contributor in 1986?

The Prime Minister

The beginning of a part of the communiqué points out that, should any country be paying an unreasonable amount, bearing in mind its position—we had Portugal very much in mind — special arrangements could and would be made. I agree that it would be absurd if Portugal were ever to become a large net contributor. I do not expect her to do so. In any case, Portugal will go through a considerable transitional period, as we did. The true character of the financing arrangements made for this country became apparent towards the end of the transitional period. An attempt was made to renegotiate then, but not successfully. We have an agreement that will last as long as the 1.4 per cent. increase lasts. We would need to have the consent of the House to change the 1.4 per cent. figure.

Mr. Robert Jackson (Wantage)

Since 1982, my right hon. Friend has won rebates to the tune of £2.5 billion. The Fontainebleau agreement holds forth the prospect of a further £2.5 billion in the years ahead. Will my right hon. Friend remind the House of the amount yielded by the budget mechanism negotiated in 1975 by the last Labour Government?

The Chancellor of the Exchequer [Mr. Nigel Lawson)


The Prime Minister

My right hon. Friend says that it was zero. I should say that it was, not zero but a very small amount.

Mr. Lawson

It was zero.

The Prime Minister

It was zero. That is why I had such a difficult time in Dublin. It was said that a corrective mechanism had been negotiated. In fact, it was ineffective in securing any effective rebate for this country. My hon. Friend the Member for Wantage (Mr. Jackson) is correct. We shall have to procure £2.5 billion of refunds. My hon. Friend mentioned £2.5 billion under the previous ad hoc arrangements. I hope that under the new arrangements the amount will be a little more than that.

Mr. Nigel Spearing (Newham, South)

In her statement the Prime Minister mentioned 66 per cent. of the marginal net payment. Will she confirm that that phrase excluded the levies and duties, amounting to about £1,400 million, sent directly to Brussels? Since both the Government and Parliament are keen on firm, effective guarantees for control of Community expenditure in the future, has the right hon. Lady set a time limit for the completion of that mechanism? Is it 18 July?

The Prime Minister

Finance Ministers will meet in July to consider the problem. I hope that the new arrangements will be in place before legislation is drafted—the legislation must come before each of the national Parliaments—to effect the amendment of the treaty that is necessary for the increase in own resources of 1.4 per cent. Our refunds are linked specifically with that increase in own resources.

The hon. Gentleman was not quite correct in his earlier point. Some levies and duties are excluded. They are only the excess levies and duties, which last year amounted to 290 million ecu. Most of the levies are counted as that for this purpose.

Mr. Peter Shore (Bethnal Green and Stepney)


The Prime Minister

If the right hon. Gentleman knew how the Community worked, he would know the answer to that question.

Mr. Ivor Stanbrook (Orpington)

As one of the signatories to the cautionary early-day motion on the subject of own resources, I congratulate my right hon. Friend on her success at Fontainebleau, which she achieved by a combination of skill, reasonableness and firmness. Will the percentage refund be deemed non-compulsory, in which case the European Assembly will have to consent every year before we get the money?

The Prime Minister

I believe that the European Assembly has put our present 1983 refunds into reserve account. It will have to transfer those moneys from the reserve into the ordinary account. We shall certainly have to get the agreement of the Parliament to release the funds in any one year.

Mr. George Park (Coventry, North-East)

The words "fair" and "reasonable" have been used several times this afternoon. In answering one of her hon. Friends, the Prime Minister talked about some negotiations with Spain. I draw her attention sharply to the Spanish Government's decision to limit to 15,000 the number of cars allowed into Spain and to keep the level of tax to 45 per cent., the same as it is now. What is fair and reasonable about that?

The Prime Minister

I am very much aware of that point. That is one of the matters that is being negotiated with Spain. If Spain did not come into the Common Market it would apparently be more difficult to obtain a negotiation of the type we seek—which would, we hope, after the transitional period, result in a much fairer balance of tariffs between Spain and this country. What I said about the European Assembly applied to the unblocking of the 1983 refunds, but not to the future arrangements which will automatically operate by reducing our VAT contribution in the following year.

Mr. Robert Hicks (Cornwall, South-East)

Is my right hon. Friend aware that there is an economic price worth paying to ensure the future stability and development of the European Community? My right hon. Friend's arrangements are not excessive. Does she agree that one of the principal objectives now must be to extend Community policies in those areas that lead to genuine job creation?

The Prime Minister

I am grateful to my hon. Friend. I should make it clear that without the new arrangement we had no right to any refund under the existing 1 per cent. VAT. The Labour Government left us with no right to any refund. [Interruption.] The hon. Member for Blackburn (Mr. Straw) seems to be confirming what I have said. No previous Government left us with any rights. The agreement was renegotiated under the Labour Government, but it left us with no right to any refund. The Opposition may not like that, but they cannot argue with the truth of it. Without the new arrangement, we should be paying about £1,200 million to the Community this year.

On the new policies, I entirely agree with my hon. Friend that it is vital to pursue developments in the new electronics and that we pursue as fast as possible a common market in services. Those are the two areas likely to lead to most job creation in the future and in which there has been most job creation in the United States and Japan, both of which use a much smaller proportion of the national income in public expenditure than we take in Europe.

Mr. Stuart Bell (Middlesbrough)

Why has the Prime Minister not referred to the bridging loan that the EEC will have to raise in October due to the British Government's dragging their feet? Why has she also not mentioned the £8,000 million lost across the exchanges each year in our manufacturing trade? Why has she not achieved a lasting agreement and why does she not have the control over the budget that she has suggested she has? Does she agree that that is a failure on behalf of the European Community and on behalf of the British people?

The Prime Minister

First, we have not agreed to any such loans. It looks as though the budget as at present drafted may be in deficit this year, but article 199 of the treaty provides that the revenue and expenditure shown in the budget shall be in balance, so it is not right to raise loans for budgetary purposes because it is contrary to that article. The matter has been remitted to the Council of Finance Ministers and this country and Holland have made proposals about reducing the expenditure to bring the budget within its income. The Court of Auditors has also made certain proposals. Those proposals must be considered first. Otherwise, I believe that methods other than loans will have to be found to bring the budget into balance, because it is contrary to the treaty to have a deficit on the budget, and that must be taken into account in any proposal.

The reason for the manufacturing imbalance is that we are not so good as some manufacturers in Europe at producing the goods that people in this country choose to buy. That should be a lesson to us in design and competitiveness and I hope that we shall learn it.

The agreement is lasting in the sense that this particular arrangement is specifically linked with, and lasts as long as, the 1.4 per cent. own resources. That means that the 1.4 per cent. cannot be varied upwards without the agreement of the British Government and every other Government, and the agreement of every Parliament. If I am still at the Dispatch Box, as I hope that I shall be, however long it may be, it is inconceivable that we should agree to such an increase in our own resources without a similar or bettter arrangement for our refunds.

Several Hon. Members


Mr. Speaker

Order. I appreciate the importance of this statement, but there is very important business to follow and many Members wish to speak. I propose to allow questions on the statement to continue until 4.30 pm, but I hope that each Member will ask one question, not several.

Sir John Biggs-Davison (Epping Forest)

In view of Spain's attitude both to Gibraltar and to the Falklands, did my right hon. Friend explain that the United Kingdom's consent to Spain's accession will depend on a change in that attitude?

The Prime Minister

I did not make that point specifically at this European Council meeting, but my hon. Friend will be well aware of our commitment to Gibraltar. When Spain joins the Community, it must be on the basis that the barriers between Gibraltar and Spain are open.

Mr. Eric Deakins (Walthamstow)

Is the Prime Minister able to agree an increase in VAT own resources in the absence of detailed—I stress the word "detailed"—financial estimates about the proposed expenditure to be financed out of the increase? Would she adopt such a cavalier and financially incompetent attitude to proposed increases in public expenditure in the United Kingdom?

The Prime Minister

As the common agricultural policy depends on world prices of crops related to European prices and as about 70 per cent. of expenditure is related to that it is very much more difficult than dealing with our expenditure in the United Kingdom. We had estimates before us when we considered the former arrangement, which lasted for three years, but those estimates were entirely falsified by events, giving us a much larger refund than we expected. The hon. Gentleman will know of the difficulties in being precise about the common agricultural policy many years hence. That is why we proposed the arrangement whereby each year we establish the total public expenditure and the amount for agriculture.

Mr. Tony Marlow (Northampton, North)

As an increase in own resources to 1.4 per cent. will give the Community control over an additional £700 million of United Kingdom taxpayers' money on top of the higher net contribution compared with the previous three years, to what extent and in what areas will Community policies replace United Kingdom policies and to what extent and in what areas does my right hon. Friend intend to cut public expenditure or raise taxation?

The Prime Minister

I must stress again that the amount that we shall be paying after refunds under the 1.4 per cent. VAT is less than the amount that we are now liable to pay under the 1 per cent. VAT. Without this arrangement, we should be paying about £1,200 million this year and £1,200 million next year. We shall actually be paying less. [Interruption.] If the question is based on a premise that is not quite right, I am bound to point out the correct one.

As for where the extra expenditure will go, an example to which most people agreed was the ESPRIT programme. That will come out of the European budget because it is a very good European project to which we contribute. We also hope that a greater proportion will be spent on structural matters and the economic and social fund, as right hon. and hon. Members often request. We should like a greater proportion of the budget to be spent on projects such as youth training and structural improvements in various areas.

Mr. Jack Straw (Blackburn)

Does the Prime Minister recall that when she started these abortive negotiations she told the House on 1 November 1979 that she was seeking a broad balance between our contributions and the amount that we got back? Does she agree that, compared with the target that she set four and a half years ago, yesterday's settlement is a humiliating failure for Britain, in which the only flag that she raised for Britain was not the Union Jack but the white flag of surrender? If that is not so, will she confirm that, despite all the sabre-rattling about rebates, Britain's net contributions in the past five years of Tory Government have been 100 million per year higher in real terms than they were under the Labour Government? Finally, will she admit what she has so far refused to admit—that next year and the year after that, despite the rebates, Britain's net contribution will be more than it has been in the past three years? Does she admit that that is so?

The Prime Minister

It is so because I got such a good deal before—so good that when it ran out we could not be allowed a further continuation of it—and we have had years of ad hoc arrangements in which the liability left to me was that which was renegotiated by the Labour Government and no one else.

Mr. Cranley Onslow (Woking)

Looking ahead, does my right hon. Friend agree that it is essential to public confidence in the European Community that control over the supply of British taxpayers' money to the Community budget should remain vested in this House? Will my right hon. Friend take this opportunity to assure us that the House retains that right and will be able to use it in future years?

The Prime Minister

My hon. Friend is asking whether we are attempting to give the European Assembly powers to directly raise revenue from the people of this country, avoiding the House, in the form of direct taxation from the European Assembly. we have no such proposals and would vigorously resist any such proposals.

Mr. Tom Clarke (Monklands, West)

Is the Prime Minister aware that her statement this afternoon bears little resemblance to the early-day motion that more than 100 of her right hon. and hon. Friends invited the House to support?

When the right hon. Lady refers to new jobs, will she say whether or not there was discussion about the need to stop the haemorrhage of old jobs, especially from the steel industry where Britain has made a major contribution towards reduced capacity?

The Prime Minister

We had quite a long discussion about jobs under the heading of the London economic summit. We also had a long discussion at the summit.

As I said earlier, we have noticed that both Japan and the United States are better at job creation than Europe. Their markets are much more able, and find it much easier, to embrace change. They have much more enterprising cultures, and far less rigidity in the labour markets. All those considerations mean that they have far more jobs in the new electronics and, because of more flexibility in the labour market, far more jobs in the new service industries. Many more people are involved in small industries. All of that was extensively discussed.

We thought that there would be no point in trying artificially to maintain jobs in old industries too long at the price of failing to create jobs in the new industries of tomorrow.

Mr. Fergus Montgomery (Altrincham and Sale)

Can my right hon. Friend confirm that, if she had meekly accepted the terms that were renegotiated by the previous Labour Government and had done nothing at all about getting a better deal for Britain in Europe, this country would have paid £3 billion more over the past five years? Can she understand the attitude of the Labour party, which did so little when it had the chance and which is now so mealy-mouthed about a deal that is far better than anything that it achieved?

The Prime Minister

As we have gained refunds of £2.5 billion, the figure that my hon. Friend gives is not far wrong. We have done a very good deal for Britain. I do not believe that the Labour party could or would have done it. Britain would have been the worse for its attitude towards the Community.

Mr. Dick Douglas (Dunfermline, West)

Can the right hon. Lady confirm that she has, in effect, abandoned the goal of a radical reform of the common agricultural policy? While the CAP might consume a smaller proportion of the budget in percentage terms, that will continue to increase in absolute terms.

How can we have faith in a restructuring of budgetary proposals when her Government propose to reduce regional expenditure? How can we have faith in the Community's ability to have a common market in services when the French in particular, as was pointed out yesterday by the hon. Member for Eastleigh (Sir D. Price), close their coastal shipping market to our ships while we open our waters to the French?

The Prime Minister

A reform of the common agricultural policy has started with guaranteed thresholds and quotas. I do not know whether the Labour party would wish to say to the agricultural community and those who depend upon farmers, which is about 10 per cent. of the working population, that the quotas should have been tougher than they were. If the hon. Gentleman thinks that that is Labour's policy, will he please say so, and let the 10 per cent. of people who depend upon the health of the agricultural industry know that that is his case?

With regard to regional expenditure, we hope that expenditure on the economic and social funds will take a bigger proportion of the European budget, not a lesser one as it has in the past.

Mr. Ian Lloyd (Havant)

Those of us who have recently had the opportunity of visiting Japan wish to endorse as powerfully as we can my right hon. Friend's strong perception of the massive industrial challenge that will be mounted to western Europe from the countries on the Pacific rim. Was her perception of that challenge shared by the other Heads of Government?

While Governments and Heads of Governments are preoccupied annually or triennially with discussion of what is really no more than 1 per cent. of our gross national budgets and 0.01 per cent. of the wealth of Europe as a whole, how will we mount the necessary response, without which we shall certainly go down?

The Prime Minister

The challenge of Japan has previously affected the whole of the trade of western Europe. We used to be one of the centres of the latest electronics but now the main part of the trade has moved to Japan and to the United States. We have a good deal of that market in this country, but it is small in proportion to that of Japan. We must study the methods that have enabled the Japanese to go ahead far faster than we have. My hon. Friend is quite right, in that, because we have taken so much time on the problem of the budget, we have not been able to turn as much attention as we should to these vital problems. We shall now be able to do so.

Mr. Roland Boyes (Houghton and Washington)

Is it not a fact that Britain, which is one of the four poorest countries in the Community, will still pay cash via the EEC to five of the six richest countries in Europe? Does the Prime Minister realise that, although she might be able to explain that to her constituents in Finchley, I shall have a hell of a job to explain it to the 25 per cent. who are unemployed in the north-east?

The Prime Minister

If we did not belong to Europe, much of the investment that comes to this country from overseas would not come here. That would have a very damaging effect on jobs. If the hon. Gentleman wishes to give notice that overseas investors should not come to his constituency, I shall take note.

Mr. Kenneth Warren (Hastings)

May I congratulate my right hon. Friend on the sterling progress that she achieved at Fontainebleau? Was there any discussion of the scandalous sale of cheap food to the totalitarian regimes of Eastern Europe, when it would be so much better to give the poorer people of western Europe and the Third world the opportunity to buy it?

The Prime Minister

We did not discuss that matter in detail. One problem is that products such as butter, which is in refrigerated surplus, are not easy to send overseas to, say, African countries. Products such as milk powder are sent in great quantities to countries that have need of them because they are short of food.

Many countries in Africa will say to us—rightly, in my view—that they do not want to depend upon cheap surplus food from Europe. They want aid to enable them to produce food supplies for themselves. So we use food surpluses to help those countries, but it is much more important that they get aid to produce food supplies themselves.

With regard to selling that food to people in Europe, the more one does that, the less they will buy existing production, and there will still be a problem of surplus. We must try to sell the surplus in a way that would increase demand. As my hon. Friend knows, it goes from time to time to schools and to retirement pensioners.

Mr. Tam Dalyell (Linlithgow)

As American interest rates have gone up since the London economic summit, and in the light of the Carthagena conference, what constructive ideas do the leaders of western Europe have about Latin American debt? Is not that debt extremely dangerous and might it not dwarf any problems that have arisen in relation to the Continental and Illinois bank?

The Prime Minister

We have discussed the conclusions of the London summit. The hon. Gentleman will be aware that we gave special attention to that matter at the London economic summit. I said that each country had to be dealt with case by case. Mr. Larosière of the International Monetary Fund had endorsed that approach a few days previously, when we set out a framework of rules for trying to solve that problem. But the way in which they should apply must be determined individually. The hon. Gentleman will find full details in the communiqué for the London economic summit.

Mr. Peter Lilley (St. Albans)

Will my right hon. Friend confirm that any requests to the House for an increase in own resources will be conditional upon prior enactment of an effective system of control over Community spending? Does not that raise the paradox that was alluded to my right hon. Friend the Member for Worthing (Mr. Higgins)—that we are trying to encourage the Community to spend less by offering it more? Would my right hon. Friend try to dissuade an alcoholic from drinking by offering him unlimited whisky if he signed the pledge

The Prime Minister

Analogies always break down, so it is dangerous to use them. Part of the reason for the increase in own resources is to enable Spain and Portugal to enter the community. I hope that most people agree that it is very important to us all that Spain and Portugal remain within the democratic comity of nations and that they both stay in NATO and know that we are anxious to have them in the Community as we are to keep them in NATO. It might be worth spending a little money on that, even though our own contributions to the Community under the 1.4 per cent. would be less than we are now liable to pay under the 1 per cent. VAT contribution.

With regard to when we shall put the text of the 1.4 per cent. before the House to amend the amendments to the treaty, and how we shall demand that the objectives for budgetary and financial discipline are met, the appropriate part of the communiqué that was provisionally agreed at Brussels stated: The European Council invites the Council of Ministers to adopt the measures necessary to guarantee the effective applications of the principles referred to. There will be a great deal of discussion and argument about how those principles will effectively be put into practice. We shall be here arguing for the maximum control, I hope, in the budgetary procedures.

Mr. Kinnock

I should like to ask two brief questions arising out of the statement and answers given by the right hon. Lady. In her repeated references to what Britain might be liable to pay if she had not accepted this package, is not the right hon. Lady asking us to accept that any rebate is better than no rebate, regardless of the attached conditions? If she is now admitting that, under the new formula, the rebates will be smaller because, in her words in answer to an earlier question, the other members would not allow anything else, how can she seriously ask us to vote higher value added tax contributions to the Common Market in return for a worse deal than she got previously, as she already acknowledged?

The Prime Minister

The answer to the right hon. Gentleman is no. It is because I would not accept just any rebate that we have taken this long to negotiate. I would not accept just any rebate. That is why we went on rejecting and rejecting, until we got what we thought was a fair deal. [Interruption.] It is no earthly good: the right hon. Gentleman cannot get over the terrible faux pas he uttered after he had seen Mr. Mitterrand. He did not expect anything to come out of Fontainebleau. He is very sad, sorry and upset that it has. The rebates have been smaller in recent years than they were on the formula. The formula applied in a way that was not expected. We have had lower rebates. I was not prepared to go on having lower rebates, so in 1984 we got a higher rebate, but I do not expect the right hon. Gentleman to be good at arithmetic. The rebate will be higher again in 1985.


Mr. Neil Hamilton (Tatton)

On a point of order, Mr. Speaker. The House may inadvertently have been misled by something said by my hon. Friend the Member for Orpington (Mr. Stanbrook) during questions on the Prime Minister's statement. My hon. Friend did not sign the cautionary early-day motion 637 in my name, That, in the opinion of this House, a convincing case for increasing the 'Own-Resources' of the EEC has not yet been made. The motion has been signed by more than 100 Conservative Members. That is sufficient evidence of the feeling on this side of the House.