Budget Council (Hansard, 25 April 1985)

§ The Economic Secretary to the Treasury (Mr. Ian Stewart)
With permission, Mr. Deputy Speaker, I should like to report to the House on the outcome of Tuesday's Budget Council in Luxembourg.
After meeting a delegation from the European Parliament, the Council considered the proposals contained in the Commission's letter of amendment No. 3 to the 1985 preliminary draft budget.
An essential feature of the draft budget is its provision for the United Kingdom's 1984 1 billion ecu abatement on the revenue side of the budget. This will take place when the own-resources decision has been ratified by all member states.
On the expenditure side, the Council agreed an additional provision of 1.955 billion ecu for agricultural expenditure. The total figure agreed for agriculture in the 1985 budget is consistent with the Commission's price proposals for 1985.
The Council increased food aid appropriations by 26 million ecu to compensate for changes in world grain prices to ensure the fulfilment of commitments on levels of food aid made at the Dublin European Council in December. In the light of the Brussels European Council's agreement in March, provision of 70 million ecu was entered into the reserve chapter 100 for integrated Mediterranean programmes.
In response to a request from Belgium, the Council agreed in conjunction with the Commission to re-examine estimates of the VAT tax base for 1985 in each member state to verify the accuracy of the existing figures. The results will be reported to the Council in due course.
Consequent on decisions taken by the Budget Council, the total supplementary finance required in 1985 in excess of the Community's own resources is 1.981 billion ecu. This figure is nearly 1 billion ecu lower than that originally requested by the Commission. In accordance with the conclusions of the Foreign Affairs Council on 17–21 March, the Budget Council confirmed that this supplementary finance of 1.981 billion ecu would be made available in the form of non-reimbursable advances through an inter-governmental agreement. I will place a copy of the text in the Library as soon as the definitive version is available.
I made it clear that payment by the United Kingdom under the inter-governmental agreement would be dependent upon the prior approval of Parliament. This is recorded in the text of the agreement. Member states' contributions to the inter-governmental agreement will be related to their VAT rates in the Budget. Based on the estimated United Kingdom 1985 VAT share of 21.34 per cent., the United Kingdom's gross contribution will be some 423 million ecu. This will be partially offset by additional receipts and our remaining net contribution will qualify for the two thirds Fontainebleau abatement.
The Council concluded by establishing a draft budget for 1985 and sent it to the European Parliament.
The agreement provides a realistic basis for the 1985 European budget and is a satisfactory outcome for the United Kingdom. The overall figures for agricultural expenditure and for the inter-governmental agreement were lower than had been sought by other member states, 1002 and the net cost to the United Kingdom will, as a result of the Fontainebleau mechanism, be significantly less than the net cost of last year's inter-governmental agreement.

§ Dr. Oonagh McDonald (Thurrock)
Will the hon. Gentleman admit that he did not very much want to make a statement to the House on this important issue, and that he wrote to one of my hon. Friends saying that these matters would be dealt with by written answer? Will he admit that it was only pressure from the Opposition that ensured a statement on these fundamental issues?
Does he agree that the statement conceals more than it reveals? Is it not clear, for example, that the £630 million rebate which was agreed at Fontainebleau now has strings attached, and that the British and other Parliaments will have to agree to the increase in the VAT ceiling before the rebate is paid? That rebate was not originally subject to linkage of any kind, and repeated statements by the Economic Secretary and other Ministers were made to that effect as late as January this year. Will he admit that, rather than give the anodyne statement that he has made?
As for the non-reimbursable advance of £250 million which is to be paid in 1985, will the Minister give an unconditional guarantee that we shall not have to make further payments such as that this year? When is the matter to be debated? Does he agree that that is not likely to be until the autumn and that we shall not get the rebate until the inter-governmental agreement and the agreement on the VAT ceiling is reached and that Community funds will then be running out? Will he admit that a gun will be held at the heads of Members of Parliament when debating the issue at that stage?
Will he admit that two thirds of the payment will not be returned during the year, but that it will reach us towards the end of 1986? Will he also admit that, although some will be returned, we are still paying £80 million more towards farm spending this year? That is one of the features which the statement conceals.
Is it not clear that the proportion of farm spending in this budget has increased from 67 per cent. in 1984 to 74 per cent. — yet more money going on quite wasteful farm spending — and that that makes nonsense of the claims that farm spending has come under control? Even the Commission's proposals made that clear when it proposed a 3.6 per cent. cut in cereal prices when, in view of last year's cereal harvest, it should have been 5 per cent.
Is it not clear that there is no real intention to curb or control farm spending? Does the Minister agree that the Prime Minister's abject failure at Fontainebleau to guarantee that the principles of budgetary discipline fonn a legal part of budgetary procedure has now proved disastrous? Does he agree that there is no hope of achieving budgetary discipline without fundamental reform of agricultural policy and that he and the Government have long ago abandoned any attempt to do that?
It is quite clear that the Economic Secretary acquiesced to increased farm spending. Does he agree that his statement is grossly misleading because he initiated cuts in the Commission's proposal for increased food aid? How does he justify that disgraceful contribution in view of the worsening famine in Ethiopia and the Sudan and the fact that 5 million people are now at risk? How can he agree to pay rich farmers more and refuse aid to the starving, for that is what he did when he proposed those cuts?
How can the Government —

§ Mr. Tony Marlow (Northampton, North)
On a point of order, Mr. Deputy Speaker. Is it not—

§ Mr. Deputy Speaker (Mr. Harold Walker)
Order. We have a very important debate ahead of us and many hon. Members want to take part in it.

§ Dr. McDonald
To conclude — how can the Government agree to a budget that contains 74 per cent. spending on agriculture and only 5 per cent. each on the regional and social funds, when there are 15 million unemployed in the European Community as a whole, of whom two fifths are under the age of 25, and of whom one fifth of the overall total are found in the United Kingdom? How can the Economic Secretary justify his acquiescence in such a budget?

§ Mr. Stewart
I find it difficult to agree with anything that the hon. Lady said in that lengthy question. The Opposition requested an oral statement and I was glad to agree to make it. The suggestion that the British delegation had initiated the so-called cut in food aid is completely wide of the mark. The proposal for the inclusion of such a figure in the agreement of the Budget Council was made on the recommendation of the Presidency, and I was perfectly willing to support the proposal put forward to all member states.
The hon. Lady suggested that part of my statement concealed the real implications of the agreement of the Budget Council, because I had somehow agreed to new strings being attached to the 1 billion ecu rebate for the United Kingdom. That is not the case. It was made clear at Fontainebleau that the arrangements for the United Kingdom abatements would follow the introduction of the new own-resources decision in the Community and that is the position as it remains. All that was discussed and settled at the Budget Council was the mechanics by which this would happen in relation to the draft 1985 budget.
The hon. Lady then spoke about further payments in 1985 under the inter-governmental agreement. A number of member states proposed that the amount in the agreement should be left open-ended, but I made it plain that the United Kingdom could not accept any such proposal and that the Commission would have to find other savings if it found itself in need of money at the end of the year.
The hon. Lady also asked about time for a debate. I remind her that the Budget Council that I attended on Tuesday was the first reading only, and there are several further stages, both in the European Parliament and the Council, before the budget can be adopted. No doubt these matters will be debated when the questions are settled.
She asked about the return of the two thirds Fontainebleau abatement in respect of this year's IGA. It was agreed at Fontainebleau, and it is the only practical method of operating this, that the abatement should affect the VAT payments for the United Kingdom in the following year, so the abatement will apply in 1986.
The hon. Lady concluded by suggesting that the Government had failed in their attempts to introduce new systems of control and discipline in the finances of the Community. I entirely reject that assertion. The need for further expenditure this year is due to the excesses of the past and not to anything that has been decided on the 1985 budget, in respect of which the budget discipline arrangements did not apply.
1004 The hon. Lady says that a fundamental reform is needed. That is what we achieved, and I would have thought that she would support us in what we have done.

§ Mr. Terence Higgins (Worthing)
What argument is there for any increase in agricultural expenditure when we already have such obscene surpluses in the Common Market? What effect will this proposal have on protectionist pressures in the United States?

§ Mr. Stewart
On the second part of the question, the composition of the agreement on price fixing in the Agriculture Council was the most relevant part for competition with the United States. I shall have to ask my right hon. Friend to address his question to my right hon. Friend the Minister of Agriculture, Fisheries and Food. As to the agricultural surpluses, the difficulties that the European Community has faced during the transitional period between Fontainebleau and the introduction of new own resources, if agreed at the beginning of next year, is that there has been an accumulation of surpluses in intervention because previous price fixing was too high. Undoubtedly, that created pressure on the budget during last year and this. We have been able to maintain a tight restraint on the budgetary expenditure of those years, which has played an important part in discouraging the Commission from putting forward proposals to increase these surpluses in the future.

§ Mr. Russell Johnston (Inverness, Nairn and Lochaber)
What is the timetable for the ratification of the own-resources decision? What is the background to the Belgian request for verification of the accuracy of the VAT tax base? Rather more specifically, which countries wanted a higher inter-governmental agreement and agricultural expenditure?

§ Mr. Stewart
A number of countries, including Germany, Ireland, France and others with a strong interest in agricultural expenditure, were anxious either to leave open the sum in the IGA or to insert a higher figure. The Belgian request was a technical question about the relationship between estimated figures for the national VAT base during the course of the year and the outturn, because the Belgians felt that their estimates have tended always to overstate the position. It is merely a request to the Council and the Commission to look at this as a pattern to see whether individual member states have such a continuing problem from year to year. The amount of VAT paid by each member state is always adjusted s6 that the actual figure in due course agrees with the amount paid.
As to the ratification of the own-resources decision, the intention is that that should be achieved before the end of the year, but the actual timing of its implementation will depend upon parliamentary and other procedures in each of the member states.

§ Mr. Eric Forth (Mid-Worcestershire)
My hon. Friend said that the size of this request for moneys depended on the Commission's proposals for agricultural prices being adhered to. What assurance can he give us that the stance taken by the Federal Republic on cereal prices will not affect us adversely, and that we shall not be asked for yet more money later in the year? Where does my hon. Friend believe that the Commission's savings in other areas will come from, to avoid the request for yet more money later in the year?

§ Mr. Stewart
The implications of the German request about cereal prices are still under discussion in the adjourned Agriculture Council meeting, and it will meet again in a few days' time to take that further. I made it clear both to the Council and to the Commission that the United Kingdom expected that if there was any unexpected overrun on agricultural expenditure beyond the figures that we have been considering, they should deal with that by a number of means that would not require member states to provide more funds during 1985. One of those — [Interruption.] Perhaps I may answer the question. One of those would be by the opportunities for market management within the stock disposal programmes. Another would be by the allocation of underspend, which normally takes place from year to year and is evidenced in the closing months of the year. In the last resort, it may be that if there was a shortage in the last few weeks of the year, it would have to be deferred into 1986. I am not prepared to accept in the Budget Council that the figure is flexible in the light of the decisions of the Agriculture Council.

Several Hon. Members
rose—

§ Mr. Deputy Speaker
Order. I have to protect the other business of the House and I intend to allow questions on this statement to run until half past 4.

§ Mr. Nigel Spearing (Newham, South)
Is it not a fact that the treaty of Rome requires the budget for any one year to be within the own resources for that year? In view of the 2 billion ecu non-reimbursable advances under a future international agreement, are not those resources going into the funds for 1986? Does not that fact question the legality of this budget? Does not the budget risk being declared ultra vires?

§ Mr. Stewart
I would need to ponder the legal questions behind the hon. Gentleman's point. That point certainly does not raise any doubts about the legality of the budget. It has been the normal practice every year for certain year-end adjustments to be made. Indeed, that is the only way in which business can be done. During our discussions on the inter-governmental agreement last year, I explained on a number of occasions that it was not against the treaty for member states to contribute exceptionally finance that could be used for budgetary purposes.

§ Mr. Teddy Taylor (Southend, East)
Is it not rather insulting to the poor that, at the same time as we are discussing reductions in supplementary benefit for poorer families, the Economic Secretary is reporting that we are agreeing to a 1 billion ecu overspend this year, to a further increase of 25 per cent. in real terms this year and to an increase in the percentage given to agriculture? Does the Economic Secretary not agree that what he has announced as Government policy makes it abundantly clear that we are kidding ourselves if we think that there is a possibility of a reform of CAP?

§ Mr. Stewart
No, we are not kidding ourselves about that. Both the financial and the agricultural guideline measures that have been agreed will have a profound influence. One of the reasons why Agriculture Councils have proved so difficult is that the Community has had to face up to restraint on agricultural expenditure. I do not know how my hon. Friend gets the figure of a 25 per cent. increase in real terms next year. Even if the 1.4 per cent. 1006 ceilings were introduced, it would apply only to the VAT part of the own resources of the Community. Allowing for the United Kingdom's abatement, the average will he below that.
It has been the Government's objective during these negotiations to constrain the growth of agricultural expenditure. That is the whole purpose of the budget discipline arrangements that have been agreed. The funds which have been required during the European budget years 1984 and 1985 reflect the failure and lack of a system of effective budget discipline in the past.

§ Mr. Tom Clarke (Monklands, West)
How much thought did the Council give to the influences that led to increases in world grain prices? How certain can we be that this decision will not lead to similar problems?

§ Mr. Stewart
Changes in world prices can work in both directions. Increases in world prices narrow the difference in costs between world prices and Community prices, and therefore the costs of intervention disposal. These matters are under continuous review by the Commission. The Commission makes adjustments in the light of changes.

§ Mr. Marlow
As the Government are rightly jealous of public expenditure, what benefits will the British taxpayer obtain from the expenditure of another £240 million of his money? In the past we have bailed out extravagances. If we bail out extravagances this time, how will we stop them in future? What will be our net contribution? What procedures will be put before the House so that we have an opportunity to stop this lavish and imprudent rake's progress? When will that be done?

§ Mr. Stewart
I have already said that this is the first stage in the budgetary process. The proceedings were delayed from autumn last year when these matters would normally have been settled. The Government will put proposals in due course when the budget can be adopted and the United Kingdom's abatement is guaranteed. A substantial part of that extra £240 million—about half, although it may be more—comes back to this country automatically through Community policies from which British citizens and taxpayers benefit. Under the Fontainebleau agreement, we shall receive in abatement two thirds of the balance. That will mean that our net contribution in respect of the inter-governmental agreement is likely to be below £40 million. This compares with more than £50 million last year. The intergovernmental agreement total this year is about double last year's, but there will be a smaller net contribution from the United Kingdom.

§ Mr. Eric Deakins (Walthamstow)
Will the Economic Secretary confirm that agricultural spending in the Common Market next year will be able to increase by at least 15 per cent. and will still be within the financial guideline which the Secretary of State negotiated on this country's behalf? Is it not disgraceful that, on top of the increases this year, there could be a further substantial legitimate increase next year too?

§ Mr. Stewart
I do not think that the hon. Gentleman's figures sound correct. To obtain a figure comparing next year's agricultural expenditure with this year's, we must wait until this year's budget is settled. We have not had a budget for next year, but it will have to conform with the agricultural guideline. Under that guideline, agricultural 1007 expenditure is related not to the increase in own resources but to the increase in the own-resources base, which will be increased by a smaller figure.

§ Mrs. Virginia Bottomley (Surrey, South-West)
Is my hon. Friend aware that many will welcome his statement and the fact that long-standing disagreements about resources can be replaced by constructive discussion of the real purposes behind the European Community, the creation of the conditions of prosperity and employment and, above all, the maintenance of democracy and peace?

§ Mr. Stewart
I am most grateful to my hon. Friend for that statement. I believe that many hon. Members will welcome it. I sometimes think that the House spends too much time dwelling on the negative aspects and the problems involved in our membership of the Community and does not recognise that the Community is important to us with respect to a number of our policies.

§ Mr. Stuart Holland (Vauxhall)
Will the hon. Gentleman confirm that the Commission originally proposed 65 million units of account to preserve the real value of food aid to Third-world countries? Will the Economic Secretary confirm that he, or one of his colleagues, pressed for the lower figure of 25 million or 26 million units of account? Will the hon. Gentleman explain what the difference means in real terms of food aid, granted that, depending on the dollar exchange rate, it could certainly amount to some 150,000 tonnes of grain which would, therefore, not be available to Third-world countries suffering from drought?

§ Mr. Stewart
No, I shall not confirm any of those points.

§ Mr. Holland
I am not surprised.

§ Mr. Stewart
If the hon. Gentleman wishes to make those assertions, he is perfectly entitled to do so. I have already explained that the figure put forward by the presidency was agreed by all member states, including the United Kingdom, as a realistic amount to meet the price changes that had been occurring. A number of member states, including the United Kingdom, pointed out that the price basis on which the Commission made its original request was not substantiated in any way that would enable the Council to assess its validity. When the figures were put forward, it was the consensus of member states that the figure suggested by the presidency was the proper one.

§ Mr. Jonathan Aitken (Thanet, South)
Instead of my hon. Friend giving his critics a ticking off for concentrating on the negative aspects of the announcement, will he explain what on earth are the positive aspects of the decision to increase agricultural spending in the EC? When the Common Market is spending more than £20 million a day dumping and destroying huge surpluses, how on earth can one think that it is constructive to put still more money into increasing agricultural spending?

§ Mr. Stewart
Like my hon. Friend, I have the strongest aversion to providing extra money for the accumulation of agricultural surpluses in the EC. It so happens that the finance in the 1985 supplementary provision is mainly in respect of accumulated surpluses from past years. Under the existing arrangements of the Community's finances, those surpluses must be disposed 1008 of. A cost is incurred in relation to the disposals. That is a problem from the past, and we are determined that it should be reduced in the future. I do not propose to explain in terms of today's announcement about the intergovernmental agreement that any of that money is designed to encourage the increases of such unnecessary surpluses in the future.

§ Mr. Dennis Skinner (Bolsover)
Has the Minister noticed that the leader of the SDP is not using his bully-boy tactics today to get to the Dispatch Box on this question? He was one of the people, amongst others in the SDP and the Liberal party, who clamoured to get Britain into the Common Market without a vote. We now see the result of that. Does the Minister accept that it is a rather strange philosophy for the Government, who say that Britons are not allowed to borrow money to finance jobs, somehow to lend money to the Common Market? They give it £240 million in a credit-card economy system to get back £630 million, if we are lucky. Is it not time that the Government made it plain that if those rules can apply to the Common Market and it can borrow money to survive, British manufacturers and others and the 4 million out of work in Britain should have the same opportunity so that our economy can expand and the unemployed can find work?

§ Mr. Stewart
I shall not attempt to respond in detail to the hon. Gentleman's comments about financial figures. I shall repeat, in case the hon. Gentleman was not listening, that the net cost of the agreement to the United Kingdom is not £240 million but less than £40 million. He might also recall that the leader of the SDP was a member of the previous Labour Government who achieved nothing in terms of the reform of the Community's financial system. It is disgraceful that the Labour party is now criticising the Government for having brought about necessary reforms in the agricultural and financial arrangements for Europe.

§ Mr. Bowen Wells (Hertford and Stortford)
Is my hon. Friend aware of the admiration felt by many people in the House at the patient way that he and other Ministers have negotiated with our colleagues in Europe so that we are beginning to achieve some kind of discipline over expenditure? Did he examine the disbursement side of the budget, in particular in relation to food aid? Many of us are becoming worried that the Commission, although being given authority to spend, is not spending the money and delivering the food to those who need it in accordance with his wishes and those of our country?

§ Mr. Stewart
I thank my hon. Friend for his generous remarks. It is a matter of concern that food aid provided through the Community should not be unduly delayed. I draw his attention to the remarks that I and a number of other hon. Members made about that subject during the debate on the Court of Auditors' report. We have been successful in having the Court of Auditors' report considered at ministerial level in the Community. That is an important step towards achieving a better administrative system for the implementation of the agreed food aid.