European Communities (Finance) Bill

HC Deb 25 June 1985 vol 81 cc795-870

Order for Second Reading read.

4.50 pm

Mr. Tony Marlow (Northampton, North)

On a point of order, Mr. Speaker. We have passed a business motion to allow the Representation of the People Bill to go on until a late hour. The 10 o'clock rule has been dispensed with. This is an important constitutional Bill—

Mr. Speaker

Order. The hon. Member has misread the Order Paper. That motion will be considered at 10 o'clock.

Mr. Teddy Taylor (Southend, East)

On another point of order, Mr. Speaker. Back Benchers have three hours in which to make their speeches on the European Communities (Finance) Bill. Would it be in order to suggest that we have another two hours to debate this vital Bill? Can anyone but a Minister propose such a step?

Mr. Speaker

That cannot be done. The Money Resolution will provide a little additional time for debate.

Many right hon. and hon. Members wish to take part in the debate, so I hope that speeches will be brief. I shall apply the ten-minutes limit on speeches between 7 o'clock and 9 o'clock and I hope that those hon. Members who speak before then will bear that in mind.

I have not selected the amendment in the name of the hon. Member for Thanet, South (Mr. Aitken).

Mr. Marlow

Further to the point of order, Mr. Speaker. Is it or is it not possible for the Leader of the House or anyone else to move that the time for the debate be extended beyond 10 o'clock?

Mr. Speaker

No such notice has been given and notice must be given for such a motion to be moved.

4.52 pm

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

I beg to move, That the Bill be now read a Second time.

The House will realise that this is the most significant piece of primary legislation affecting our position in the Community since the European Communities Bill 1972. I therefore propose to begin by putting the present Bill into a wider perspective, by making plain to the House the important part which Community membership plays across the whole range of our foreign and economic policies.

Our role as a leading member of the Community is increasingly central to our position in the North Atlantic Alliance, to the quality and weight of our contribution to the dialogue between East and West and, indeed, to our ability to maintain a worldwide foreign policy. It is the effectiveness of our presence in the Community which is the key to our influence on the future of Europe, and so to our capacity to promote Britain's interests in the wider world.

With or without our membership, the European Community would be a major factor in Britain's economic life. If we were outside, we would have free access neither to a single large market for our goods and services, nor to a group of countries which can serve as partners in the battle to compete in the new technologies. If we were outside, the problems created by agricultural subsidies in the Community itself, the United States and elsewhere would be much more serious for us than they are. If we were outside, we would experience the impact of Community policies without being able to shape or influence them.

Those are only some of the reasons why our future so plainly lies within the European Community. That is why the great majority of the House is now rightly concerned that we should succeed in that setting. I want in this debate to show how we have already brought our influence to bear in the Community, and to describe the opportunities that have opened following the agreement reached at Fontainebleau last year.

The wider debate is, of course, already well under way about the development of the Community's policies and institutions over the next decade. There is a new and growing determination to achieve a genuine common market in goods and services; to ensure that Europe can make the most effective use of its economic strength, compete successfully in world markets, and so offer long-term job opportunities for its peoples.

The Community of ten will soon become the Community of twelve. Spanish and Portuguese membership of the Community will reinforce democracy in those two countries. The wider Europe will be able increasingly to work together in external affairs.

All this has been made possible by the agreement reached at Fontainebleau. At the core of that agreement was the solution of what became known as "the British budget problem". That is the question which this Government placed firmly at the top of the Community agenda when we came to power in 1979. The problem was not just that Britain was paying too much. It was a problem that itself lay at the heart of the whole structure of the Community. It was a problem that our predecessors had completely failed to solve, a problem which was tackled in earnest for the first time only by the present Government.

The urgency of the problem was sharpened by the mounting cost of the common agricultural policy and by the imminence of Spanish and Portuguese accession, but it was brought to a head and brought to a conclusion only by the tenacity of this Government: by our determination to secure a fairer system and to light hard for our interests within a strong and vigorous Community.

As the House is well aware, long and hard negotiations were necessary, in the first place, to persuade our partners to accept the basic validity of our argument; and then to persuade them — no less difficult — to accept the consequences for themselves of putting our financial contribution to the Community on to a fair basis.

The agreement reached at Fontainebleau, the effect and consequences of which are embodied in the Bill that is before the House today, was then the culmination of a long process. It has been a process in which my two predecessors as Foreign Secretary, and my successor as Chancellor of the Exchequer, have all battled tenaciously, under the leadership throughout of my right hon. Friend the Prime Minister. The house should pay tribute to them all.

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

Tell us what you have done.

Sir Geoffrey Howe

I am much too modest to say but, as the Prime Minister told the House last year, the outcome of those negotiations was good for Britain and good for the Community. It is better than anything else previously on offer. It is far better, of course, than the reforms proclaimed by the Opposition when they were in office. We have achieved the fundamental change in the operation of the Community which eluded them completely.

It is difficult to overstate the significance of what was won at Fontainebleau. We secured the repayment of our 1983 refund of £434 million. We secured agreement to our abatement for 1984 of £600 million. Most important of all, we secured agreement to the establishment of a durable system for the abatement of our contribution. That system is embodied in a legally binding form in the own resources decision which the House is, in the first subsection of this short Bill today, being asked to approve for inclusion in the list of Community treaties in the European Communities Act 1972.

The agreed arrangement features an automatic system for the abatement of our VAT contribution. In 1986 alone, this will be worth around £830 million to this country. Over the next three years, it will be worth £2.5 billion. Henceforth we shall be contributing only half what we would have had to pay under the present 1 per cent. ceiling. That is the effect of the agreement which I am today commending to the House.

Mr. Marlow

Is my right hon. and learned Friend about to say that, although we are about to agree to Community own resources of 1.4 per cent., we shall be paying less than 1 per cent. —that is, of course, after rebate? My right hon. and learned Friend will know that the average cost after rebate over the last four years of United Kingdom Community membership in VAT terms has been 0.5 per cent. What are the additional benefits for us from doubling our percentage VAT payment over future years?

Sir Geoffrey Howe

If my hon. Friend will be kind enough to listen to me, I shall deal with precisely that question.

It is important to recognise that the rebates that we were receiving in the years before Fontainebleau were themselves on a declining trend. It is important to recognise that figures such as those offered by my hon. Friend the Member for Northampton, North (Mr. Marlow), averaged over a four-year period, and those averaged over the period to 1972, are wholly fictitious and misleading. They take account of the low figures payable during the long transitional period. I want to focus on the figures that were payable during the last year before Fontainebleau and the figures that would have been after Fontainebleau, if it had not been achieved.

Mr. Marlow rose—

Sir Geoffrey Howe

My hon. Friend will have his opportunity to speak.

As a result of the agreement made at Fontainebleau, France will contribute to new Community policies through the allocated budget at a rate of 26 per cent., Germany will contribute at 31 per cent. and the United Kingdom will contribute at only 7 per cent. France is now becoming a significant net contributor to the Community budget for the first time. Within two or three years, France is likely to be a larger net contributor than the United Kingdom.

The system is worth more to us than the previous refund arrangements, and it has many other advantages. We shall no longer have to negotiate about the amount, argue about the timing or justify how the money is used. Instead of ad hoc and arbitrary refunds, our VAT contribution will be reduced automatically and without procedural argument each year. The system is built into Community law. It will last as long as the 1.4 per cent. ceiling remains in place — [Laughter.] The hon. Member for Hamilton (Mr. Robertson) should listen to the facts and face them. That can be changed only by the unanimous decision of the member states and with the agreement of all their Parliaments, including our own. There can be no change in the system and no further increase in own resources without the consent of this House.

Mr. Eric Deakins (Walthamstow)

I am grateful to the right hon. and learned Gentleman for giving way. Does this mean that we shall have another bargaining session in a couple of years' time in which we shall be blackmailed into giving way on the 1.6 per cent. to maintain our rebate? What sort of deal is that for this country?

Sir Geoffrey Howe

In the absence of unanimous agreement by every member state and endorsement by every member state's Parliament, the status quo continues.

Several Hon. Members rose—

Sir Geoffrey Howe

I realise, of course, that hon. Members wish to be satisfied that it was right to secure our abatement mechanism in the context of the increase in own resources.

I am convinced that the approach which we adopted was right. Unless we had been willing to consider the increase, there is no doubt that our partners would not have been ready to agree to any further refunds for the United Kingdom—

Mr. Teddy Taylor rose—

Mr. Nicholas Budgen (Wolverhampton, South-West)

rose—

Sir Geoffrey Howe

—let alone to accept the lasting system of abatements that we have now secured. I remind hon. Members that, whatever the justice of our case, we had no automatic right to a rebate. The automatic right to rebates is something that we have secured, and could only have secured, by success in these negotiations.

Mr. Budgenrose—

Mr. Ron Leighton (Newham, North-East)

rose—

Sir Geoffrey Howe

Let me seek to quell the interested crowd of inquiries by taking the interventions of two or three of the prime candidates.

Mr. Teddy Taylor

Has my right hon. and learned Friend seen the public expenditure White Paper which states that, in 1987, our contribution after Fontainebleau will be £973 million net, after all repayments? Is not this argument about rebates rather like my wife saying that she can get a bigger discount at Harrod's if she buys a mink coat rather than a fox fur?

Sir Geoffrey Howe

I appreciate that my hon. Friend has developed that joke on previous occasions, but it has nothing to do with the case. As a result of Fontainebleau, we shall pay half what we would have paid. We shall pay a VAT rate of less than 1 per cent.

Mr. Nicholas Winterton (Macclesfield)

But it is not less money.

Sir Geoffrey Howe

I shall allow my hon. Friends to make their own points in their own speeches.

If the 1 per cent. ceiling had remained in place, we should have had to make a net contribution of £1.5 billion to the Community in this financial year. As a result of the Fontainebleau agreement, and despite the accompanying increase in own resources, our annual net contribution will be half that size.

Mr. Budgen

Will my right hon. and learned Friend give way?

Sir Geoffrey Howe

No.

Mr. Leightonrose—

Mr. Deputy Speaker (Sir Paul Dean)

Order. We cannot have several hon. Members on their feet at the same time. It seems quite clear that the Foreign Secretary is not giving way.

Sir Geoffrey Howe

In the year immediately before Fontainebleau, we were contributing at £2.5 million a day. Those arrangements ran out last year. Without the Fontainebleau agreement, and relying on the 1 per cent. ceiling, we should have had to contribute at £4 million a day. After Fontainebleau, even with increased own resources, we shall be contributing at £2 million a day.

Mr. Leightonrose—

Sir Geoffrey Howe

That is the reality — a formidable reduction of that which would otherwise have been available. The only effect of failing to pass this Bill would be a continuing and substantial increase in the amount payable.

Mr. Leightonrose—

Sir Geoffrey Howe

What is more, as part of the Fontainebleau agreement, we have secured a system of budget discipline—

Mr. Budgenrose—

Sir Geoffrey Howe

—which has been one of the key objectives on both sides of the House.

Mr. Leightonrose—

Sir Geoffrey Howe

The essence of that discipline is the establishment—

Mr. Leightonrose—

Sir Geoffrey Howe

No, I shall not give way for the moment. The hon. Gentleman must be patient.

The essence of that discipline is the establishment of a financial guideline designed to ensure that agricultural spending grows at a lower rate than that of the own resources base as a whole.

Mr. Marlow

You do not believe that!

Sir Geoffrey Howe

The system was described by my hon. Friend the Member for Edinburgh, Pentlands (Mr. Rifkind) in the debate in the House on 11 December last year.

My hon. Friend the Member for Northampton, North said "You do not believe that." I invite him to address himself to the reality. The system of budget discipline which my hon. Friend the Member for Pentlands described is now plainly coming into effect. The Community showed its determination to start the process of reform in last year's price fixing.

Mr. Leightonrose—

Sir Geoffrey Howe

This year, the discipline has been seen in full operation. The effectiveness of the discipline has to start with the Commission, which is responsible for the price proposals. That is exactly what happened. The Commission's proposals this year were, and still are, within the 1986 guidelines. The Commission has undertaken to ensure that the final costs of the price fixing are within the agricultural figures already agreed by budget Ministers.

Mr. Budgenrose—

Sir Geoffrey Howe

My hon. Friend will have his opportunity to speak later.

Perhaps I might give an insight into the figures. The percentage increase in guaranteed spending in 1983 was 28.3 per cent. It was 15.6 per cent. in 1984, it is 8.4 per cent. for 1985, and the increase in the provisional draft budget for 1986 is 2.5 per cent. We could not have achieved a more dramatic deceleration than that. As a result of that decrease, the real price cuts imposed on the CAP last year were 4 per cent., as a result of which the real price cuts imposed on the CAP this year are 3.5 per cent. If that does not amount to the effective imposition of budget discipline, I do not know what does.

Mr. Budgen

Bearing in mind my right hon. and learned Friend's assurances that all will be well in the future, will the Government give a clear undertaking that they will not ask again for an increase in own resources to 1.6 per cent. before 1 January 1988?

Sir Geoffrey Howe

The position remains as I have stated it. Budget discipline is now in force and effective. There can be no question of this Government or any other, or of the Council, considering the prospect of an increase in own resources without taking into account the need for unanimity in the Council and endorsement by the House. Then, as now, we shall have to take account of the fluent and persuasive advocacy of my hon. Friend the Member for Wolverhampton, South-West (Mr. Budgen) and others.

Mr. Nigel Spearing (Newham, South)

Will the right hon. and learned Gentleman give way?

Sir Geoffrey Howe

Perhaps the hon. Gentleman will allow me to continue for a moment.

For next year, the pattern is the same. The Commission's preliminary draft budget for 1986 proposes a figure for agricultural spending which, at 64 per cent. of the Community total, is also well within the guideline.

That is also so in the Council this year. Price cuts have been agreed for tobacco and most fruit and vegetables. Prices for wine, beef and sheepmeat have been frozen. Milk quotas have been reinforced and a further 1 per cent. cut in quota implemented. Even on cereals, the argument has not been, as so often in the past, about a price increase but about the size of the price cut. Once again, in the Agriculture Council we saw a 9:1 situation. But this time it was not Britain alone arguing with the rest of the Community against price increases, but Britain and eight other member states all arguing for a price cut, and achieving it.

Mr. Spearing

Does the Foreign Secretary recall that at Stuttgart he said that his conditions for increasing VAT to 1.4 per cent. would be effective budgetary discipline and a rebate mechanism? He has achieved the second. Does he agree that budgetary discipline is not enshrined in the Bill? Regulation 4972/1/82 is but a conclusion, which, according to the European Scrutiny Committee, does not have legislative force. As a former Chancellor of the Exchequer, how can he ask the House for legislation to pay more without legislation constantly to control what is being paid?

Sir Geoffrey Howe

I appreciate the hon. Gentleman's point, to which he has previously directed attention. The agency and institutions of the Community have committed themselves in the decision to which the hon. Gentleman refers to be bound by budget guidelines and discipline along those lines. If one looks at the way in which those matters are being applied, one sees that the institutions of the Community are applying precisely that budget discipline.

The hon. Gentleman refers to my past as Chancellor of the Exchequer, and I know only too well that the battle to sustain budgetary discipline, whether nationally or internationally, must be fought year after year. In maintaining the pressure for reform of agricultural policy, as the House would wish and as we shall, none of us should delude ourselves that there are easy options open to us, either within the Community or outside it. It is a matter of sustained application of political will. No automatic device can achieve that.

The Community has not been alone in devising a system which has paid for the real benefits of security of supply, and decent living standards for those who work on the land by subsidies, which have imposed a heavy burden on taxpayers, and strains on relations with trading partners and on Third world producers. The United States, for example, is in a similar position. The problem cannot be solved by denunciation, but only by determined reform from within. That is precisely the programme to which the Government and the Community are now committed. We shall sustain that programme.

Dr. Oonagh McDonald (Thurrock)

The Foreign Secretary has just said that the budgetary battle must be engaged in each year, both nationally and in the EC, yet the Economic Secretary to the Treasury in his article in The Times today said that the reason for voting for the Bill should be because it will prevent a return to the guerrilla warfare that has characterised EC budget discussions for many years. Perhaps the right hon. and learned Gentleman would care to get together with the Treasury so that they can put forward one reason for the Bill, and not more than one.

Sir Geoffrey Howe

I am delighted that the hon. Lady has read my hon. Friend's article, but sorry that she has not seen as much wisdom in it as she should have done. The sentence she mentioned precisely reinforces the point that I made earlier, but which she may not have noticed. I have said that from now on there will be no guerrilla warfare from year to year between Community states about the British budget contribution. All that is resolved, and a durable system has been put in place. The hon. Lady must understand that, not surprisingly, my hon. Friends and I are making precisely the same case—and an extremely good case.

We have achieved the conditions that we set before we should be ready to agree to any increase in own resources. The increase proposed for the Community as a whole is to 1.4 per cent. That represents an increase of up to 20 per cent. in the own resources available to the Community. For Britain it is justified by the plain fact that we shall be better off after the increase than we were beforehand. But there are much broader arguments than that for the change.

The change is required to finance the costs of enlargement, which will grow to between 0.1 per cent. and 0.2 per cent. of Community VAT by the end of the transitional period. It has always been accepted that Spain and Portugal, which will be among the poorest members of the Community, should not find themselves net contributors. The Community as a whole has decided that it is worth making some financial contribution in return for the wider benefits of enlargement: an enlarged area of stability and democracy and a larger common market.

The increase is justified to finance the development of new policies, especially in the new technologies where we can operate more effectively as a Community than we can alone.

Mr. Marlowrose—

Mr. Eric Forth (Mid-Worcestershire) rose—

Sir Geoffrey Howe

I shall give way in one second to my hon. Friend, who has not yet had a bite of the cherry.

The increase is justified to meet existing commitments, which, in the past two years, have required supplementary finance. From now on, those commitments will be met within the framework of budget discipline that I have described.

Mr. Forth

As the House has never yet had an opportunity to give its opinion on the policy of enlargement, does my right hon. and learned Friend agree that for those of us for whom enlargement is not a wise policy his reason for the measure is invalid, and puts us in great difficulty? Does he agree, therefore, that it would have been easier for us if we had discussed and considered enlargement separately, instead of it being brought in under the carpet today?

Sir Geoffrey Howe

My hon. Friend will have to address himself to that question. If he finds that that argument is not persuasive, I hope that he will be persuaded by the other arguments that I have put forward. He will have an opportunity specifically to discuss enlargement when the accession treaty comes before the House. I have been giving the House a range of arguments why the Bill and agreement should be endorsed, four or five of which are in the interests of the Community, and one of which is overwhelmingly in the interest of the United Kingdom.

The increase is required because the VAT ceiling applies to the highest rate for any single member state. The mathematical consequence of abating the United Kingdom VAT rate is that the VAT rate of every other country increases. While other member states will be contributing to the budget at more than 1 per cent. VAT, we shall be contributing at less than that figure. Compared to the 1 per cent. that we would have paid, if we had stuck with the present ceiling—

Mr. Marlow

In the past, the figure for rebate has been only 0.5 per cent.

Sir Geoffrey Howe

It may have been 0.5 per cent. in the past but it will be a full 1 per cent. in future, which is a great deal more than we hoped to gain under the agreement.

Compared with that, our effective rate in 1986 will come down to about 0.8 per cent. That is the reduction which we have sought to achieve.

Mr. John Townend (Bridlington)rose—

Sir Geoffrey Howe

Forgive me, but I shall not give way. I must now proceed some distance.

I should like now to turn to the other part of the Bill before the House today: the second subsection, which provides for the intergovernmental agreement on the 1985 Budget.

The 1984 intergovernmental agreement was dealt with by a special Supplementary Estimate and a Consolidated Fund Bill. That was an exceptional procedure justified at the time by the urgency of making our intergovernmental agreement payment. This time round, we have chosen to use primary legislation, not because we consider inappropriate any other procedure, including use of section 1(3) of the European Communities Act 1972, but because there is a substantive link between the own resources decision and the intergovernmental agreement, and we wanted to give the House the fullest opportunity to debate both together. The House can hardly complain about that.

The intergovernmental agreement is essentially a transitional measure to cover the period until new own resources come in on 1 January 1986. It is a legacy from the period before the budget discipline agreement came into force.

About half our gross contribution under the present intergovernmental agreement of £250 million is likely to come back to the United Kingdom as receipts. Moreover, in contrast to the 1984 agreement, the expenditure covered by this intergovernmental agreement enjoys the full abatement agreed at Fontainebleau. Our net contribution will therefore be much smaller than the figure of £250 million that has caught attention. It will be only one sixth of that.

We accepted this year's intergovernmental agreement only when we were satisfied that three conditions had been fulfilled. They were that the position of this House on the authorisation of the funds had been fully protected; that the amount involved was the irreducible minimum required to meet obligations; and that the United Kingdom's 1984 abatement of £600 million was fully assured.

The reforms of the Community budget that we have achieved were necessary for their own sake, but they were more important than that. They provide the basis for the wider reforms we are now pursuing, to make the Community work better for the benefit of its citizens.

Let me close by telling the House something about our objectives. It is important that hon. Members should have these in mind as they consider the present proposals for financing the Community in the years ahead.

With the Fontainebleau agreement behind us, Britain has been able to make completion of the common market by 1992 the top priority of Commission and member states alike. The effective establishment of a single large market will not only give us an opportunity to exploit our strengths and skills; it is crucial to the creation of wealth and jobs and to the generation of profits that can stimulate research and the successful exploitation of our inventive skills. Completion of the common market is the biggest single contribution that we can make to enable European companies, British companies, to exploit and market their research on a European scale and so compete in world markets efficiently and successfully. That is the way to cut the dole queues throughout Europe.

In the run-up to this week's meeting of the European Council in Milan, we have put forward a number of ideas based on the guiding principle that we must decide as a Community what it is that we want to do, and can do better together, and then ensure that we have the means available to achieve those ends.

That is why we have put forward proposals for a timetable for completion of the common market, and for improvements in decision-taking through greater use of majority voting and through a safeguard procedure to ensure that member states do not abuse their capacity to block decisions. The ability to uphold a vital national interest by insisting on unanimity is maintained. We also propose formalisation of political co-operation, including the establishment for the first time of a very small secretariat to ensure continuity and co-ordination.

The opportunities are now open to us to make the most of our membership of the Community. It was for that purpose that the Government set out to achieve, and have achieved, a significant change in the basis of our membership. We have been strengthened in that task by the support of the House and by the detailed work of the Select Committee on the Treasury and Civil Service and the Scrutiny Committee, to the Chairmen and members of which I pay tribute.

Today, the House has to make a judgment, just as at Fontainebleau my right hon. Friend the Prime Minister and I had to make a judgment, on what was then and is now in the interests of the country as a whole. I am in no doubt that the agreement achieved at Fontainebleau represents a very good deal for Britain and a significant step forward for the whole Community.

Mr. Anthony Beaumont-Dark (Birmingham, Selly Oak)rose—

Mr. Townend

Will my right hon. and learned Friend give way?

Sir Geoffrey Howe

No, I am afraid not. I am now drawing to a close, because hon. Members would like me to do so.

My judgment is that, if we had taken the negotiations at Fontainebleau up to and beyond the point of breakdown, we should have not only lost the chance of a financial deal very favourable to Britain but destroyed the chances of starting the whole process of reform that is now under way. If we had sought to hold out and rely on the 1 per cent. ceiling, we should now be facing a net contribution to the Community budget that would be costing us not £2 million but £4 million a day. Instead of being able to mobilise the majority that is now taking in hand the reform of the CAP, we should have been in a minority of one trying in vain to challenge a budget that was still devoted to increasing expenditure on the CAP.

I do not believe that we would have been acting in the interests of the country to pass up that opportunity. Nor do I believe that the House would have wished us to embark on the only alternative means of securing a reduced British contribution—by unilateral action that would have been a breach of our treaty obligations and would have dealt a severe blow to our relations with our major allies.

Mr. Beaumont-Dark rose—

Sir Geoffrey Howe

I am sorry, but I shall not give way.

We have shown by the agreement at Fontainebleau that we can achieve our purpose by determined negotiation. [Interruption.] We achieved our purpose in that agreement by negotiation of precisely that kind. It is the outcome of that resolute campaign, pursued by the Government for the past six years, which is embodied in the Bill. On that basis, I commend it to the House.

5.24 pm

Mr. George Robertson (Hamilton)

I dare say that some people will be wondering why the Foreign Secretary is moving the Second Reading of the Bill, because, after all, it is presented in the name of the Chancellor of the Exchequer. However, for an explanation perhaps the House need look no further than the coverage of the European Community in Sunday's newspapers. All over both the quality and tabloid newspapers was spread the new hero of European politics—the British Foreign Secretary, now to be the saviour of the Milan summit. With amazing, not to say suspicious, unanimity, the papers suddenly see British initiatives, British leads and British solutions to the demise of the much-vaunted European union summit. Even yesterday's edition of The Times reached the stage of referring to Britain's quiet takeover of the Community this year in good humoured and well-orchestrated style.

Presumably the Government's business managers, who have been under siege recently, believe that if the Foreign Office could pull off such a well-organised publicity stunt, transforming what will be a collective lack of any new ideas about revitalising Europe in Milan this weekend into a triumph for British statesmanship, the same architects of the same public relations agency might just be able to pull off the same trick today with the Bill. Certainly they did not imagine that the Chancellor could do the same trick. Instead, the great conjuror himself has managed the three-card trick this afternoon and come up with each faceless card in turn.

The Bill represents a confession of failure, not success—a failure by the Government's own explicit standards which they laid down at the Fontainebleau summit last year, and a failure—indeed, a national humbling—which will now be enshrined in British law. The Bill is designed to increase the resources of the European Community by between 20 and 40 per cent., and endorse yet another free gift, or donation, as it was so well described in a previous debate, of another £250 million, but in return for what?

Mr. Robert Jackson (Wantage)

While the hon. Gentleman is talking about free gifts and donations, will he remind the House of the precise total sum of money yielded by the budget rebate mechanism negotiated by the Labour Government in 1974?

Mr. Robertson

The Foreign Secretary has already explained, in answer to criticism from Conservative Members, the difficulty of comparing earlier years, when transitional arrangements applied, with the present fiasco. It cannot easily be done.

The Bill is in return for what? It is in return for worthless promises on budget discipline, in return for a rebate which we shall eventually help to pay for ourselves, and in return for cashing in the only effective bargaining lever that this nation had for European Community reform. The deal which we are being asked to rubber-stamp today is little less than a sell-out, which will cost the country money, because, despite the much-trumpeted rebate and abatement, we shall still end up paying more cash to the European Community within the next two years. The deal is not permanent, because the new increase in the Community's own resources is already almost totally committed for 1986, as figures from the European Commission itself show. We shall be back at the negotiating table late next year when the cash finally runs out.

The deal has done nothing to control farm spending—that monster which piles up mountains of immovable, undisposable rotting food—while Europe's jobless millions continue to be ignored. Yet again only lip-service was paid to them in the speech of the Foreign Secretary, in a way that was paralleled only by his hon. Friend the Minister of State, Foreign and Commonwealth Office, when he opened the debate last Thursday. The veto two weeks ago by West Germany on the already feeble cereal price cut says it all. The Government have had five years of conflict and souring argument with our European partners, and have finally been sold an expensive pup. They have achieved nothing of substance, and have set the scene only for the next round of the fight.

Ministers may find it convenient to portray all opposition to that deal as arising from instinctive hostility to the European Community. That is of course convenient, but it is not true. For some people that has an element of truth, but the sordid way in which the sell-out is being oversold as a success will only feed the prejudices of those who, in any event, hate the Common Market and all that it stands for. The accusation will not stick.

Many others, both inside and outside the House, who criticise this foolish and injudicious package—those who, like myself, have always supported British membership of the Community—see see in this deal the objectives of the European Community betrayed, the genuine motivations of the Community undermined and its raison d'etre and potential subverted by a shoddy compromise which continues the present shambolic financial arrangements and leaves Europe still unable, unwilling and almost incapable of meeting the major challenges of unemployment, of a continent-wide recession, and of the need for growth of investment to permit competition with the rest of the world.

The Economic Secretary to the Treasury has, with a rare high profile for him, put his case—a case which has been transferred tonight lock, stock and barrel from the Treasury to the Foreign Office—in print in The Times today. In an article which reads rather like an election leaflet, he says: we achieved a system of budgetary discipline designed to bring the growth of Community expenditure under much tighter control … we see that the new budgetary disciplines are now beginning to bite … Fontainebleau has changed the rules for good. How different from the cautious, defensive responses from the hon. Gentleman in the pounding which he now regularly takes from the Treasury Select Committee. How colourful the language of that article compared with the meandering, conditional, reserved statements that he used in the House in January of this year, when the last topping-up exercise was made to EEC coffers. Yet what a fiction it is that is being peddled by the Government, a fiction which recent experience has already shown up in graphic style.

Last year the Prime Minister made the position clear when she told the House that only after a satisfactory agreement on expenditure control had been settled would she wish to put proposals to the House to implement the whole package. The Foreign Secretary used virtually the same words on 10 July, when he said: only"— note that the word "only" was used once again— 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." — [Official Report, 10 July 1984; Vol. 63, c. 897.] The great trick employed by the Foreign Secretary today is to pretend that everything that he said would happen has happened. Against all the evidence to the contrary, the right hon. and learned Gentleman simply says, "We asked for budget discipline. They agreed to that, and what we have — whatever the outside world may say and whatever all the evidence suggests — is budget discipline."

The facts are totally different from that. Has such control been settled? Only enough to justify today's package. There is no sign that that control has been given. The key to budget discipline is in the common agricultural policy, and that is up as a proportion from 68 per cent. of the budget last year to 74 per cent. this year. It is consuming most of the assets of the Community, mainly in piling up food mountains.

Mr. Forth

Does the hon. Gentleman agree that the likelihood is that the entry of Spain and Portugal into the Community will increase the political pressure on the EEC for higher spending, as both those countries have a direct vested interest in the maximum expenditure by the Community, as they are likely to be beneficiaries? That is another factor which throws increasing doubt on the effectiveness of budget discipline in the political sense.

Mr. Robertson

The hon. Gentleman is right. The pretence is that the additional resources being voted today will go to commendable and worthy projects, such as the new technology community, which, among his other fine initiatives, the Foreign Secretary has been proposing—none of which has been notified to the House.

The documents containing the Foreign Secretary's suggestions for the reform of the Community that will be before the Milan summit have not even been placed in the Library of the House of Commons. They appear to be available to the European press and, it seems, they are available in Brussels, but they are not available in this House. Yet they will be discussed as a British initiative at Milan next weekend. The way in which the House of Commons is being treated is an indication of how little value the initiatives will prove to be.

Three weeks ago, Mr. Frans Andriessen, the Commissioner for Agriculture, outlined the Commission's

latest thinking on long-term developments in the common agricultural policy. As The Guardian put it, Mr. Andriessen insisted that the starting point for reform must be the control Of prices. 'Let us have no illusions on this point. If the Community cannot succeed in controlling the markets through a restrictive price policy, sooner or later we shall find ourselves extending the empire of quotas. That is to be the target of those operating the guidelines for the common agricultural policy's internal budgetary discipline. That is to be the financial constraint and the real budget mechanism.

However, certain statements have already been made about that by some Ministers. For example, the Economic Secretary to the Treasury said in evidence before the Select Committee: I think the first demonstration of the effects of the budget discipline is that the agricultural price-fixing proposals for this year were put forward by the Commission within the guidelines. Thus, the proposals put forward by the Commission within the guidelines were to be the criteria by which we would judge the effectiveness of the financial discipline. Indeed, the Economic Secretary went on to say that the Agricultural Council had demonstrated that the guidelines imposed a tight restraint on agricultural expenditure.

How peculiar, in the light of that, to consider the history of the price proposals. The Commission first asked for a 5 per cent. cut in key cereal prices. That was thought to be demanded by the guidelines on budget discipline. It then allowed itself to be negotiated down to an unnegotiable 3.6 per cent. cut in cereal prices, and it was on the basis of 3.6 per cent. that the intergovernmental agreement which we are being asked to endorse was calculated. However, within days of the 3.6 per cent. figure being debated the Commission moved down to an almost ludicrous 1.8 per cent. proposed cut in cereal prices.

There followed the veto by West Germany. How could budget discipline be guaranteed by the self-restraint of the Germans if, on the first occasion when budget discipline was tested, they used the veto and reduced the effectiveness of the Commission?

In January, the Minister of State, Foreign and Commonwealth Office even dared, when replying to the debate on the European Communities budget, to quote the German Finance Minister, Herr Stoltenberg. Our Minister, justifying German self-interest as a reason for maintaining budget discipline, said that Herr Stoltenberg had said: We now have for the first time an effective instrument to bring about a sensible control of expenditure. The Minister went on: It is therefore easy to see why Herr Stoltenberg … and the French Finance Minister, will have an enormous vested interest in ensuring proper control of expenditure".—[Official Report, 22 January 1985; Vol. 71, c. 948.] Why should we bother to speculate about budget discipline when the one guarantee which the Minister offered the House in January of this year was vetoed six months later by the German Government? It is far easier to see why the pious words of January and the silly words in The Times today are to die along with budget discipline on the altar of the Bavarian farmers' vote.

Agricultural spending will still be demand-led. It will still rage on with loopholes and ineffectual paper guidelines pushing up expenditure. The only effective controls will be on the worthwhile side of Community spending — on the regional and social funds, energy, technology, pollution control and research. With the common agricultural policy, we shall simply continue to pay the Bills. It is truly bizarre to see the Government so obsessed with controlling and savagely cutting expenditure in this country but maintaining such a profligate attitude to expenditure in the European Community.

Mr. Marlow

I am grateful to the hon. Gentleman for giving way, particularly as he has just made the point that the Government are about to double our VAT take from 0.5 to 1 per cent. Will the hon. Gentleman address himself to another part of the Government's justification that the entrance of Spain and Portugal is like motherhood and apple pie, that it is a good thing and that we should all want it? The Foreign Secretary said that the cost of that will be equivalent to 0.2 per cent. of the VAT take, but that does not start until next year, and it will be up to 10 years before it is effective, so how is that a justification for increasing VAT today?

Mr. Robertson

Unlike the hon. Gentleman, the Opposition welcome the accession of Spain and Portugal to the European Community. We believe that it will have major benefits for them and for the wider Community. However, it is absurd for the Government to pretend that the increase in own resources is necessary solely to finance the accession of Spain and Portugal which, as the hon. Gentleman has said, has now been specifically identified as a negligible part of the funding. There is a great suspicion that the bulk of the additional resources will go in exactly the same way as they have always gone in the past—to finance the uncontrolled farm spending of the Community.

Mr. Budgen

As the Opposition favour the accession of Spain, Portugal and also, I believe, Greece, will the hon. Gentleman tell the House what calculations the Labour party has made of the cost of accession of those countries? Do the Opposition believe that it will inevitably combine with increasing costs of supporting farm surpluses and lead to the Government's coming to the House again before 1 January 1988 to ask for an increase in own resources to 1.6 per cent., as seems to be half promised in the Fontainebleau agreement?

Mr. Robertson

One does not have to be a statistical genius—I assure the House that I am not—to see that if the common agricultural policy remains in its unreformed state there is no question but that the money will run out. That is a point which the Foreign Secretary has signally failed to grasp. However, that does not alter the fact that the accession of Spain, Portugal and Greece can still be desirable and be contained within the budget of the European Community if the common agricultural policy excesses are controlled.

The Economic Secretary to the Treasury said in an article in The Times today: Fontainebleau has changed the rules for good. That is a prophecy and a half, especially from a Minister who has crawled back to the House time and time again with demands for refundable advances and supplementary payments and who is here today asking for another £250 million. He has now even dropped the word "repayable" from his description. The Foreign Secretary—a former Chancellor of the Exchequer—should today have spoken about the repayable advances that we have already made and precisely when and how those repayments will come back to the United Kingdom Treasury. There was not a whisper about that, because they will not be refundable, and even the pretence has now been dropped from the specification.

The Minister has publicly conceded, as well he might, that this may not be the end. In his evidence to the Select Committee on the Treasury and the Civil Service last week he said: there was considerable pressure from a number of Member States to leave the amount open on the grounds that, if the price fixing was not completed, it might actually require more money. In The Times today the Minister said that the present requirement was a direct result of the lack of budgetary discipline in the past, and takes no account of the new arrangements. Yet he has said that there is still pressure from member states to leave the door open because the price fixing is still not complete, whatever the Commission says about pushing through the 1.8 per cent.

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

If the hon. Gentleman had bothered to read the rest of my evidence he would know—I also made this clear to the House—that I rejected any possibility that the amount of the intergovernmental agreement should be increased. The Council accepted that and the Commission has also agreed, so there is no question of that being reopened.

Mr. Robertson

The Economic Secretary might be well advised to keep to his hobby of archaeology and to dig more carefully over the old bones of his past statements. In January this year he said: I should like to think that supplementary budgets for the European Community would not be a thing of the future, but that would be too optimistic".—[Official Report, 22 January 1985; Vol. 71, c. 884.] Either he has dropped that caveat or he is becoming unduly optimistic. Certainly his statements do not carry much conviction. He may have been able to persuade the Commission, but some member states believe that there will still be a demand for more money until a price settlement is reached. That is what many people in this country also believe and what the Minister's evidence to the Select Committee drives us to believe. Given the Minister's record, I do not think that the House will have much confidence in his statement that the Community begging bowl will not be coming round again in the coming year.

The Economic Secretary says that Fontainebleau has changed the rules for good, but the European Commission apparently thinks otherwise. In a statement two weeks ago it said: For its pan the Commission does not feel itself to be bound by 'budgetary discipline' considerations (this is an internal matter for the Council) with the exception of the farm prices aspect, on which the Commission has given certain undertakings. Mr. J. B. Unwin, deputy secretary in the overseas finance section of the Treasury, in evidence to the notorious Select Committee inquiry on 17 June, said frankly and openly: the budget discipline agreement is not absolutely watertight". Clearly, there is a division in the Treasury ranks on this. Mr. J. B. Unwin was obviously not a co-author of the Economic Secretary's article in The Times, or perhaps he was told to write something else—"Yes Minister" lives again.

Mr. Marlow

The hon. Gentleman seems to be saying that the 1.4 per cent. VAT limit will not work or even exist and that further supplementary advances will be required. Perhaps he will be kind enough to give way to the Treasury Bench, as I am sure that the Government are anxious to make it clear that the hon. Gentleman is wrong, and to do so as clearly and quickly as possible.

Mr. Robertson

If the House will allow me a couple of minutes longer, I shall drive the nail further into the coffin. I shall then be delighted to give way to the Foreign Secretary if he wishes to answer the point.

A press release issued by the European Commission last week refers to the VAT call-up rate for the preliminary draft budget for 1986, which the Foreign Secretary had the audacity to boast about as an example of budgetary discipline. It says on page 3 that the VAT call-up rate will be 1.35 per cent., even under the strict assumptions on which the draft budget is based. This leaves only a slight margin of about 900 million ecu up to the new ceiling of 1.4 per cent. VAT. Therefore, from the words of the Commission itself we see that the budget margin at present, even making assumptions such as zero price increases, will be only 900 million ecu. That is for the 1986 budget. Therefore, hon. Members who have said that there will be an increase in own resources up to 1.6 per cent. in 1988 had better revise backwards the date at which we can contemplate Ministers scurrying back to the Dispatch Box.

Mr. Deakins

Is that Commission press statement and announcement based on the assumption that the Commission's draft budget, with its proposal for a 1.8 percent. cut in cereal prices for the 1985–86 marketing year, will go through? If it does not go through, would that not reduce the margin still further?

Mr. Robertson

My hon. Friend is absolutely right. Not only that, but the budget for this year was written on the basis of a 3.6 per cent. cut in cereal prices, not 1.8 per cent. We do not know whether the 1–8 per cent. will go through, but we do know that the 3.6 per cent. will not. Therefore, there is already an imbalance in the budget, and that circle must be squared.

We must never forget how the last negotiation was conducted, given this evening's events. The much vaunted rebate that has been negotiated was to have been unconditional. Indeed, in our debate in January the new writer for The Times said: whatever decisions were taken about the mechanism for dealing with the Community's financial decisions in 1985, they would commit themselves to implementing in 1985 the Fontainebleau … abatement for 1984 to the United Kingdom."—[Official Report, 22 January 1985; Vol. 71, c. 886.]

Yet only six months later our rebate is strictly conditional and absolutely tied hand and foot to three conditions: first, the Bill must go through this House and every other Parliament in the European Community; secondly, this Parliament must now agree to the supplementary budget; thirdly, there must be ratification by the 10 member Parliaments of the accession of Spain and Portugal to the Community.

That is some bargain! We lost our unconditional rebate, and we will soon be back at the negotiating table. We lost our veto on overspending. We have achieved no reform of the CAP. We have a shown-to-be-worthless guarantee on budget discipline. We have no guarantee that additional own resources will not just feed the agricultural black hole. We are forking out an additional £250 million in yet another supplementary bale-out payment, and probably more will be demanded. We have gone along with a colossal aid package, through the integrated Mediterranean programmes to Greece and other countries, which is bound to squeeze aid to our own hard-hit areas.

In his article in The Times the Economic Secretary to the Treasury said: Fontainebleau was a major achievement for the United Kingdom. If that was an achievement, we wait with dread to discover what failure is.

We are told by the Economic Secretary: there is no doubt that refusal to ratify the Fontainebleau agreement would cost us dear. We in this House must live with the fact that the passing of the Bill will also cost the country very dear. We will continue to spend more on the EEC, whatever the juggling with statistics shows, to the point where in net terms we will be spending £973 million in 1987–88.

For that we get a bloated and growing agricultural spending spree which piles up obscene surpluses, a total failure of political will to tackle the jobs crisis, which affects every nation in the Community and condemns more than 14 million of our citizens to unemployment, and a chronic inability to face the challenge of technology, pollution, energy and competition from Japan and the United States.

Mr. Nicholas Winterton rose—

Mr. Robertson

The Bill is all about endorsing a deal that solves nothing that is wrong with the Community, yet it concedes our one lever to make changes. It is a capitulation to the financial indiscipline that is at the root of the Community's inability to deal with Europe's problems. Far from being a permanent arrangement, it simply promises a return to the tangle when the new money eventually runs out. It has achieved only a temporary breathing pause at an enormous open-ended price. I urge the entire House to vote against it this evening.

5.55 pm

Mr. Edward Heath (Old Bexley and Sidcup)

Because of earlier events, the time for this debate is undoubtedly all too short — [HON. MEMBERS: "Hear, hear."] I thought that my hon. Friends would agree. It is the only thing on which I agree with them. I hope that I may be allowed to make a short intervention about the Bill.

The hon. Member for Hamilton (Mr. Robertson) said that he has always been a supporter of British membership of the European Community, but it was very difficult to discern anything in his speech to indicate anything of the kind. There was not a constructive proposal in the whole of that speech.

When the hon. Gentleman complained that my right hon. and learned Friend the Foreign Secretary had made a deal, the first reason he cited was that this Bill had to come to the House of Commons. What ground for complaint is that? He then complained that ratification of Spanish and Portuguese membership had to come before the House of Commons. Why must the hon. Gentleman complain about that? Thirdly, he said that the amount of own resources also had to come to the House of Commons. Why did he complain about that? This is the democratic procedure of the Community. The hon. Gentleman has absolutely no grounds for accusing my right hon. and learned Friend of having made a discreditable deal by insisting and agreeing that those three things happen.

Mr. George Robertson

If the right hon. Gentleman were accurate in what he says I said, there might be an element of truth in his accusation. The point I made was that the House was originally told that the United Kingdom rebate was unconditional. I was making the point—I am sure that many hon. Members on either side of the argument would agree—that the abatement is no longer unconditional, and that it is subject to three major conditions which must be satisfied before we get the money.

Mr. Heath

Those three conditions are laid down under the treaty in any case. They are not conceded by my right hon. and learned Friend. No country can join the Community unless every Parliament in the Community ratifies accession. That was not a concession made by this Government, and the hon. Gentleman does not know the treaty or what he is talking about if he accuses my right hon. and learned Friend of a discreditable deal.

The hon. Gentleman made no constructive suggestion of any kind. He talked about agricultural reform. What does he mean? The Foreign Secretary has already given the figures for the increasing limitation on agricultural expenditure. When the hon. Gentleman and some of my hon. Friends are contemptuous about that, they should look at the impact on this country's farmers of even one move to control milk.

The last agricultural price review was vetoed by the Germans because the Bavarian farmers are CDU supporters, and the German Conservative Government were supporting their farmers. That is the problem. At last the fact has come out into the open that the French are not always the problem behind agricultural policy. From the beginning the problem has been the German Government, and it would be useful if this House made some attempt to understand the political problems of other people when dealing with agricultural surpluses and the price review.

Mr. Budgen

Will my right hon. Friend give way?

Mr. Heath

I am not prepared to give way. [HON. MEMBERS: "Oh."]

What does the hon. Gentleman propose to do about the agricultural system? Will he return to the system which his Government instituted in the late 1940s? Will he put that burden on the British exchequer? That amount is far beyond anything that has been mentioned tonight about our contribution to the European Community. The amounts needed to subsidise farmers or consumers are enormous. The Conservative party has always supported the farming interest and will continue to do so for as long as I have anything to do with it. We are supporting the farmers.

Mr. Nicholas Winterton

We are not. My right hon. Friend should ask my dairy farmers.

Mr. Heath

My hon. Friend has given me the case. Try to make one change in the agricultural price system and there is a revolt, especially from my hon. Friend. It is said that turning Britain from 63 per cent. self-sufficiency to 78 per cent. self-sufficiency has done us no good, but it has done the country an enormous amount of good. What reform does the hon. Member for Hamilton wish to bring about? The hon. Member has no idea other than to go back to the old subsidy system which the Labour Government inaugurated in the late 1940s.

Mr. George Robertson

In a brief intervention it is impossible to go over the numerous ideas available. Does the right hon. Member defend the obscene surpluses that have piled up in the past few years in the European Community, which are going to waste and which cannot be transferred to the southern part of the world, whose interests the right hon. Member holds dear to his heart?

Mr. Heath

What about the obscene surpluses which the Labour Government created when they operated a subsidy policy? It would be much more constructive if the hon. Member told us how to deal with the pricing of agricultural products in the Community and how to deal with the surpluses which arise.

The hon. Gentleman criticised Mediterranean agriculture. The only answer is to reorganise Mediterranean agriculture. [HON. MEMBERS: "Ah!"] It is no use hon. Members saying, "Ah!" To reorganise Mediterranean agriculture, the Community must have funds. There has been criticism of the cost of Spain and Portugal. Spain controls its wine and olive production. It is not a problem for Spain to control wine and olive production, because it has done so for a long time. Portugal is a poor country which we should be prepared to help. We have heard the economic point of view, but from a political point of view it is vital that we hold Spain and Portugal as democracies within the European family.

Some of us lived through the Spanish civil war—I was in Spain during the civil war—and some of us lived through the time of the dictatorship after the civil war. We do not wish that to arise again. That is why I am surprised that some Opposition Members do not wholeheartedly support the accession to the Community of Spain and Portugal—[HON. MEMBERS: "We do".] I am very glad. If the Opposition support the accession of Spain and Portugal, they must be prepared to support the cost.

Mr. Nicholas Winterton

And unemployment?

Mr. Heath

There will be unemployment if the Community does not move ahead in technology.

We will contribute 7 per cent. to the Community's budget, France will contribute 27 per cent. and Germany will contribute 32 per cent. I take no pride in the fact that two other major countries in Europe can contribute far more than we can because, over the past 10 years, our economy has become so weak. That has not happened because of membership of the Community. Had we not been in the Community, our economic position would have been far worse than it is today. It was because people realised that at the general election, when the Labour party lost so overwhelmingly, that the Labour leadership changed its tune and said, "We will stay in the Community." Why has the Labour party decided that? Because it knows that it is of benefit to be in the Community, and that we would lose jobs if we left it.

The second part of the Foreign Secretary's speech related to the future. I am glad that the Government have taken the initiative for the Milan summit. The problem with summits is that the Heads of Government do not have the time to reach decisions on the major issues of the Community. I would strongly urge that, instead of a day and a half or two days, the Heads of Government—even if it means meeting every six months instead of every three months — should give themselves more time to deal with those major issues. At present, they do not even have time to give effective instructions to officials to produce or carry out the policies that they agree.

Therefore, it will be necessary at the summit to concentrate on some matters, and the Foreign Secretary is right to say that we must concentrate on turning the Community not only into a Community with a common tariff, but into a completely free Community. Of course, that will mean bargaining, and the best way to get bargaining is to observe the treaty's provisions on majority voting. That is a basic principle. The so-called Luxembourg agreement was blown sky-high by the British Government when they tried to insist that the price review was conditional on the budget. They could not prove that the price review was of vital national interest, since they had agreed it; but they tried to prove that the budget was of vital national interest and they would not sign the price agreement. What happened? The rest of the Community went ahead without us. It is a great thing that that is now out of the way. Now we can deal on the basis of majority decisions—

Mr. Austin Mitchell (Great Grimsby)

What about the Germans?

Mr. Heath

I strongly disapprove of the German action, which the Commission has overruled. The Commission has said that it does not accept the German veto on the price of cereals.

We must bargain on making the Community completely free internally, and it would be very much to Britain's advantage if we did so. Let us not try to disguise that fact, because our service firms and manufacturers would have much greater opportunities in the Community. The second matter on which we must concentrate is technology. We all realise now that Britain cannot manage modern technology on its own. We are having to import technology and combine with it, for example in the car and electronics industries. Since we cannot do it on our own, Europe must do it together. That will involve budgetary expenditure to bring about the change and developments required—[HON. MEMBERS: "Oh, yes?"] Yes, and let us accept the consequences of that. It will mean some Community expenditure. Of course we must control it and ensure that the money is spent properly, but let us not try to avoid the fact that it will involve expenditure.

I know that the Foreign Secretary will disagree with me, but I believe that Britain should become a full member of the European monetary system. Unless we accept full membership, we shall not persuade the other members to accept developments inside the Community for removing the objections and barriers to trade, and we shall not get them to accept the technological developments that we want. They will say, "Why should we do this when Britain is not prepared to become a full member of the European monetary system? The arguments have varied during the past five years, and they are becoming fewer and fewer. The Governor of the Bank of England has said publicly that he sees no economic objection to our joining. We are driven back to the last remaining argument, which is that if Britain joins it will harm the Community. Not even the rest of the Community believes that. It is simply an obvious excuse being put forward. Let us abandon that and say, "Yes, we will become full members and accept all our obligations."

Those are the three matters on which the Milan summit should concentrate. We must recognise that the Community, despite what has been done, or because of the loss of momentum during the past 10 years, has fallen behind the United States and Japan.

The other day, I read in a rather disgusting article by my hon. Friend the Member for Southend, East (Mr. Taylor) that we are suffering because we are on the rim of the Community. Other countries are on the rim. How has California suffered by being on the rim of the United States? How has Japan suffered by being on the rim of Asia? That is a completely fallacious argument. Where we have suffered, it is because of our lack of productiveness and lack of technological development.

Mr. Nicholas Winterton

What do you know about industry?

Mr. Heath

I have had much more experience than my hon. Friend.

Mr. Winterton

Nonsense. Rubbish. You have worked for a bank.

Mr. Heath

There was a tradition in the House—

Mr. Teddy Taylor

Will my right hon. Friend give way?

Mr. Budgen

Give way to the disgusting man.

Mr. Heath

I did not refer to my hon. Friend the Member for Southend, East as disgusting; I referred to his article as disgusting.

Mr. Teddy Taylor

Thank you.

Mr. Heath

My hon. Friend intends writing another article, so he can go on from disgusting.

Europe has fallen far behind the United States and Japan in modern technology, and it is falling further behind. Britain has fallen behind a large part of Europe. The only way to remedy this is for European countries to determine and to have the will power to carry through their aim to move jointly into modern technology. Unless we do that, unemployment will increase.

Mr. Austin Mitchell

We have seen it.

Mr. Heath

But not because of membership of the Community.

Mr. Teddy Taylor

Will my right hon. Friend give way?

Mr. Heath

Unless we have the technological development—

Mr. Taylor

Will my right hon. Friend give way?

Mr. Heath

I shall not give way.

Mr. Taylor

Why not?

Mr. Heath

If my hon. Friend is prepared to say that this reform movement is hypocritical nonsense and that he wants to break up the Community, I shall give way to him. That is what he wants.

Mr. Taylor

I think that all hon. Members appreciate my right hon. Friend's grand visions for Europe, which he is perfectly entitled to have. How can he say that matters will be improved by giving more public money to an organisation that is spending 54 per cent. of its budget on dumping, destroying or storing food surpluses? How will that make things any better for his grand designs or those of anyone else?

Mr. Heath

If my hon. Friend were still a Member for Scotland, he would get all the weight of the Scottish farmers, especially the hill farmers, on him about dealing blows to agriculture. At Southend, it does not matter.

We all want to deal with surpluses. I particularly want the surpluses to go to developing countries which are suffering from famine. The Community has done a great deal, and we can urge it to do more. That is constructive. It is not constructive to don the guise of wanting to reform and then proceeding to condemn and damn and prevent the Community from developing or doing anything. That is what this debate is about.

Are we going to support the development of the Community and our own development, or are we just going to allow Europe and ourselves to slide further and further down the scale? I know what the answer should be, and I wish that this debate were on that theme, instead of tiny meticulous arguments such as those put up by the hon. Member for Hamilton.

The Labour Government had 17 Budgets in five years; yet the hon. Member for Hamilton is telling the Community that it should be able to foresee exactly its budgetary requirements 10 years ahead. What absolute nonsense. No Conservative Member can say what the Chancellor will put in his Budget in six months' time.

Mr. Nicholas Winterton

We are already in debt.

Mr. Heath

Yet we are saying to the Community that it has to prove the miraculous. There is another myth. There are many myths about this great bureaucracy in Brussels. Let me tell my hon. Friend, formerly a Member for Scotland, that the size of the staff in Brussels is lower than the size of the Scottish Office in Edinburgh.

Mr. Teddy Taylor

No.

Mr. Heath

It is; I checked the figures yesterday. Brussels is responsible for 320 million people; Edinburgh is responsible for 5½ million people. Which has the bureaucracy? Let us stop that spurious argument as well. Let us raise the level of this debate, as I have been trying to do, when we consider the great issues of state and, above all, the future of our country and of the European Community.

6.14 pm

Mr. Richard Wainwright (Colne Valley)

The right hon. Member for Old Bexley and Sidcup (Mr. Heath) expressed the very proper vision of the future at which the Community should aim. I hope that his intention with respect to lifting the level of debate will materialise. However, I have my doubts, judging by the number of sedentary interruptions to which he was subjected, but one must always hope.

The Foreign Secretary, after his confident opening remarks, seemed to lapse into the manner of an irritated and rattled infant teacher when he wagged his finger for a considerable period at dissident members of his party and in suitably simple words — mostly of one syllable — seemed to go over the top in claiming that the new budgetary guidelines for the Community, which are to be applied to the 1986 budget and onwards, are wholly satisfactory instruments. I wish that were the case, but I do not believe it is. The budgetary guideline is that net expenditure relating to agricultural markets will increase by less than the rate of growth of the own resources base. That is unlikely to happen, but, even if it did, it would be nowhere near enough. It does not satisfy the hopes which some of us have about what will emerge from the negotiations.

Not for the first time in a House that is dominated by the two major parties, alliance Members are baffled because the Prime Minister, speaking on 5 December 1984, said that the text on budgetary discipline could not be put into a treaty because one simply cannot get agreement from all 10 countries. All of them have, however, agreed that the Council, which is the deciding unit in the whole Community, shall be bound by the clause on financial budgetary discipline." —[Official Report, 5 December 1984; Vol. 69, c. 354.] Apparently, we have 10 member states that cannot get agreement; yet they have agreed. I make that point because the case for this budgetary discipline is based on the fact that they have agreed. The requirement of a synthetic triumph calls for the sacrifice even of the English language and of the possibility of matters being properly understood by the House.

Mr. Spearing

Did the hon. Gentleman not understand when I intervened on this very point during the speech by the Foreign Secretary that, while there has been a conclusion, it is not a decision with a capital "D" and therefore it is not enshrined in legislation? If we are talking about discipline, surely even that is necessary for the Liberal party.

Mr. Wainwright

I should have thought that, too, but it is difficult to be clear about what has gone on.

I am sure that all hon. Members sympathise with the Economic Secretary's burden, for which he is cast in the role of Atlas. When he came before the Select Committee earlier to explain the new system of budgetary discipline — he did so very lucidly — he emphasised that it was underpinned by this splendid agreement with West Germany. He invited us to consider that that was the big strength of the new deal and that it illustrated the new climate in the Community. However, when he came before the Select Committee more recently, he had to admit that West Germany was "hoist with its own petard" and that he felt very sorry for the West Germans.

All this gives no pleasure to the Liberal or Social Democratic parties, because we want the Community to get ready to move into this future about which the right hon. Member for Old Bexley and Sidcup spoke so convincingly. It is not convincing to have a system of budgetary discipline which the Commission says, I am assured, will only reduce the total claimed by the CAP from 66 per cent. to 64 per cent. in the next EEC budget.

Mr. Budgen

Will the hon. Gentleman confirm that alliance policy is that own resources should be increased to 2 per cent. as quickly as possible?

Mr. Wainwright

The hon. Gentleman, with whom I have some acquaintance, would expect me to cover that point, as, indeed, I shall. I am not in the habit of trying to conceal the alliance's intentions, as I spend my whole time trying to bring them to the notice of the public. I have just returned from Brecon and Radnor where I have had a satisfactory 24 hours doing just that.

Those doubts and worries about budgetary discipline must not cause us to descend into absurdly juvenile Community bashing. The motto that served the Conservative party only too effectively in the years when the mass electorate was less well informed about public and international affairs has been, "When the party is worried and nervous about unpopularity and its misconduct of public affairs at home, let it step up the bashing of frogs and wogs across the sea. That will divert the attention of the electorate." That is what the Conservative party is doing at the moment, but I do not believe that today's electorate will be deceived.

As the right hon. Member for Old Bexley and Sidcup reminded us, the House is not Simon Pure and it cannot lecture the Commission about budgetary discipline. The Labour and Conservative parties have seen to it, richly over recent years, that we have had our Concordes, Humber bridge, public sector pay bribes and many other pork barrels. The one thing true about a pork barrel is that it is always a leaky vessel. There is no way to keep a pork barrel full. Once we resort to mass bribery, the cry is always, "Give us more; give us more." That has been the cry of the leech down the ages.

We do not have much to crow about in this country over the detailed application of budgetary discipline. There is still a deplorable lack of accountancy skill in the Treasury, public purchasing departments and in the Departments which monitor the EEC. We have a long record, which will probably be broken this year, of gigantic public expenditure overruns. The party which was so set on ruthless and inhumane cuts in public expenditure has not been able to deliver them because it does not have the mechanism of proper financial control.

The Government must be thoroughly and more wholeheartedly willing than hitherto to agree to majority voting on the CAP. We should like to see West Germany voted down on that matter. I never thought that I should ever observe a more crass Minister of Agriculture in West Germany than the former Minister, Mr. Ertl. But West Germany now seems to have a Minister of Agriculture who out-Ertls Ertl. I thought that that was impossible.

The Community should be enabled to vote down West Germany and make it accept the medicine of majority voting which means accepting it ourselves in the future.

Mr. William Cash (Stafford)

Will the hon. Gentleman explain how he squares what he has just been saying with the statement made recently by the right hon. Member for Plymouth, Devonport (Dr. Owen), when he asked my right hon. and learned Friend the Foreign Secretary to assure the House that we would continue to use the veto in all circumstances?

Mr. Wainwright

The right hon. Member for Plymouth, Devonport (Dr. Owen) is well able to and must speak for himself — [AN HON. MEMBER: "He was speaking for the alliance."' There is no evidence that the right hon. Member for Plymouth Devonport was speaking forr j 6–3 the alliance. I was not present, and I am not prepared to be diverted by a red herring.

While stressing the need for greater budgetary discipline and a great improvement in the scheme, which apparently has so far been agreed to by the Council, it is of the utmost importance that the Community presses ahead in other expenditure regimes.

Research and development in most industries, compared with our Japanese competitors and the marvellously recovered United States, is in a pathetic state throughout Western Europe. It is no good kidding ourselves, and it is no good Labour Members kidding themselves, that little Britain can mount the volume of research and development required if we are to compete with Japan and the United States.

There is an urgent need to move to greater financial and currency unity within the Community. I was disappointed that the Foreign Secretary made no observations about the relative success of the ecu. I believe that it is now fourth in the list of Eurocurrencies. That is a remarkable achievement when the Community has been struggling in other respects. Will the Economic Secretary be able to tell us tonight that the British Government are urging full convertibility between official ecus and those held by the private sector? Are there other developments towards making the ecu, to some extent, a common currency in Europe, which is, of course, the objective of Liberals and Social Democrats?

Our message on unemployment at the last election was, has been since and will be that, although we have plans that we believe would substantially reduce unemployment in this country, they would be many times more successful if we were part of a European scheme aimed at reducing unemployment. That means a much more wholehearted commitment to the Community than the Government have shown. What is today's touchstone for the Government's commitment to the proper development of the Community? The Government should wholeheartedly welcome Lord Cockfield's plan to turn the Community into a genuine common market.

I was distressed to hear — I hope that I have been wrongly informed — that the Government are shilly-shallying about that. Although Lord Cockfield was one of the jewels in the Government's crown, apparently his proposals for turning the Common Market into what it was always intended to be are looked upon with some doubt by the Government. I shall be delighted if the Economic Secretary can assure me that I am wrong about that.

The claims for the Bill have been overstated. There is more to be done than the Government allow, but, because the Bill's aim is sensible and could lead, with greater Government commitment, to a quicker development of the Community along the lines that we have always cherished, we shall support the Second Reading in the Lobby tonight.

6.28 pm

Mr. Terence Higgins (Worthing)

No one can doubt that the Bill raises strong passions. It also raises issues some of which are simple and some of which are of greater complexity. It raises major conceptual problems and the arithmetic involved is not easy to understand. That being so, it is important that the House should be well informed on those matters. The Treasury and Civil Service Select Committee has fulfilled a useful function in that respect. Without its reports on the Fontainebleau agreement, we would know little about the agreement because the so-called communiqué was a scrappy piece of paper, published apparently by the President, drawing conclusions some of which turned out not to be agreed to by the British Government.

More recently, we have been grateful for the further evidence provided by the Economic Secretary. By chance we were able to take evidence from him only two days after the Bill had been published. I regret that we have been unable, in the short time available, to produce a report on that evidence for today's debate, so we have no collective view to offer. Nevertheless, the evidence quoted by a number of hon. Members, not least by the hon. Member for Hamilton (Mr. Robertson), is very useful.

I believe profoundly in the importance of British membership of the European Economic Community. We should appraise the Bill from the point of view not only of the United Kingdom but of the Community as a whole. The Bill cannot be regarded as a success in terms of our responsibility to keep the Community on the right tracks. Many of the steps that it ought to be taking, particularly in relation to making it a proper common market, do not require further expenditure. They require more sensible decisions by the Community rather than additional resources.

The complexity of the issues raised by the Bill stems from the fact that the Government failed to keep separate: two negotiations which ought to have been kept separate first, the need to ensure that the United Kingdom pays its fair share of costs and, secondly, the question whether the Community's own resources should be increased.

The Government and the Prime Minister asserted that we were not paying our fair share—that we were paying too much and that our contribution should be reduced. There was no question of a quid pro quo, because an imbalance of this kind needs to be rectified in its own right. As the negotiations proceeded, the Government fell into the trap of accepting that there ought to be some quid pro quo. That raises very difficult issues for this country.

Our bargaining position is extremely strong. For the first time since we joined the Community, we had the opportunity to reform the common agricultural policy. We have thrown away that opportunity. To those like myself who believe that the Community's future depends radically upon getting the common agricultural policy right, that is a matter of great regret.

Sir Anthony Meyer (Clwyd, North-West)

Will my hon. Friend give way.

Mr. Higgins

No. Many hon. Members wish to speak, and there is a great deal that I wish to say in a comparatively short time. I hope my hon. Friend will forgive me for not giving way.

Instead of standing firm, Her Majesty's Government went along with a number of dubious devices for keeping the Community going. We were told that under the treaty the Community is required to balance the books. The Prime Minister made it clear that there was no question of loans being made to keep it going. At one stage she said that it was not right to raise loans for budgetary purposes within the European Community because it was contrary to the treaty of Rome. However, within a short period, under the intergovernmental agreement, there was the charade that resulted in the invention of the interesting concept of reimbursable advances. In the view of the Select Committee, this concept was difficult to distinguish from a loan. It is rather like a semantic joke in rather bad taste.

Secondly, there were continual requests for more money. Some of those requests were, procedurally, very odd. For example, the Government decide to proceed one way, a case is fought through the courts, the unfortunate Mr. Smedley is left with the costs and the Government then proceed by a different route so that more funds can be provided. Another device is to make advance payments by resorting to the contingency fund and reimbursing it later out of the Consolidated Fund, on the basis of an estimate. Further payments are also made under the intergovernmental agreement for 1985 which is to be incorporated in the Bill. They are not reimbursable loans but straightforward advances.

This increase in expenditure has to be considered against the background of the House being asked to make severe cuts in a number of other areas, ranging from student grants to council housing. The additional expenditure has not been properly appraised against other priorities which require money to be spent upon them.

I concede what the Foreign Secretary said about the abatement. The amount we shall pay will be roughly half the amount that we should have paid without the agreement. Although the limit on own resources is to be raised to 1.4 per cent., it is expected, in the words of the explanatory memorandum, that we shall not pay more than 1 per cent. One is bound to point out that the explanatory memorandum does not form part of the Bill, a point to which we ought to return in Committee. Nevertheless, the public expenditure White Paper shows that the absolute amount that we shall pay as a result of all the negotiations will not be significantly different, in terms of cash, in the next three years from what it was in the last three years. Therefore, we have not achieved a significant reduction in the amount of money that we shall be asked to spend. In its own right that might be regarded as a tolerable outcome, but it has been achieved only by making substantial concessions and introducing the concept of a package.

I believe profoundly that we ought not to have agreed to a package. That was not our original bargaining position. The package is said to be subject to three conditions: first, that our arrangements for abatement should be confirmed; secondly, that there should be effective budgetary discipline; and thirdly, that the agreement of the House should be obtained. According to the mechanism that has now been devised, we may reasonably hope to receive the abatement.

However, the position on budgetary discipline is far more dangerous. The Prime Minister relied very much on the idea that others were now contributing more when she said: More EC member countries are becoming net contributors. Frankly, that is the best discipline that we can possibly have. After the use of the German veto to prevent even a modest reduction in cereal prices, that does not seem to be working very well in practice. The Select Committee reported that such broad political pressures are no substitute for effective budgetary control mechanisms.

Secondly, the two sides of the equation are clearly asymmetrical. If the Commission or the Council wants to reduce expenditure, an individual member state who objects has a veto. However, only a qualified majority is required for decisions about the budgetary mechanism and its framework. There is therefore a clear asymmetry, which biases the arrangement against the idea that this kind of control would be effective. We have not managed to achieve a balance. One notes that the financial document that is to be incorporated in the Bill takes the opposite view to the Chancellor of the Exchequer, who constantly tells us that finance should determine expenditure. We ought to be concerned about that.

In addition, we were told in evidence that there is a different spirit in the Community and that everybody is now very much in favour of budgetary discipline. We ought therefore to note what happened at a meeting of the Council only a few days ago: The Council noted that the Commission had not submitted to it the necessary figures for the establishment of the reference framework for the 1986 budget. Following a brief discussion the Council agreed to include this item yet again on the agenda for its meeting on 8 July. It does not look as though the Commission was rushing forward to provide the necessary information to ensure budgetary discipline. It is scarcely a happy picture. Budgetary discipline has not been achieved.

One ought also to draw attention to what the Prime Minister said on 27 June: 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."— [Official Report, 27 June 1984; Vol. 62, c. 1001.] That has not happened. The Foreign Secretary, I think by a slip of the tongue, referred to what is actually a conclusion of the Council as a decision. The text on financial budgetary discipline as was stated by the Prime Minister subsequently, is binding on the Council itself, but it is not being embodied into a treaty or technically—legally—into the budgetary process. [HON. MEMBERS: 'Why not?'] Because one simply cannot get agreement from all 10 countries." — [Official Report, 5 December 1984: Vol. 69, c. 354.] This is a very strange guarantee. If one went into a shop and asked to see the text of the guarantee on something that one was considering purchasing and was told that it had not been put in writing, one would be a little worried about it. If we had had genuine agreement on it, there would have been no problem with putting it in writing.

Are we actually aiming at the right target in budgetary discipline? The agreement is no more than to stop agricultural expenditure rising as fast as the own resources base. But agricultural expenditure, which is now two thirds of expenditure, will be almost two thirds after these arrangements have changed, so there is a vast increase in agricultural subsidy even under what the Government regard as effective budgetary discipline.

Against the background of vast agricultural surpluses, there is no case for spending more on agriculture. The fact that expenditure is not rising as fast as the total of own resources is neither here nor there. Effective budgetary restraint — a change in the system that we had the opportunity to achieve because of financial pressures—has not been achieved.

There are tremendous dangers for our trade with the remainder of the world, especially the United States. That country has massive agricultural support programmes, but under President Reagan it is taking action to get that under control. That is not happening in the EC. I fear that we shall run into major problems — not just on spaghetti, but on the whole range of agricultural products. For all those reasons, I do not think that we have effective budgetary discipline.

A great opportunity has been thrown away. If we did not take a stand on I per cent. of VAT, it is difficult to know whether we would take it at 1.4 per cent. Indeed, the explanatory memorandum makes no mention of one of the items in the documents that we are incorporating in the Bill—that the figure may be increased to 1.6 per cent. It is strange to use the expression "it may be" because it can scarcely have been included for no purpose. However, we shall at least have had the enlargement issue if not the cost enlargement out of the way by the time we get the next limit. As my right hon. and learned Friend the Foreign Secretary said, the position of the United Kingdom will have been written in. Perhaps at the next stage—and it seems to be the general view that that will not be very long coming — we will do better than at present and make more progress.

I am left with a real dilemma this afternoon. I have always taken the view that when voting in this House one should vote as one would wish the House to decide. That is a problem, because we have been presented with a package. I have to face the fact that if the Bill falls, despite its massive imperfections and failures, the effect is likely to be a significant increase in public expenditure rather than a reduction.

I do not really have the options that I should have liked to have, and would have had had the issues been presented separately. There are still ways in which we can make further progress, but we have missed a major opportunity. Many of the points made in support of the view that we should increase own resources — in particular, the question whether we have actually achieved budgetary discipline—do not bear out the Government's case. For that reason, I shall most certainly not support the Government this evening.

6.43 pm

Mr. Ron Leighton (Newham, North-East)

I congratulate the right hon. Member for Worthing (Mr. Higgins) on his speech. I hope that it does not embarrass him if I say that I concur with virtually every word that he uttered. I also congratulate the Treasury and Civil Service Select Committee on its report to the House. The House would be well advised to take account of all reports from Select Committees.

From what the right hon. Member for Worthing said, there appears to be no case for the Bill. The case against it is fairly simple, and it comes under two headings. First, if we pass the Bill we are throwing good money after bad, compounding past mistakes and making matters worse. The Foreign Secretary spoke about what we would have paid if this and that had not happened. However, we do know that this year we will pay more in real terms than we paid last year and that next year we will pay more than we are paying this year.

The second reason why we should oppose the Bill is that it encourages and finances further lunacies in the crazy farm policy of the Common Market. It is rather like treating an alcoholic by giving him a standing banker's charge on the nearest distillery. What is the money for? It is overwhelmingly for agriculture. We have not had a breakdown, but we all know that it is for the CAP. In 1986 we will pay 2.5 per cent. more for agriculture.

That is the opposite of what we should be doing. We should be turning off the tap and cutting off the money supply to the CAP. We should be doing all the thing; that the Government say we should do at home, where there are cash limits. The trouble with the CAP is that it is limitless. By its very nature it is a bottomless pit into which we are pouring our money. All the chatter about reform is idle. Surely the lesson of our experience is that there will be no substantial reform of the CAP, because it is not rational, not sound economics, not sound husbandry and not good farming. Instead, we are dealing with something that is political, with vested interests and with those who benefit from this policy — for example, the Bavarian smallholders with their Mercedes who want to be kept in the style to which they have become accustomed, and by whose votes the governing party in Germany rules. What other explanation was there for the German veto on cereals? There is no logic for its use of the veto. It was based not on reason or sound economics, but on crude domestic politics.

What happened to the British veto in 1982 cast by the now Secretary of State for Energy? I do not know whether hon. Members remember that, but he exercised the veto and nobody took any notice. It was ignored. But when the Germans exercise the veto, apparently that is different and the Community takes notice. The brutal truth is that the CAP cannot be reformed. That could happen only if the whole structure were altered, if the principles on which it is based were reversed, and if it was changed into its opposite. In other words, the CAP would have to be destroyed. The vested interests will not allow that, so it will continue, ever more expensively and irrationally.

For those areas with intervention, whatever is produced will be bought — whether or not it is needed — at the taxpayers' expense. It is open-ended and demand-led, with no cash limits. Nobody knows what the cost will be. Nobody knows how much will be produced. If we drench the countryside with chemicals, pesticides and herbicides, we might produce very much more. If we have a bumper harvest it will cost more money. If world prices fall because we have a year of international abundance, whereas hitherto mankind would have rejoiced at the low prices, it now means that the CAP will be even more expensive. There will be higher levels and higher subsidies to dump EEC produce abroad which, as was mentioned by the right hon. Member for Worthing, will damage the interests of third parties.

Yesterday I was asked by the COI to a lunch with politicians from Uruguay, and I was interested to meet them. They explained that their main export was beef, that they were efficient, economic producers, but that the EEC had a beef mountain and Uruguayan beef was being kept out by the variable levy, although they did get a very small quota. Their main complaint was not that their beef was being prevented from coming into the EEC; it was their treatment in Third-world markets. They want to service and repay their debts, but they cannot compete against the EEC because of the export subsidies that the EEC pays on the dumping of EEC beef in Third-world markets.

The lunch was hosted by Baroness Young, to whom I pay tribute for her hard work in gaining friends for Britain around the world. She must have thought that this was a familiar argument, because I met her some months ago in New Zealand, where she had a press conference. She thought that she was going to be discussing a whole variety of matters, but found that the only issue mentioned was butter. That was because the EEC had dumped large quantities of butter on the world market and the New Zealanders could not compete.

The CAP is meretricious. It damages us and our friends around the world and it distorts our agriculture. I have mentioned the way in which we are drenching our countryside in chemicals and draining the wetlands to add to the food surplus. That has led to crazy land speculation and high land prices in this country, with the farms being mortgaged to the banks — and all to no good purpose, because the only result is dearer food for our consumers.

Therefore, we should not support or underpin such a system. To use an argument which I hope will appeal to Conservative Members, we should not throw money at such a system. We should wring its neck. That is the only sensible thing to do. We should do the opposite of what the Bill is asking us to do.

Mr. Gerald Bermingham (St. Helens. South)

Does my hon. Friend agree that another side effect of the CAP is that it has not only forced up land values but made it almost impossible for young people to buy land and enter the farming profession?

Mr. Leighton

That is absolutely true. Ordinary young people cannot enter farming. It is now run by City firms and bankers. I fear that those young people who do enter farming and mortgage themselves to the hilt will find themselves in great economic difficulties when some sense and sanity are brought back to prices. We are making great problems for our farming industry. The farmers are not benefiting from these high prices, nor are the consumers. The whole policy is basically anti-British. It is anti the interests of British taxpayers, agriculture and consumers and of our friends in the world, whether from Uruguay or New Zealand.

I am quite clear about what we should do. We should come out of the CAP and have nothing further to do with it. We should extricate, liberate, free ourselves from the common agricultural policy and bring agriculture back under the control of the British Parliament. We should have a policy which is in the interests of this country. Why should we not do that? Does anyone suggest that somehow world peace or international friendship depends on having a common price for turnips from the Shetlands to Sardinia, where there are differences of climate and culture and different ways of life? Is it not absurd to try to force all these people into a rigid mould? It is unnatural and only causes problems instead of resolving them.

Nobody in this House suggests that we should have a common policy for coal — that throughout the whole Community we should produce as much coal as possible and have it bought in through intervention. Nobody is so absurd as to say that we should have a common policy for motor cars and that, however many motor cars are produced, they will be bought in through intervention at the taxpayers' expense. So why do we have such a policy for beef or cereals? There is absolutely no need for it. This country is being conned. This has got nothing to do with the good of Europe or anything of that sort. It is for the benefit of the vested interests of continental agriculture and of the parties who want the votes of the people engaged in agriculture by paying them bribes. If the other countries of Western Europe want to do that, I do not object; that is their business. But we should not let them use our money to bribe those in their peasant agriculture to vote for the ruling parties on the continent.

I hope that later this evening we shall hear from the Government Benches some arguments calling for a healthy dose of market forces. Why do we not have a healthy dose of market forces, the law of supply and demand, in agriculture? If there is a surplus, why do we not cut prices? I hope to learn later this evening why, if there is a large surplus of agricultural products, we do not hear a demand for a cut in prices and financial support. Why do we not cut off the money supply? We are cutting off the money supply everywhere else. Why is it only in this area that the sky is the limit?

Elsewhere we are told that if there is an allocation of extra money, that means there has to be a cut somewhere else. The right hon. Member for Worthing talked about science. I agree with him entirely. When student grants were restored, the Secretary of State for Education and Science said that that money had to come from somewhere else, and he took it from science. We cannot afford money for science to keep this country going, yet we can pour endless millions down the black hole of this lunatic farm policy.

Only masochists, only besotted Euro-fanatics, only those who have given up rational thought, could support this misguided, misconceived Bill, which is soaking British taxpayers more than ever. We should throw it out with contempt.

6.57 pm

Mr. W. Benyon (Milton Keynes)

I appreciate that this Bill and the whole subject arouse passions, but I find it somewhat depressing that so much of the argument that we have heard today has been totally devoid of idealism. I greatly welcomed the speech by my right hon. Friend the Member for Old Bexley and Sidcup (Mr. Heath), who was the first Member speaking in this debate to look further ahead.

On Thursday, the Under-Secretary of State said: Our hands are at last off the brake and on to the steering wheel." —[Official Report, 20 June 1985; Vol. 81, c. 529.] He did not mention the accelerator. In my view, this Bill is the first stage—late, but none the less welcome—of using the accelerator.

Mr. Marlow

I agree with my hon. Friend that we are on the accelerator — we are accelerating public expenditure. It is already 50 per cent. more than it was in terms of our gross contribution four years ago and it is going to accelerate even further now.

Mr. Benyon

I thought that my right hon. and learned Friend the Foreign Secretary dealt with that aspect very well. All that I can say to my hon. Friend is that, even ignoring the concessions made to the United Kingdom, the new level of contributions represents a minute proportion of GDP. It is a very small price to pay for the benefits which will accrue in the future. It is a minute proportion of the £2 billion referred to last week in relation to welfare benefits. There is no more barren exercise than speculating about what might have happened if history were rewritten.

When the Common Market was formed, Britain did not join. If we had joined, many of the changes that we should like now would probably have already been made. Europe would now be stronger and more democratic. We had a painful struggle to join and we were successful at the second attempt. That is when things went wrong. Many of us who were inspired by the European ideal relaxed gratefully. We believed, mistakenly, that the battle was won. We forgot the barrier formed by the Channel, which is so useful in war and so detrimental in peace. We left the scene to the nationalists and the Communists—one of the more bizarre political alliances of our time.

What we need now is a new vision of Europe — a new inspiration for the future. That is urgently needed for the United Kingdom itself. [HON. MEMBERS: "Hear, hear."' The two most malign influences on Government expenditure are the cost of keeping millions who have no gainful employment, and the burden of high interest rates. Those are the two major pressures on Government expenditure.

The first pressure can be eased by increased economic activity within the Community, by removing the remaining barriers to trade and competition, by encouraging European industry and by ensuring that European inventiveness is given full rein. That can he translated into an industrial success which should enable us to compete effectively with America and Japan.

Mr. Nicholas Winterton

My hon. Friend has in recent months demonstrated a considerable commitment to reducing unemployment and considerable care and compassion for the unemployed. Is he aware that large sectors of British industry such as the paper and board and the textile and clothing industries are substantial employers? The textile industry is the fourth largest employer in the country. Those industries have expressed grave concern about the accession of Spain and Portugal to the Economic Community and about the effect that that will have on industry and employment in Britain. Does my hon. Friend disregard that anxiety or does he think that it is justified?

Mr. Benyon rose—.

Mr. Deputy Speaker (Mr. Harold Walker)

Order. Before the hon. Member for Milton Keynes (Mr. Benyon) responds, I remind him of the ten-minute limit on speeches. I hope that hon. Members will bear that in mind when making and giving way to interventions.

Mr. Benyon

I am grateful to you, Mr. Deputy Speaker, and I shall deal later with the question asked by my hon. Friend the Member for Macclesfield (Mr. Winterton).

Let us consider what we have achieved within the Community in terms of inventiveness. Two out of three of the Nobel prizes for information technology were won by Europeans, yet Europe supplies only 10 per cent. of world production. Eight out of ten personal computers sold in Europe are American and nine out of ten video recorders are Japanese. If that dominance continues, millions of jobs will be put at risk. That answers my hon. Friend's question.

As my right hon. Friend the Member for Guildford (Mr. Howell) said so eloquently on Thursday, the problem of high interest rates cries out for this country joining the European monetary system and for the strengthening of the European capital market so that we can look the dollar in the face.

Europe, with 270 million people, has a GNP 30 per cent. less than that of the United States, with 236 million people. We lag behind America and Japan in the development of the new technologies. That is the real challenge.

As we stagger under the burden of providing adequate defence forces, why has the integration of weapon procurement and research progressed so slowly? That activity could be developed further. Why do we allow Japanese penetration of the EEC to pick off our modern industries one by one?

Much has been said about the common agricultural policy. Of course it needs reform; of course surpluses must be contained; but we want a strong agriculture. It is better to have surpluses than shortages. In the Third world, surpluses would be called buffer stocks. The basis of the CAP is worthy. It is to bring the standard of living of the agricultural community up to the level of its urban counterpart. Reform has started. I pay warm tribute to the Minister of Agriculture for what he has achieved. The process of reform must be gradual. Agriculture is not an industry capable of radical or drastic change. We cannot turn off the tap just like that.

I support the Bill, because I want Britain to lead Europe into a dynamic and prosperous future. That means making concessions to achieve a unity of purpose. That is where the future lies. That is in our interests as well as in Europe's. We need the Community, and the Community needs us.

7.6 pm

Mr. Eric Deakins (Walthamstow)

I have a question to ask the Minister about the Bill and the status of the intergovernmental agreement. We were told that this is an undertaking by representatives of the Government meeting "within the Council." I stress those words. What do they mean and why are they considered necessary? Is the intergovernmental agreement in the form of a treaty? Is the undertaking or intergovernmental agreement automatically a Community treaty by virtue of the piece of paper on which it is written or by virtue of its embodiment in the 1972 Act?

My hon. Friend the Member for Newham, North-East(Mr. Leighton) dealt with the CAP. Increased expenditure under the CAP budget is taking place this year. Even with the 1.8 per cent. decrease in cereal prices, the proportion of the Community budget taken up by the CAP is to increase to 74 per cent. No progress whatsoever is being made. As the Minister himself admitted to the House only last week: the Council has thus failed to take decisions on sensible price arrangements for cereals and rapeseed for the next season. This represents a serious setback so the progress which has been made in putting the common agricultural policy on to a more realistic basis."—[Official Report, 13 June 1985; Vol. 80, c. 1033.] That is the Minister of Agriculture's comment on what has happened in the CAP so far this year.

Perhaps we shall achieve some fixed price package for cereals, but we do not know tonight when a decision is to be taken on the impact of that package on the total cost of the Community budget for the 1985–86 agricultural marketing year. I urge the House to recognise that we do not yet have the full information from the Government, because it is not available to them. We do not know whether the financial discipline agreement is biting on that part of CAP expenditure which will occur in 1986.

I agree about the dangers of the CAP to consumers in Britain and to world trade, but I shall concentrate my brief remarks on the budgetary discipline agreement—or non-agreement, as the right hon. Member for Worthing (Mr. Higgins) has described it.

The Government must admit that the Council decision or agreement is not legally binding. The right hon. Member for Worthing asked why the other member states did not agree that it should be legally binding when they could easily have agreed that it should be. The reason must be that they do not take it as seriously as we do. That agreement should be a Community treaty. It should be one of the documents which we incorporate into the 1972 Act. We have to vote tonight on a one-sided Bill.

Secondly, we know that the budgetary discipline agreement is full of escape phrases which will be taken advantage of. We know that the agreement does not apply to the 1985 budget, but that it will apply to spending on the CAP in 1986, decisions on which are being taken in the settlement for 1985. The United Kingdom, alone of the 10 member states, has taken the budgetary discipline agreement seriously. I shall quote again from the Minister of Agriculture, Fisheries and Food who, on 13 June, in reply to the hon. Member for Wolverhampton, South-West (Mr. Budgen), said: I have been alone in asking the Commissioner, at almost every point of the negotiations, whether he remains satisfied that the cost of the package is within the financial discipline that has been agreed for the agricultural budget."—[Official Report, 13 June 1985; Vol. 80, c. 1039.] Why was our Minister the only Minister concerned to ensure that the financial discipline and budget discipline arrangements apply to this year's CAP settlement? Because — this bears out the point made by the right hon. Member for Worthing — we take this financial discipline agreement seriously and hence are in the minority. I urge the House to bear this in mind when voting tonight.

The Bill contains the 1.4 per cent. limit, but we have an undertaking that it can go to 1.6 per cent. The 1.6 per cent. is mentioned in the Council decision which we are embodying as a Community treaty in the 1972 Act. Why is the 1.6 per cent. mentioned in such a way that it becomes a Community treaty should this Bill become law? Surely that will compromise and undermine a future Government's case when these matters are debated in the Community with a view to an increase in own resources from 1.4 to 1–6 per cent. Shall we not be told that we have already conceded the principle in having the 1.6 per cent. written into this Bill? If we pass the Bill in its present form, it is more likely that the figure will go up to 1–6 per cent. in a couple of years.

There is another danger relating to the 1.4 and 1.6 per cent. The intergovernmental agreement, which we are also embodying tonight, for the extra money is a non-repayable advance to the Community. It is a gift from the taxpayers of this and other countries to help the Community out of its present financial difficulties. This IGA is setting a dangerous precedent because it gives the Community extra money which is not part of own resources, or part of a treaty, although we are now embodying it as a Community treaty.

There is nothing to stop any Government negotiating a further IGA, regardless of the 1.6 per cent., the 1.8 per cent., or anything else, to pay money over to the Community and to embody it as a Community treaty without going through the normal processes in the Community and this country.

We are introducing a mechanism which supplements the own resources increase we are giving to the Community — new principle in the financing of the Community. If the own resources, even though they are increased and will continue to increase, run out, we will not have to put things right by considering the expenditure. We shall simply increase the finance, not by increasing own resources, but by a further simple IGA. This is a very dangerous precedent and on that ground alone I hope that the House will reject the Bill.

7.14 pm

Mr. Michael Knowles (Nottingham, East)

Unlike the hon. Member for Walthamstow (Mr. Deakins), I support the Bill. As my right hon. Friend the Member for Worthing (Mr. Higgins) said, we have a straight deal—an increase in VAT own resources and an arrangement for Britain's contribution to be reduced.

In an ideal world it would be necessary to do political deals, but we do not live in an ideal world. Without the Bill there will be no correction to our contribution and we should end up paying about double what we shall pay when, as I trust, the Bill is enacted. It would be insane to turn down such an offer.

The 1985 price-fixing package and the 1.8 per cent. price cut for rapeseed and cereals come within the budget limit for 1985. The Germans imposed their veto, but it has been overridden by the Commission, using its executive powers. I am quite happy about that, but I suspect that many right hon. and hon. Members are not. I think that even the Government will have difficulty with that development. I am dubious about the veto. It is not used because of overriding national considerations as much as it is used by politicians looking for blocks of votes and at the latest by-election results. That is not what the Luxembourg compromise was supposed to be about. The veto has been abused, and it is time that it went.

Mr. Teddy Taylor

Will my hon. Friend give way?

Mr. Knowles

No, I have only 10 minutes.

Germany might now be looking more to her own interests. Perhaps she has stopped being willing to be the paymaster and the whipping boy of western Europe. German nationals will now use German and not English in the Community. If the Community fails because of a rise of nationalism — it has happened before—hon. Members will be hard put to criticise Germany or any other country in view of the stand that we have taken.

The Government will be in a strong position at Milan. I should like to thank the Foreign Office team for what they have done in the past few months. As has been said, we have our hands on the steering wheel for the first time. What use will we make of that position? We must make clrarthe Government's view about the future of Europe. Our partners suspect that we do not have a view. Indeed, they suspect that, at best, we want a super European Free Trade Association and that our imagination can go no further. They also think that we will be tied to the United States for ever. The suspicion that lurks in the back of their minds is that General de Gaulle was correct.

If Europe does not unite, it has no future. Squeezed between Soviet military power and the technological power of the United States and Japan, Europe will become a small collection of colonies for somebody or other. Three major problems must be resolved at Milan. The first is the completion of the market. Lord Cockfield's report spells that out. The Council of Ministers asked Lord Cockfield what was necessary, but national Governments have already started to say that they like one bit of the report but not others. They must take the report on board if we are to have a completed internal market.

The second major problem concerns political co-operation. Much fuss is made about it, but I regard it as a bit of a farce. A readiness to consider a political and economic dialogue has been declared, but what has been achieved? Nothing. That is not good enough. To achieve anything, we must go further towards union. I have no difficulty with that, but I suspect that the same is not true for many other right hon. and hon. Members. It is surprising that any decision is reached in the Community, considering the way in which we set it up—with the Council, the European Parliament and everyone who wants to get in on the action taking part in the proceedings. We must clarify the mechanism. One cannot will the end without willing the means.

National Parliaments, including the British Parliament, have no real say in the early formulation of policy decisions. I am a member of the Select Committee on European Legislation. We see that legislation at the end of the line, and recommend to the House or to another Select Committee that it should look into it. We do not get a say at the beginning of the process, as we should. The House should ensure that its Select Committees get that sort of say.

One of the problems with our partners is that continental politicians deal with politics differently from the way in which we deal with them. Last Thursday, in an excellent speech, one of my hon. Friends pointed out the different methods of approach. We in the United Kingdom are not good at looking far ahead and seeing what the future will be. We have lost opportunities before. Indeed, on the Floors of both Houses we lost our first empire—the North American colonies. We had neither the wit nor the ability to construct a solution to the problems of representative government. We acquired a second empire, but did not know what its purpose was.

Joe Chamberlain was the one man who came forward with the idea of imperial federation, but the idea faded away. In the 19th century it was known that only the empire made us a power. There were plenty of books about that, including Seeley's "Expansion of England". We were not particularly important without our empire, yet we let it slip. We also let slip our chance of leading Europe in the immediate post-war years. We joined the EC later on terms which we did not like. If we miss the opportunity again, history will pass a harsh verdict on us, and it will be right.

The responsibility on hon. Members who oppose European union is to show how else the United Kingdom will play a role on the world stage. The drawback to any form of union is that one is only one of many—in this case one of 12—and one does not have total national sovereignty. However, at least we have a say in our fate. Without union, would we be truly independent and sovereign? We might be in theory, but in practice we would certainly be tied to the United States and Japan. We would become a cheap assembly plant on the edge of that technological empire. We might be prosperous, but we would certainly not be a sovereign independent state. In the end, European unification is about economic, technological and military power. Power matters in the real world. Countries and civilisations which forget that do so at their peril.

7.23 pm

Mr. John David Taylor (Strangford)

Last week we debated the institutions of the European Community, and today we are debating its finances and financial control mechanisms. It is of interest that between the two debates the Government met at the weekend to consider means of controlling public expenditure £1 million in the United Kingdom—paring off £1 million here and there. Yet, strangely, a few days later in this EC debate we are willy-nilly talking about spending hundreds of millions of pounds of taxpayers' money on extra public expenditure.

That is proved by the preliminary draft budget for 1986. It shows increased expenditure of £2,500 million next year. On agriculture alone there will be an increase of more than £500 million next year over and above what was spent this year. The draft budget also shows that the United Kingdom will continue to contribute net to the EEC as much as it has been doing in recent years. According to the Commissioner for the budgets in Brussels, our VAT rate will be 0.82 per cent.

A year ago, when the Foreign Secretary introduced the Fontainebleau agreement to the House, he said that it was on a lasting and fair settlement of the budget problem … This is a good deal for Britain and for the Community. Today he repeated that final phrase. The word "lasting" was important. Therefore, when I got the opportunity, in a supplementary question, I asked him how long he expected "lasting" to last. He replied: As long as it takes to convince the Government of this country and the House of Commons that a case for change has been made out."—[Official Report, 27 June 1984; Vol. 62, c. 986–92.] That was not a particularly enlightening reply. We now have more evidence about how long "lasting" will last, because the Commission has seized the opportunity of the advance knowledge that VAT on own resources will be increased to 1.4 per cent. to produce a draft preliminary budget, which will spend almost all that money because VAT is set at 1.35 per cent. That may not be the limit, unless the Council, as one of the budgetary authorities within the Community, reduces the draft budget.

The budget is based on various factors, such as what the dollar exchange rate will be in 1986. The Commission has made it clear that the preliminary draft budget is based on the assumption that the dollar will have greater value over the ecu next year, and that $1 will be equivalent to 1.2 ecu, whereas at present the exchange rate is $1 to 1.35 ecu. As a Conservative Member of the European Parliament, former Chairman of the Agriculture Committee, and rapporteur for the EC budget, Mr. David Curry, in a recent article, said, if the dollar slips one point against the Common Market ecu it costs the budget close to £60 million. Yet the budget is based on the assumption that the dollar will be higher in value against the ecu, and not the same value as today.

A second factor could increase the Community budget is grain. Because Russia will produce more grain this year than last year, there will not be the same opportunities for export by the Americans as there have been. America will, therefore, compete with the EC in the world market, and the chance of grain prices falling will increase. Mr. David Curry further states that if the world cereal price comes down by 1 per cent. the cost to the EEC budget is about £45 million. Clearly, next year's budget will be close to 1.35 per cent., and the limit according to the Fontainebleau agreement is only 1.4 per cent. The Government are right that that cannot be changed without unanimity, but, as has been said, we can avoid unanimity and still get more money for the EEC by having yet another intergovernmental agreement. The agreement that we are discussing today is No. 2, and in a few years' time a third agreement could certainly be introduced.

The Government's case would have been strong if the Fontainebleau agreement were lasting, but it is not. Already there is evidence that we are reaching the limit. Last week, when Commissioner Christophersen introduced the budget in Brussels, he said that the Commission considers that the new own resources will suffice for 1986 and 1987. That is all. The agreement will last two years. He went on to add that the question of increasing them"— to a 1.6 per cent. VAT rate— should start to be considered now. Those are the words of the commissioner in charge of the EEC budget. It will be two years at most before an increase in own resources is required. That is why the Government Front Bench has not felt comfortable throughout today's debate.

The budget is not good for the European Community nor for the United Kingdom, and it is certainly not good for agriculture. Another £500 million is being used to continue to produce surpluses that are not wanted by the people of Europe and that United Kingdom taxpayers do not wish to continue to finance.

Her Majesty's Government lost a golden opportunity when they reached the 1 per cent. limit. That was the time to have a radical reform of the common agricultural policy. The weaknesses of that policy are fundamental to the entire problem. I believe that the Government kicked for touch. They have two years' grace. The next election will take place before we again face the problem of the British contribution to the EEC. That will be in about three years' time. When the problem does arise, it will be much greater than it would have been last year or this year, and it will be even more difficult to resolve. For that reason, it will be worse for the EEC, for the United Kingdom and for the farmers of this country.

Several hon. Membersrose—

Mr. Taylor

As I have one minute left, let me conclude by saying that my right hon. and hon. Friends in the Ulster Unionist party, the fourth largest party in the House, will be opposing the Government tonight.

7.31 pm

Mr. Richard Body (Holland with Boston)

I am afraid that my speech may be rather a faint echo of what the right hon. Member for Strangford (Mr. Taylor) has just said. I agree wholeheartedly with every syllable uttered by the right hon. Gentleman. I also think that my right hon. and learned Friend the Foreign Secretary was right when he refused to give an undertaking to my hon. Friend the Member for Wolverhampton, South-West (Mr. Budgen).

There are two reasons why my right hon. and learned Friend was right not to give that undertaking. However, first I shall reply to the criticisms by my hon. Friends the Members for Milton Keynes (Mr. Benyon) and for Nottingham, East (Mr. Knowles), who alleged that those of us who are critical of the Government today lack any European idealism. I believe, and I always have believed, in the European Community, but I want a Community founded upon a partnership of nation states. It seems obvious that, in this comparatively small continent of ours, it is urgent that we should try to work together in what I would call an open Europe, where each country can join others in pursuit of international co-operation to formulate common policies, and to advance their own interest and the interests of their neighbours.

I am sure that my hon. Friend the Member for Milton Keynes and I could prepare a list of at least 17 subjects upon which we could work usefully with other countries to forge a common policy in our mutual interest. Trade and defence would obviously be on that list. Less obvious would be pollution and company law. Agriculture, however, is one certain subject upon which it will not be possible to formulate a satisfactory common policy.

It should also be obvious that, as more countries have come into the Community, so it has become more difficult to find the necessary degree of common interest to formulate common policies to serve with justice the people in each of those 12 countries. That will be made difficult so long as we are tied to a common agricultural policy. That is why I believe that the Bill is totally and essentially misconceived.

If we are to pursue the goal of international co-operation in Europe, much more progress will be made if individual nation states become free to take part in a new policy or quietly to stand to one side. That is the meaning of a partnership of nation states, each state having the right to take part in the talks that may lead up to that common policy, but equally having the right to pull out if it feels that its own interests may be put at risk.

Instead, the Bill is part of a scheme to transfer massive wealth from northern to southern Europe. It is born of a fear that in Greece, Italy, southern France, Spain and Portugal there are millions of Communists and others who may become Communists. Most are called, scoffingly, peasants or are in industries serving the peasantry. Therefore, people think that lots of money should be poured into their pockets through the CAP to subdue their undesirable political instincts. [Laughter.] My hon. Friend the Member for Harrow, East (Mr. Dykes) may laugh, but he knows perfectly well that that thought is at the back of people's minds. That view is misconceived.

This country, along with other countries in western Europe and north America, is in the midst of a massive programme of agricultural research costing hundreds of millions in our own country alone, and many more millions throughout the world. The results of that research will be coming through in the 1990s. Let me give one example. On land on which we were producing wheat at 1 tonne to the acre 25 years ago, we are now producing 4 tonnes to the acre. When the results of that research come through in the 1990s, we shall be producing 6 tonnes of wheat to the acre. That is a 50 per cent. expansion of output in the next few years, yet now, on the eve of this year's harvest, we have in our stores over 3 million tonnes of wheat that we cannot sell. We cannot even dump it on the world market.

Last March the House voted more than £300 million for the cost of those surpluses. I see in this week's edition of Private Eye, which usually gets it right on farming matters, that the House will be invited to vote another £128 million before we rise for the recess, because the cost of looking after those surpluses in the intervening months has been miscalculated. That is a measure of how we cannot calculate the rising costs of a common agricultural policy. We can, though, be certain that by the time we approach the 1990s, the cost to the CAP of the commodities produced in northern Europe will be rising by about 50 per cent. The problem in southern Europe will be worse.

The CAP does not enable the peasants, as they have been rather dismissively called, to survive. Before the CAP, 20 million people were able to earn a living from the land in the Common Market. Now that number has fallen to 8 million and declines every year. This is where the trouble will come. In Portugal, 28 per cent. of the people can earn a livelihood on the land, and 88 per cent. can earn a livelihood on 5 hectares or less. That system of farming is not unlike that of southern France before CAP.

Those people survive because they can receive £250 a tonne for wheat, and all the other farm gate prices are in proportion. Yet the price in the Community is only £100 a tonne. That 88 per cent. of the people in Portugal will not survive on the basis of the CAP as it is. They will be driven from the land, and nobody can be certain of there being jobs for them in that periphery of the Community once they have lost their jobs on the land. The strain on the social and regional policies of the Common Market would then be intolerable and the cost to the Community would be appalling.

The Foreign Office is woefully ignorant of the effect that the common agricultural policy will have on southern Europe. If it were a little wiser, we should not halve this Bill.

7.41 pm

Mr. Austin Mitchell (Great Grimsby)

This is more than a tawdry little Bill. We are debating a betrayal of British interests because this little Bill is the key which turns the lock on the Prime Minister's Eurocage. The right hon. Lady has rattled the bars of the cage a great deal, and from time to time she has been allowed out to shout and growl on the bigger issues. But she has always shouted and growled like the lion in "The Wizard of Oz", which chickened out at the first sign of difficulty. We have had difficulties with these matters and the Government have chickened out on them.

Now the wise men in the Foreign Office — the exponents of the quiet British takeover of Europe and of the Prime Minister—are, by this Bill, putting the right hon. Lady back in the cage and saying to her, "Enough is enough. You have done your bit on Europe. It is time now for you to turn your attention to football hooliganism, the drug problem, the rates and any other issues that will keep things quiet for a couple of years."

By this Bill, we are thowing away the one weapon we had to secure reform in the CAP. We had the ability, through refusing to increase the own resources contribution over 1 per cent., to block everything, to hold a pistol to the head of an EEC which would go bankrupt without the ability to increase its budget.

We had the ability flatly to refuse to increase the own resources contribution until the CAP was brought into order. We had to be cruel to be kind and we needed to be tough to secure reform in this sphere. We had an impregnable bargaining card in that flat refusal. We could have imposed the policy of Thatcherism cash limits on the CAP. While we should have had to force a crisis, out of it good would have come because controls could have been imposed on the CAP.

That weapon, the only one we had, is being thrown away with this measure for a mess of Euro-pottage, for promises that we know will not be fulfilled. If the same basis is retained, with the automatic escalation of subsidies as production increases, there will be no possibility of restraining output and bringing the CAP under control. We shall have the same cycle of subsidies producing surpluses, producing dumping, producing increased costs, producing increasing destruction.

When a mild attempt was made to restrain cereal prices, as soon as it came to a policy of imposing restraint, the Germans vetoed it. That is how effective so-called restraints and controls will be. We have seen, too, the way in which farming is politically impregnable in the EEC. Farming cannot be subjugated in the way we need, unless we are prepared to use the impregnable bargaining position that we are throwing away. We have agreed to give more money to an alcoholic who, grinning with the bottle in his hand and raising it to his lips, assures us that he will reform. That is about the validity of the promises of reform that we have been given.

The nub of our difficulties is that membership does not suit us. So long as it does not suit us, we shall always be negotiating from a position of weakness in attempting to secure change in the Community. It does not suit us in agriculture specifically because we are, and always will be, net agricultural importers. It is not in our interests, therefore, to pay high EEC prices for foodstuffs that we can buy more cheaply elsewhere and trade our manufactured goods in return.

It is certainly not in the interests of Britain to assume all the odium of a system of agricultural protection that is generating increasing hostility in the rest of the world, particularly in the American market, where it will be used as an excuse for their protectionism against our imports, generated by the rising dollar, simply because we are taking on the odium of a system of agricultural protection which we do not need or want and which does not suit us.

Why should we incur that odium? Why should we support the folly, which is an obscenity in today's world, of the CAP? We are spending £800,000 a day to store food mountains when every minute of every day 30 people in the world die of hunger.

What was the fate of commodities taken into intervention in the EEC in 1983–84? About 85 per cent. of lemons were destroyed. In other words, 5,246 lemons were destroyed every minute in that period; 1,579 peaches; 41 cauliflowers; 19 lb. of tomatoes; 2,019 lb. of apricots; 5,266 oranges; 587 lb. of mandarins; and 134 lb. of apples. The obscenity that we are supporting is that that amount of produce was destroyed every minute in a world in which 30 people are dying of hunger every minute. That obscenity does not, cannot and never will suit Britain.

It does not suit us either because we have been hit disastrously by the impact of free manufacturing trade. That has turned what was a surplus in manufactured trade in 1970 of £2 billion, at 1983 prices, into a deficit last year of £9 billion, a turnround of £11 billion in manufacturing trade. That has been responsible for the loss of about 1 million jobs in this country.

In that situation, we are always arguing from disadvantage, because we are trying to deal with what is an agricultural protection society—the NFU turned into a system of government—as though it were some great adventure in international idealism. We started at a disadvantage. We are always forced to make concessions from an inadequate position, and we shall remain in that situation as we try to get concessions.

We are told that we have in the Bill a marvellous deal and that we must accept it because, thanks to it, we shall get a rebate on our contributions. That rebate, we are told, is automatic and guaranteed. That, too, is wrong. The rebate lasts for as long as the 1.4 per cent. ceiling lasts, and how long will that last? With luck, it might last for two years. The Community is already running out of money and we have written into the White Paper a provision allowing for the ceiling to be raised to 1.6 per cent. on 1 January 1988, and the Commission is already talking of a 2 per cent. ceiling on VAT.

Not only have we thrown away our negotiating position; we have no guarantee of a rebate. When we reach the 1.6 per cent. ceiling, our rebate will be up for grabs—it will be negotiated again—and we shall be back in a minority of one, the position in which we have always been. We shall be back in the old inadequate negotiating position, on our own, trying to roll the stone back up the hill. Today the Government are trying to convince us that they have got the stone up there and have triumphed.

We have already seen that our allies in this process cannot be relied on. Therefore, we are seeing the shameful spectacle of our people being squeezed by cuts, some of which are bearing cruelly on many of them—cuts, for example, in child benefit and in lodging allowances, which we discussed earlier—with the proposed collapse of SERPS and with no effective restraint on the money that we are forced to shovel into Europe at Europe's behest.

The Prime Minister's condition for giving way on the own resources ceiling was not to give way unless there was effective budgetary discipline; but there is no effective budgetary discipline, so the Bill is not just a betrayal but in domestic legal terms a shameful shuffling process. Originally, we were told that we were making reimbursable loans and we accepted the intergovernmental agreement, which was specifically se—t

Mr. Deputy Speaker (Mr. Ernest Armstrong)

Order. The hon. Gentleman has reached the limit of his time.

7.51 pm

Mr. Hugh Dykes (Harrow, East)

I shall be brief and shall refer to the Bill. Debates on this topic tend to become general discussions about the virtues or otherwise of Community membership. Foreign observers from other member states hearing our debates would be bemused, puzzled and a little disappointed that we still repeat the old, fundamental debate about Community membership. That issue was decided a long time ago.

A lot of nonsense has been spoken today about the common agricultural policy. We know that if we had maintained our domestic support system for farmers and for farm gate products the costs would by now have been far in excess of our contributions to the common agricultural policy. One need only make a statistical continuation of the figures in the 1950s and 1960s when the old system obtained and make the calculations about the consumption of foodstuffs to realise that these debates are totally nonsensical and based on a lack of knowledge of what goes on in the CAP.

Mr. Budgen

It is nice of people like my hon. Friend to let us have these debates at all.

Mr. Dykes

Members talk as though farm gate prices have the most direct and final effect on prices in the shops, but that is not true. There is a big difference between the two, which is a more important determining factor than the price originally fixed and negotiated within the CAP.

I, too, was amazed to read articles in the newspapers suggesting that there was some kind of sinister Government conspiracy and that instead of producing a respectable order the Government had produced a sinister Bill and published it on a Friday, and how harmful this was. The Bill is the best and most logical way to deal with this matter. It has provided a much bigger debate for dissident Conservatives who do not like the Community or its works than would otherwise have been possible. However, very few people have referred directly to the changes outlined in the Bill.

I make no apology for saying that, despite this being a one-day debate, this is a small and technical Bill for good, constructive Europeans. I hope that there will be an increasing number of such people as we settle down to the realities of Community membership. This is a technical Bill implementing the intergovernmental agreement, which will need to be ratified by all or most of the national Parliaments according to the procedures applying in each member state.

The 1.4 per cent. ceiling has taken a long time to be agreed. It has not been slipped through quickly by a sinister conspiracy in the Council of Ministers. The last increase to 1 per cent. took many years to achieve. If inflation receipts on the VAT equivalent base rise again as they did until a few years ago, the figure of 1.4 per cent. will persist and be entirely adequate for some years to come, but if it has to be increased by general agreement—

Mr. Budgen

Will my hon. Friend comment on the Foreign Secretary's reluctance to give any undertaking not to come back to the House before 1 January 1988 to ask for another increase?

Mr. Dykes

It is impossible to answer such an unusually reasonable provocative question from my hon. Friend in those terms, because that is not the way in which negotiations are conducted in the Council of Ministers. Finally, these matters are ratified and approved by the Parliament of each member state.

As a constructive European, I should like the 1.4 per cent. to be increased as soon as possible. The thesis of earnest Europeans is that the Community budget is still far too small in aggregate and that a great deal of money should be spent centrally on the matters referred to by my right hon. Friend the Member for Old Bexley and Sidcup (Mr. Heath).

Mr. Budgen rose

Mr. Dykes

I cannot give way again, in view of the time limit on my speech.

My hon. Friend the Member for Nottingham, East (Mr. Knowles) also referred to the need for the Community to work together to create a high technology Europe and to catch up with Japan and the United States. We also have to do a great deal nationally in that context which may have a limited connection or no connection at all with the Community. Britain is a seriously under-investing country. We invest in modern plant and machinery at about half the rate of Japan. The Community budget is actually a very cheap mechanism. Those of my hon. Friends who are always rabbiting on about how expensive it is should consider the need to invest far more money, public and private, in this country and to make decisions along the same lines through the European Community machinery.

While listening to Members fussing about the Community budget being outrageously big, I was musing on the modesty of the Community mechanism. I regret that the proportion spent on agriculture is too great, but that is not the same as saying that if the overall budget were bigger the proportion spent on agriculture would be smaller and the anxiety about it would decrease. Even with the latest increases in the draft 1986 budget, the entire Community budget is about £20 billion—roughly the amount that this country spends on dole money for the unemployed. Why do Conservative anti-Marketeers not put the same pressure on the Government to reduce unemployment, which is surely more important as well as more expensive?

The European Community is here to stay, not just because all the populations of all the member states strongly support that continuation and development. With the addition of two more member countries at the end of this year, the Community must now be developed in a concerted way—

Mr. Teddy Taylor

A Socialist way.

Mr. Dykes

No, the judicious use of public money for investment purposes is quite different from excessive spending on current account.

There are many respects in which Governments should restrain their spending on current account but continue to spend a large amount of public money on combined projects with private investment to build up the economy. We must build up investable resources in Europe. Unfortunately, the United Kingdom is the most seriously under-investing advanced country in Europe and probably, pro rata, in the world. The more money devoted to that purpose in the European Community, the better. At a time when this House, like other national Parliaments, should be considering these matters constructively and considering the expansion of high technology spending on ESPRIT and related projects, we get only curmudgeonly, pessimistic mumblings — from both Conservative and Labour Members-about the Community being outrageously expensive.

At least the Community budget, unlike those of all the individual member nations, does not have a built-in deficit. That in itself is a discipline, as is the 1.4 per cent. ceiling. I welcome the fact that at long last the Community is earnestly engaged—with the Council of Agriculture Ministers, despite the German veto, which I deplore as a total disgrace and which should have been denounced by the Government and by the whole House-in the control of agricultural prices. That has taken some years to achieve, but price reductions have been proposed and people continue to leave the agriculture sector. It is not true that ossification has set in. One has only to consider the reduction in the agricultural population in France and elsewhere. The Bavarians, too, need to be shown the realities of life by their political leaders.

With all those things in mind, as my hon. Friend the Member for Milton Keynes (Mr. Benyon) said, we must at long last begin to take the Community forward in an idealistic way and stop these absurd nitpicking little debates about tiny amounts of money which make the Daily Express feel pleased and happy but which make us look foolish to other European countries.

7.59 pm

Mr. Gerald Bermingham (St. Helens, South)

It has been interesting to listen to the preaching of supposed European idealism — even idolism — by Conservative Members. The hon. Member for Milton Keynes (Mr. Benyon) said that increased spending in Europe was an increased investment in public expenditure which was good for the European economy and jobs. Pardon my cynicism, Mr. Deputy Speaker, but if I heard the hon. Gentleman loudly preach that theme to his own Government, who have done nothing but cut public expenditure and investment in jobs, I might give more credence to what he said.

One cannot have the argument both ways. One must either adopt the market approach and ask what the return on our investment will be, or the much more social approach to public expenditure and investment. I do not know which approach the Government wish to adopt. On this occasion they tell us that we must increase investment in Europe from 1 per cent. to 1.4 per cent., and that that apparently is a good thing. They then wonder why some of us criticise such investment and ask what we shall get in return. In all fairness, we have a right to ask that question.

I have never made any secret of the fact that I consider the whole European concept, as currently constructed, to be an utter waste of time. It is bureaucratic madness and a waste of money, which, at the end of the day, produces nothing for the European Community. If we were talking about a free trade area that stretched northwards from the Mediterranean, which was enlarged to 12, 14, 16 or 18 countries and which operated a fair system, I would be all for it. But the current system is nothing more than an absolute waste of money, and it has many side effects that are utterly detrimental to the United Kingdom.

We talk about the CAP. But what does that mean in real terms for British farming? As my hon. Friend the Member for Newham, North-East (Mr. Leighton) said, land values have escalated beyond reasonable levels. A secondary effect is that, unless they are extremely rich, the young cannot afford to enter the farming community except as tenants, but the number of tenancies available has decreased, and the Government have not helped by encouraging county councils to get rid of smallholdings. As a result, the first rungs of the farming career structure have been removed.

What would happen if the CAP collapsed tomorrow or if subsidy levels were reduced by force of economic circumstances? Many young farmers who are now buying their land on very large mortgages would find themselves in the bankruptcy court. Carey street alone would benefit, and the lawyers and accountants with it. The real farming industry would suffer. One cannot justify a policy which has that as a potential end result, any more than one can justify an industrial policy that talks about fairness and competition when that does not exist throughout the Community.

The British fishing industry has two thirds of the potential, but it gets only one third of the catch. Our trawlers are laid up, our men are out of work and our industry is dying on its feet. Is that an investment?

The heart of the glass industry is in my constituency, and it has some of the finest technology in the world. It is said that there will be common agreement on production rates and everything else, yet the Belgians, French and Italians break every agreement, not officially—one asks the Government to intervene, but nobody takes any notice—but by way of energy support prices.

Mr. Forth

Why is the Labour party encouraging Spain and Portugal to come into the Community, given the fishing implications to which the hon. Gentleman has referred as well as the implications for horticulture, farming and industry generally?

Mr. Bermingham

That is a fair intervention. I make no secret of the fact that I do not speak for my party from the Opposition Front Bench.

Mr. J. Enoch Powell (South Down)

The Americans do not speak to the hon. Gentleman; they speak to his Front Bench.

Mr. Bermingham

I am much obliged to the right hon. Gentleman.

I have no objection to Spain and Portugal coming in, provided that the ground rules are changed and there is fair play. I shall come back to that point, particularly in the context of the clothing industry and textiles.

If the rules on energy support prices, and so on, are not adhered to, in Belgium glass sheeting for double glazing, for example, can be produced and shifted at a price that is cheaper than the price we pay for the materials. That is the sort of club to which we are now expected to pay this extra money. There are serious questions about why we should pay such extra money, because it seems to be grossly unfair.

The United Kingdom textile industry has suffered grossly over the past 10 or 15 years, and only now is it beginning to struggle back on to its feet. Textile firms in the north and in my constituency will be seriously at risk if pricing agreements throughout Europe are not arrived at on a basis that will allow the British textile industry a fair share of the market. No one is asking for preferential treatment, only for fair competition within the Community.

In international terms that must be coupled with a multi-fibre arrangement that is fair to European, English and world trading interests. But unless the rules are played fairly across the system, the system is not worth having. The truth is that different rules seem to apply to different parts of the Common Market. At the end of the day, the United Kingdom always seems to get the worst of the deal.

I have lived for many years in south Yorkshire, which used to have many steel industries. From 1954 onwards one has seen how the rules have been bent in the European Iron and Steel Community, as a result of which the English steel manufacturers, who produced some of the best special steel in the world, found themselves on the losing side time and again.

It is against that background that we are now asked to increase our membership fee from 1 per cent. to 1.4 per cent., but in no way have the Government sought to justify it. It is said that the money is needed, but the level of expenditure is already up to just over 1 per cent. I have estimated that there was roughly a 7 per cent. leeway. Even in our inflationary times, 7 per cent. is nothing, and I do not believe that the 1.4 per cent. ceiling on own resources VAT—unless policies are drastically altered—will prove to be adequate.

There comes a time when some of us have the right to ask—I hope that the House has such a right—where we are going with current European policies. Are we seeking to produce the European free trading entity that was first conceived in the original idea and that will expand and benefit the whole of Europe? Alternatively, are we seeking to create a cosy little club, some sections of which will be cosseted at the expense of others?

At the end of the day we must decide whether, in what we do, we are seeking to benefit our constituents. We must seek to produce a fair trading policy across Europe. In my view, and I hope in the view of many other hon. Members, that situation has not been reached. The Government's attempt to force this tawdry little Bill through will, in effect, mean that some sections of Europe might be cosseted but that many more will ultimately be damaged.

I can think of many ways in which £1 billion would be far better invested in the United Kingdom than in the current concept that has come from Brussels. The original dream of the European entity was good. The reality is that it has become an absolute nightmare for which the United Kingdom is paying a very dear price. I hope that the Bill will be rejected.

8.9 pm

Mr. Richard Shepherd (Aldridge-Brownhills)

Over the weekend the press has prepared us for the debate. One remembers Belloc: The stocks were sold; the Press was squared; The Middle Class was quite prepared. Monday's exposition in The Times was followed by today's contribution, neither of which did the greatest credit to their authors. The unease which fed the articles was expressed well today by my right hon. and learned Friend the Foreign Secretary. He stayed in the Chamber to hear the speech of my right hon. Friend the Member for Worthing (Mr. Higgins). Had that speech come from the Secretary of State, there would have been a cheer from the House and from the country. Instead, my right hon. and learned Friend the Foreign Secretary prefaced his speech with an apologia for the future of Britain in Europe and identified factors which he claimed add to our strength in the world.

The fact that our membership of the Community has diminished our influence in the world causes anxiety to people who are neutral to the intent and purpose of the Community. The Foreign Office has turned the arguments upside clown. Part of the strength of our influence lay in the fact that we were a major purchaser of agricultural commodities from nations which had a natural advantage in their production. The influence which we exercised as a significant purchaser of the goods of Australia, New Zealand, North America and even Argentina was far out of proportion to that which we exercise as a rather junior member of the European Community.

For many years we have heard that our trade with the Community is significant. It amounts to 40 per cent. Conversely, 60 per cent. of our trade is still with the rest of the world, although we have embraced the European Community's common agricultural policy.

I cannot support the measure, because what causes most distress to the country and what is central to the Community is the constant burden of the common agricultural policy. The net contribution to the Community is borne by the ordinary consumers of this country. It is difficult to make the Government identify the cost to the consumer. In the United States of America it is a requirement of law for the International Trade Commission to assess what a tariff means to the consumer. This applies to shoes, corn imports or any commodity which carries a tariff. We no longer deal in those economics. We eschew the quantitative evaluation of the merits of an argument. I suggest that the common agricultural policy amounts to £10 billion of taxes on consumers. The Government seek to cut public expenditure so as to effect taxation cuts. The most effective way to raise the standard of living for people in Britain and diminish the tax burden would be to reduce the price of food.

The purpose of Parliament is to scrutinise and inquire into the purpose of raising taxes and finance, and this we do inadequately and woefully. The Government were elected to defend the common man, to represent his interests and to control wasteful taxation. We are gradually abandoning that policy. We shall return to this fundamental constitutional issue in Committee. We should not suffer taxation over which we have no call, nor direction, nor ability to abate. We must identify the cost to the consumer.

The Treasury must insist and the Government must demand that the Ministry of Agriculture, Fisheries and Food gathers itself up and informs us about what a 10 per cent. reduction in the cost of food would represent. It could be £3 off the average family's cost of living. That would reduce the retail prices index, improve our standard of living and direct our resources to where they are most needed. My hon. Friend the Member for Holland with Boston (Mr. Body) has written an excellent book entitled, "Agriculture: The Triumph and the Shame". It is not true that we do not wish to support our agricultural interests. However, many hon. Members and many British people believe that we can better support and defend the interests of our farmers and represent the interests of our consumers without that especially pernicious instrument, the CAP.

It is not true to say that we have resolved the European problem. Most hon. Members recognise the reneging on undertakings which were solemnly given by the most senior members of our Government by their coming here today and saying that things which they promised would not happen will happen. One appreciates their difficulties. If we reject this measure, our immediate contribution will increase considerably. One feels that the Government started to run the race, were running strongly and then gave up. There was a sudden realisation that the forces were too great and the other issues too big.

The measure for which we shall fight across the Floor of the House during the next three years is tax cuts, and the Government have the power to reduce them, in a properly targeted way that reaches to the poorest and most needy in the community, by cutting their food bills. That is why I want the Government to take up the sword again and to fight back. The points made by my right hon. Friend the Member for Worthing should be adopted by the Government, and they should return to Europe and say, "The House of Commons will no longer support such a measure."

8.16 pm

Mr. Peter Hardy (Wentworth)

I apologise for the fact that I have had to spend some time away from the debate. This subject commands much of my concern and has for a long time commanded my interest. I congratulate the hon. Member for Aldridge-Brownhills (Mr. Shepherd) on a speech that deserves our attention.

Yesterday, I attended the first meeting of the Political Affairs Committee of the Council of Europe, at which we had our first glimpse of the document produced by the Colombo commission. That document, which was written by a committee of the worthy and good, considers the future of Europe. It identifies areas of real need where European co-operation would be possible. It calls for much more intense co-operation to deal with terrorism, drug-taking and unemployment among the young, and talks of the need to co-operate in enhancing Europe's environment. Those are all good causes, but the Minister and many hon. Members will know that the Community cannot offer a positive response to those or to any other good causes, because the Community will not reduce the proportion of its expenditure that it devotes to agriculture.

If the proportion of expenditure falls below 72 per cent. during this decade, I shall be astonished. But until the Community accepts that the proportion must be dramatically reduced, and until agriculture expenditure is borne by national funds instead of by Community funds, the Community will lack all capacity to move even remotely towards the ideals which persuaded many Conservative Members and a few Labour Members that entry of the Common Market was a commendable development.

I said at the Political Affairs Committee meeting in Paris yesterday that almost every Member of both British Houses of Parliament would subscribe to the ideals which have driven the members of the Colombo commission to their recommendations. All of us realise that we need substantial co-operation in Europe, but, unfortunately, the experience in the United Kingdom since we entered the Common Market has brought bitterness and suspicion, which did not exist before the right hon. Member for Old Bexley and Sidcup (Mr. Heath) dragged Britain, unmandated, into the Community.

Mr. James Molyneaux (Lagan Valley)

And without the full-hearted support of the British people.

Mr. Hardy

As the right hon. Gentleman says, he did not have their full-hearted consent. If the Government sought to obtain the full-hearted consent of the British people today, they would not get it. They will not get it until the Community recognises the need for substantial reform. The Government have an obligation to say that they will give no more money to support what is little more than insanity. For a while, I acted as Chairman of the Agriculture Committee of the Council of Europe and was therefore in a position to study European food policy. Indeed, I acted as rapporteur. The more I looked at the insanity, the more curious I became.

I remember raising in the House the fact that the Soviet Union had doubled its wine purchases for five successive years and was paying the princely sum of 4.5p a litre. The House was amused when I suggested that this was a gesture to achieve disarmament and detente through alcoholic euphoria, but it was not a laughing matter. Nor is it a laughing matter when my colleagues in the Council of Europe who live in wine-producing areas can boast that wine production has increased by a factor of five in a decade and we know that there is an enormous and growing surplus of wine. We know that the problem of wine storage will loom ever larger than the problem of the butter mountain. In a frivolous moment I have suggested that eventually we shall have to put a cork south of Gibraltar to make the Mediterranean sea a repository for surplus wine and Italian sewage.

British Governments have an obligation to speak out with sanity. There was certainly a need for sanity two or three years ago when our steel industry was being contracted. My hon. Friend the Member for Rotherham (Mr. Crowther), who is a member of the Select Committee on Trade and Industry, met Count Davignon and asked him why Britain was required to contract its steel industry to fulfil Community policy while the Italians were busily engaged in expanding their industry in defiance of that policy. His response was, "We cannot do anything about Italy." Britain's economic position is as parlous as Italy's. It may be that this is due to the improvement that the Italian Administration has secured through sheer defiance of Community regulations.

Those of us who live in constituencies and represent areas where there are 10 times as many people unemployed as there are vacancies in a year and where the unemployment prospects are dreadful and will soon be devastating, no matter how much Ministers trumpet about recovery—we have not seen much sign of recovery in many parts of England's industrial heartlands—find it impossible to endorse the Government's policy. The Government are prepared to spend vast sums in supporting wasteful excess and inadequate controls in the Community while the needs in our areas are bewildering.

I trust that the Minister will respond to the arguments that have been advanced by some of his colleagues, because it is right that Britain should speak out in Europe and ensure that its interests, in the areas with the highest unemployment in Europe, are properly recognised.

As the hon. Member for Aldridge-Brownhills has pointed out, experience has shown that we have turned from the deep-water diplomacy which dominated our foreign policy until recently and that entry into the Common Market has brought to our policies a layer of introspection which has changed the character and approach of British political life. It may be that we cannot easily extricate ourselves from Europe, and I would not dissent from the argument that it would be difficult for us to secure this disentanglement. If we are not going to disentangle ourselves, we have no alternative but to ensure that we do all that we can to ensure that the European Community puts its house in order. It is a disorderly house if there is the extravagance of an agricultural policy that imposes no limit on the waste but demands that industries such as those that have served Britain well, providing the economic base for areas such as mine, should be driven into desolation.

Wine, corn and butter are still produced in profusion, but one of the most successful steel works in Europe, at Tinsley Park in Sheffield not far from my constituency, has to be closed to comply with the demands of economic planning imposed by people who have taken leave of their senses. If we have waste in Europe, we must insist that there is productivity and employment in the United Kingdom. Unless the Government are prepared to set that point firmly in their mind, they will fail. In that case, I hope that, they will attract the sincere and genuine opposition of Conservative as well as Labour Members.

8.24 pm

Mr. William Powell (Corby)

One point that is fundamental to consideration of the Bill was the statement by my right hon. and learned Friend the Foreign Secretary that the Bill represents the most significant piece of primary legislation since the original legislation that took us into the Common Market 12 years ago. I wish to examine on that basis the arguments about what the House should do.

Some hon. Members oppose our membership of the European Community. They have spoken most eloquently and been heard with respect. It is not surprising, therefore, that, when they are asked to take the next step down the road to the development of the Community, they should stand out against it.

Mr. Marlow rose—

Mr. Powell

I shall not give way. My hon. Friend knows that we are all limited by time.

It is not surprising that those who oppose our membership refuse to take the next step, just as they refused 12 years ago to take the next step.

There are those who favour membership but believe that the position advanced by the Bill cannot be supported. My right hon. Friend the Member for Worthing (Mr. Higgins) eloquently advanced that point, which has found substantial echoes of support in the House. I believe that that is a profoundly mistaken view, because it is not for any of us as Members of the House of Commons to second-guess the negotiations that have been carried out by the Government. I do not doubt that we would all have liked to achieve something slightly different, but those Members on the Treasury Bench who participated in the negotiations are the only people who had to judge whether a bargain could be struck. Ultimately, the House must decide whether it is prepared to entrust confidence in the Government. That is our power and responsibility.

My right hon. and learned Friend the Foreign Secretary came to the House, as did my right hon. Friend the Prime Minister, and said that this was the best deal that could be struck on behalf of the country. They commended the deal to the House on that basis. We have heard a number of contrary arguments. Some hon. Members say that they could have made a better deal, but the fact is that they are second-guessing the people who have the responsibility for conducting our foreign and international policy.

When the Foreign Secretary says that this is the best deal, it becomes a question of confidence. Are we prepared to entrust confidence in him? Although I do not support many aspects of the Community—indeed, I wish to change them, as, I am sure, does my hon. Friend the Member for Harrow, East (Mr. Dykes)—the fact is that this is where we are.

Where would we be if we were to reject what the Bill offers and to refuse the next step towards the development of the Common Market? We should be in the worst possible position. We should remain in the Community—as, of course, a number of hon. Members wish, although they reject the conclusions reached by Her Majesty's Government—but what influence should we have? We should have virtually none, because the best that could have been obtained would have been rejected by the House. The European Community would be developed by our partners and we should have virtually no part in it. We should stand on the sidelines. We should be ignored and despised.

My hon. Friend the Member for Holland with Boston (Mr. Body) said that we need a common market for company law, international trade, and so on. If we reject the Bill, and the further development of the Community that is implicit in it, that will never come about. We shall have no chance of securing the objectives that he so eloquently advanced and which I passionately share.

If we wish to develop Europe and come together as a Community, we have no alternative but to accept the advice that has been given by my right hon. and learned Friend the Foreign Secretary. The House of Commons must fulfil its historic function and have confidence in Her Majesty's Ministers.

The arguments put forward by my right hon. Friend the Member for Worthing and by my hon. Friend the Member for Aldridge-Brownhills (Mr. Shepherd) are fundamentally flawed. Their objectives and analysis may command wide support, but they have no chance of achieving their objectives if they stand apart and say to the rest of the Community, "We will have no part of it."

The hon. Members for Hamilton (Mr. Robertson), for Walthamstow (Mr. Deakins) and for Great Grimsby (Mr. Mitchell) said that we had thrown away our best bargaining card. That implies that they would have been prepared to continue the year-on-year struggle to obtain a British rebate. We shall not be able to obtain the 13ritish rebate if we reject the Bill, because we have not been able to obtain it in the past. Little progress would be made. Their argument is fundamentally flawed. We have used our best bargaining card to the point where it gave us the maximum return.

In those circumstances, my right hon. and learned Friends the Foreign Secretary and the Chief Secretary to the Treasury struck the best bargain at the right moment. We used our cards to the best effect and obtained the best deal that we could. We are now presented with a choice: do we or do we not proceed with the development of the Community? If we wish to develop the Community in all its aspects, the only choice is to support Second Reading of the Bill.

If we reject the Bill, the message will go loud and clear to our partners in the Community that we are not serious in wanting to be a member of the European Community and that they can go their way and leave us aside. We shall find that our influence in the world is but a small percentage of that imagined by those who have so eloquently argued that we can stand apart, defy the forces of the world and go it alone. That may have been possible at one time. That option is not open to us now.

8.34 pm

Sir Anthony Meyer (Clwyd, North-West)

The debate, which has been dominated by my right hon. Friend the Member for Old Bexley and Sidcup (Mr. Heath), contained an exceptionally important speech by my right hon. Friend the Member for Worthing (Mr. Higgins). I do not suppose that any hon. Member is held in higher esteem than he is, or is more justly held in that esteem. It is therefore important to meet head on the argument that he deployed. It is central to the debate. Although hon. Members will stream in at the end of today's proceedings and vote as the Whips direct, this is supposed to be a debating Chamber, and my right hon. Friend's arguments deserve to be taken seriously.

The centre of his argument was that we had an outstandingly good case and that therefore there was no need for us to give a quid pro quo to achieve a settlement satisfactory to the United Kingdom. It seemed a good case to every hon. Member. To the other members of the Community, the case did not seem so good. The United Kingdom, which has demanded a reduction in its contribution to the Community, is the only member of the Community that is self-sufficient in energy. The United Kingdom's case for special treatment, therefore, did not seem so blindingly clear to other members of the Community as it seemed to every one of us.

My hon. Friend was a distinguished Treasury Minister. As far as I can recall, his duties in the Treasury were involved mainly with the management of the money market. He was perhaps less involved with international negotiations than some of his other Treasury colleagues. My experience as a lowly member of the diplomatic service taught me that one receives nothing for nothing and that there is always a quid pro quo. One achieves nothing in international negotiations unless one is prepared to make some concession.

My right hon. Friend said that we had a bargaining weapon so powerful that we should not have been prepared to concede anything in return. It was the same bargaining weapon that Samson used so effectively. It is so powerful that it brings down the roof not just on everyone else but on ourselves. I cannot hope to persuade my right hon. Friend by what I have been saying, but I do not accept his case. I accept the case that the Government put forward—that they obtained for this country the best possible bargain at Fontainebleau and that the Bill enshrines that bargain.

The Government obtained a good bargain at Fontainebleau because, for the first time for many years, they stopped thumping the table and put forward to the meeting a paper which was by far the most constructive, forward-looking and interesting contribution to the European debate that the British Government had made for a long time.

The agreement reminds me of a subscription to a Christmas club. Anyone who objects to the Christmas club putting up the subscription when his own subscription will be halved and his divvy will be upped must be stark, staring mad. We must accept the whole of the Fontainbleau agreement or none of it. We cannot swallow the bits that we like and spit out those that we do not like.

The Bill and the agreement to which it gives effect mark the end of the interminable dispute over Britain's contribution to the European Community which has paralysed the Community for five years. The way is now open to make the Community into what it should be—a unique system which allows member countries, while keeping their national identities, to increase their influence and wealth more than they could possibly do by their own efforts. For the first time there is an opportunity that would have seemed unimaginable two years ago: the opportunity to make progress towards a European Community that works.

The new Commission is incomparably better than its predecessor. In M. Jacques Delors we have a President who gets things done, who believes in an open and competitive economy and who is fully backed by the French Socialist Government who appointed him. In Lord Cockfield we have, I admit somewhat to my surprise, a commissioner who has come forward with bold and radical ideas for advancing swiftly towards a unified market, which is the primary aim of British policy. Already things are beginning to move.

At the last meeting, the Foreign Secretary made very sensible suggestions for improving decision-making by making more use of qualified majority voting. I stress "qualified majority voting". People speak as though we had merely one vote among nine. With majority voting, provided that we have the support of one other country, we need never make use of the veto. The proposals stand a very good chance of being accepted, provided that we can get the Italians, who will be in the chair at Milan, to use their considerable expertise in the Presidency. All of us pay homage to the excellent way in which on more than one occasion the Italians have conducted their chairmanship. Provided that we obtain their support for the British Government's proposals, there is a very good chance that they will be accepted.

If to obtain that support we have to pay a very small price in terms of European symbols—it would be absurd to jib at such symbols as national anthems and flags that cost so little and give so much satisfaction on the Continent—or the very much larger price that I hope we are now ready to pay and that will benefit us as much as anybody else — to complete the European monetary system by this country joining its exchange rate mechanism — I believe that these proposals will be accepted.

I support the Bill and I challenge any hon. Member who opposes it to say how we can throw it out and still remain an effective member of the Community. I want the Community to get on with its job of enabling this country and other members of the Community to strengthen their influence in the world and provide better living conditions for their people.

That brings me to the one contentious part of my speech. Even the increased budget of the European Community is far too small. Like my right hon. Friend the Member for Old Bexley and Sidcup, I want a great deal more money to be spent upon technological advance, common procurement and financing the European defence industries. I do not believe that even the most ardent supporter of a free market would say that people can be induced to buy their own tanks and guns.

Although the budget is far too small, most of it is wasted. We should be far better off without the common agricultural policy, but we have to live with it. Nor is the money spent upon the regional policy a proper activity for the European Community. This work could be done far better by national Governments. All the money should be spent on financing technological achievement. That is the way in which Europe could make a major contribution to raising living standards generally.

8.43 pm

Mr. Eric Forth (Mid-Worcestershire)

I begin by giving some credentials to the House. There is no reason why I should, but I do so only for this reason. It is often said that those who criticise the European Community or who are bold enough to criticise a Bill such as this are in some sense anti-European. There is nothing wrong with being anti-European. It is a perfectly respectable political position to adopt. However, it is not a position that I occupy. Throughout the late 1960s and early 1970s I campaigned for the entry of the United Kingdom into the European Community and I spent five years as a member of the European Parliament, so I am marginally qualified to comment on this Bill. I do not do so as one who argues that we should leave the Community, but we must keep in perspective those matters that the Community can do best.

It can be a very effective trading block and customs union. It can, and rightly should, perform the task of representing the interests of its members in a world trading sense, and from time to time we may be able to identify those matters that the Community can perform better than individual member states. But that does not necessarily lead to the conclusion that we should vote for the Community a budget which sets about identifying more and more things upon which money should be spent. The common agricultural policy is a classic example of a policy that began with very high hopes and splendid ambitions but which has come very badly unstuck.

The question that has to be asked tonight is: do we have a better chance of reforming the CAP and setting Europe back again on the right rails by retaining the 1 per cent. VAT limit, or should we trust to good luck and good fortune and the majority vote in the future and provide the Community with more money at this stage?

We have been told over and over again in this debate, including by my right hon. Friend the Foreign Secretary, that the Bill represents a good deal for the United Kingdom. Perhaps it does; perhaps it does not. I am more interested in what is a good deal for the European Community. I am not yet convinced that we shall do the Community any good by removing the one thing that until now has concentrated minds and disciplined the Community: the 1 per cent. VAT ceiling. We have been told that the new ceiling of 1.4 per cent. will be bumped up again as early as next year and that it is already provided for in the 1986 preliminary draft budget. What that means for discipline I do not know.

Two main reasons are given for the Bill. The first is enlargement of the Community. I do not support enlargement. I am a lone voice on that, although I appreciate any support from my hon. Friends. However, the House has not been given an opportunity to say what it thinks about enlargement, except in my Adjournment debate before Easter in which I discussed the matter at some length with my hon. Friend the Minister of State, Foreign and Commonwealth Office.

The real reason why I am unable to support the Bill and will vote against it is because the Prime Minister, the Foreign Secretary and the Economic Secretary have said that effective budgetary discipline will be introduced. The budgetary discipline document says: the level of expenditure will be fixed on the basis of available revenue, and that budgetary discipline will apply to all budgetary expenditure. That is splendid.

Article 1 then refers to a reference framework being fixed each year, the maximum level of expenditure being fixed within that framework. That is also splendid. However, it then falls apart because article 2 says: Account shall be taken of exceptional circumstances, in particular in connection with enlargement. Therefore, the budgetary discipline document admits of the possibility of unidentified exceptional circumstances that may alter the budget discipline. Article 5 says that, "barring aberrant developments" agricultural expenditure will be brought back within the limits imposed by the guidelines. We do not know what those "aberrant developments" are. However, in the view of the Economic Secretary, what would happen if there were two or three consecutive years of record harvests in the Community, to say nothing of developments in the world market for agricultural products?

Finally — this blows a hole in the entire claimed budgetary discipline mechanism—article 6 says: the Council, acting by the majority referred to in article 1(2), may amend the reference framework". In other words, having started the year by identifying limits, we can at any time vary them or do away with them altogether.

If this is being offered to me by my Government as a serious attempt at budgetary discipline on a Community that until now has shown no will or ability to discipline its expenditure, I cannot accept it. Until I am convinced that that document and these words mean something—that bringing into the Community two countries that can only benefit from increased expenditure—until I am convinced that the Germans did not really mean what they have recently done and until I am told how it is that by bumping up the 1986 preliminary draft budget we shall not go beyond the 1.4 per cent. that is now proposed in the foreseeable future, I shall have to vote against the Bill.

8.50 pm

Mr. Gavin Strang (Edinburgh, East)

I make no apology for confining my remarks to the CAP. It is because of the colossal expenditure on the CAP that the Bill has been introduced. The Government are cutting public expenditure in areas that hit the poorest people in our society. They are cutting back on important areas for our community. Their whole philosophy is one of reducing public expenditure. Therefore, it is remarkable that they are prepared to continue to sanction the wasteful expenditure of thousands of millions of pounds. To some extent, that money is used to give an open-ended state commitment to farmers to produce as much as they want, regardless of need. Our intervention stores have more food in them now than ever before. Thousands of millions of pounds have been wasted destroying the markets of other countries, especially of the Third world. There is a real and understandable conflict between the United States Administration and the European Commission because of the enormity of the subsidies that the EEC has been prepared to use to win markets to dump surplus produce.

I was privileged to represent this country during the last Labour Government, sometimes in the company of my right hon. Friend the Member for Lewisham, Deptford (Mr. Silkin). At the time of the referendum it was remarkable that EEC prices were about the same as world prices. That, of course, was a freak position. Subsequently, world prices returned to a more realistic level, but EEC prices continued to be set well above them.

I acknowledge that the Labour Government were repeatedly bought off by such bribes as butter subsidies. They did not take a sufficiently determined stand to hold down prices. It was only at the last price-fixing—we lost power in the middle of it — that the Labour Government had a mandate to dig in their heels and hold down prices.

That has happened with this Conservative Government. Instead of embarking upon a policy to reform the CAP and hold down expenditure, they have concentrated on trying to obtain unilateral independent action in the Community to help reduce our net budgetary contribution. Indeed, during the past six years, the Government have made no real attempt to obtain real changes in the CAP. An example of that is the development of the sheepmeat regime. I remember debating that on a Friday afternoon two or three years ago. The then Minister presented it as a great achievement, but the majority of speakers from both sides of the House were highly critical of it.

Instead of creating a common market for sheepmeat — which would have been in the interests of Scottish producers—the regime was drawn up in a complicated manner precisely to keep Scottish lamb out of the French markets. It was a grotesque regime which cost a great deal of money. This country may be a net beneficiary, but there is guaranteed intervention on the Continent, headage payments for some countries and a deficiency payments scheme operating in this country.

That grotesque regime makes no sense to anyone looking at the development of sheep production in the Community. Instead of tackling the real problem, each country is prepared to accept a bribe. There is an unlimited amount of money and it is used to keep countries quiet. We seem to be continuing along that road.

The next major development was the implementation of milk quotas. That was an admission of failure. Every producer is given a rigid quota. It is an admission that we are not prepared to use the price mechanism to discipline the level of production. We will be stuck with a surplus in milk production. We must ensure that we are not destroying British jobs and making disproportionate cuts in our production while the Community as a whole increases production or maintains it at present levels.

I hope that the Government will decisively kill the nonsensical suggestion of quotas for cereals. I accept that, having imposed milk quotas, we should try to make them work and reduce milk production throughout the Community, but cereal quotas would be diabolical. Cereals are a fundamental cost in the agriculture industry. They determine the price of livestock production—especially of pigs and poultry—where 70 per cent. of costs are accounted for by the price of cereals. It would be disastrous if the Community adopted cereal quotas.

I shall not take the time of the House to put forward other practical arguments against cereal quotas. I hope that the Minister will make it clear that the Government will stand by their policy—I accept that they are doing so at the moment—so that, even if we cannot achieve the full 5 per cent. reduction in cereal prices that we should have had this year, at least the price will be held down. It is incredible that the German Government, who have traditionally supported the idea of the European Community, should have been prepared to stand apart on this issue. There is no case for keeping prices above the level of world prices.

When I was first elected to the House and began to study these matters, people in Brussels described the CAP as the vehicle of integration. It was the great common policy. They thought that it was sacrosanct because it would bring the Community together. In fact, it has done the opposite. Far from being a vehicle of integration, it is the main source of disunity, of waste and of lack of progress. It is one area in which we should not try to develop a common policy. If we consider the different types of agriculture and Government intervention, we must recognise that there is no case for going down that road.

We must think of the investment that we could make in science and technology—areas where there is a case for saying that Britain is not large enough to act unilaterally and that there should be collaboration within the framework of the Community. Small countries such as ourselves, Germany and France cannot act alone against such large countries as Japan and the United States.

I regret that Britain is in this position. Surely there must be common ground at least on the view that the Government must take a tough line, although I do not dispute that during the present round of price fixing they have taken a tough line. They must not be prepared to concede further increases in prices for products in surplus.

8.59 pm

Mr. Roger Freeman (Kettering)

I rise to support this Bill as one who supported entry into the Common Market originally and believes that we should stay in and play a very active role in its further development. I want to make four points very briefly.

The hon. Member for Hamilton (Mr. Robertson), opening the debate for the Opposition, was perhaps attacking from the financial standpoint figures for 1984 and 1985 before us in this Bill which are already set. We are currently running at a rate of approximately 1.2 per cent. VAT own resources contributions within the Community. We were about 1.1 per cent. in 1984 and already the draft budget for 1986 is 1.3 per cent. or 1.35 per cent. The figure for 1985 of 1.2 per cent. equivalent reflects the price-fixing largely in 1984, and the draft budget decision for 1986 reflects not only the accession of Spain and Portugal but also to some extent the price fixing which has already largely occurred.

I suggest to the hon. Gentleman that, instead of attacking this Bill, which should be addressed on its merits, it would be more constructive to address the draft budget for 1986 and, more important, the draft budget for 1987. There I can agree with him that a ceiling of 1.4 per cent. must be maintained and economies must be achieved, particularly in the discretionary spending of the Community. To criticise the intergovernmental payment for 1985 is to miss the point, because that was already predetermined by decisions in 1984. [Interruption.] My hon. Friend the Member for Southend, East (Mr. Taylor) indicates part of the reasons for the 1985 IGA and I will come to that in just a moment.

My second point—here I agree with my hon. Friend the Member for Corby (Mr. Powell)—is that we have to look at the deal as a package. [Interruption.] The hon. Member for Thurrock (Dr. McDonald) expresses some disagreement with what I am saying; it will be interesting to hear what she has to say in a minute. The plain fact is that the net contribution of this country from 1982–83 as a result of this Bill will remain broadly speaking the same. Speaking for the farmers in my constituency, as well as the industrialists and consumers, I say that that is a good deal. That is a contribution in absolute terms that it is well worth this country paying, not only for participating in the common agricultural policy but also to enable the business men in my constituency to participate in the tariff-free European Economic Community.

Mr. Marlow

The gross contribution is also important, and that has gone up by 50 per cent. That is public expenditure. It may be that some of that public expenditure is within the United Kingdom, but if we are concerned to control public expenditure, gross European expenditure is also very important.

Mr. Freeman

I disagree with my hon. Friend. I am concerned about the net expenditure that affects public spending. When we talk about the 1985 IGA payment, I think that my hon. Friend is right. I know that he argues that we must look at that net of only the abatement that will operate in 1986 for that IGA payment and not necessarily net of the receipts to the agricultural community. That is right, but I look at the net contribution that appears in our public accounts and affects the PSBR, and that net contribution has not increased since 1982–83 and will not increase.

My third point is that I have heard no evidence, even from my hon. Friend the Member for Mid-Worcestershire (Mr. Forth)—who has left the Chamber, unfortunately, but will no doubt be returning shortly—to suggest that budgetary discipline is not working. The hon. Member for Walthamstow (Mr. Deakins) may shrug his shoulders, but no evidence has been added to the debate tonight to suggest that budgetary discipline is not working. The cereal year begins on 1 August and the Commission has not yet finished wrapping up its proposals to ensure that CAP expenditure rises in line with the restraints agreed at Fontainebleau. We are somewhat begging the question if we suggest that somehow agricultural expenditure is going to run away in the next year. I am not persuaded of that argument on the evidence presented.

I refer hon. Members to the Select Committee evidence, when my hon. Friend the Economic Secretary, in answer to a question on page 12 of the Minutes of Evidence, made it quite clear that there is no evidence yet to suggest that, simply because the regime for cereals and oilseed rape has not yet been firmly fixed, total agricultural spending will overstep the guidelines.

In conclusion, I should like to address a question to my hon. Friend the Economic Secretary concerning the carry-over not only of the revenue shortfall but also of agricultural spending. As far as the revenue shortfall is concerned—my hon. Friend the Member for Southend, East raised a question earlier which I shall now address—there was a revenue shortfall in 1984 of 400 million ecu, which has been carried into this year. The intergovernmental agreement for 1985 makes no provision for recovering that shortfall. It will be offset against a revenue surplus which might be 250 million ecu or 300 million ecu. It is right not to include in the intergovernmental agreement for 1985 any cover for that revenue shortfall, because it is a discipline against further expenditure within the Community this year.

Mr. Teddy Taylor

indicated dissent.

Mr. Freeman

My hon. Friend the Member for Southend, East shakes his head. I shall be happy to give way to him if he wants to pursue that argument.

It is important to ensure that agricultural expenditure is not deferred. Cash limits to expenditure must come shortly so that sums agreed to be spent in one year are not squeezed into the next year to fulfil obligations incurred in a full calendar year. I should appreciate the Economic Secretary's comments on that, because if budgetary discipline is to mean anything, it must mean that obligations incurred are properly accounted for in the course of the year.

9.6 pm

Mr. Roger Moate (Faversham)

My hon. Friend the Member for Kettering (Mr. Freeman) is a doubtful ally of the Government Front Bench, because his case seems to be that we have already overspent the 1.4 per cent. and so we should be worrying about the future and the next tranche. The Front Bench has tried to establish that 1.4 per cent. will hold good for some years. If he thinks that the solution lies in cash limits, it is strange to propose taking away the only effective cash limit which imposes some form of discipline on the CAP.

Several hon. Members referred to the Commission analysis, which states that in 1986 the VAT figure will be 1.35 per cent., leaving a gap of only a few hundred million ecu before the 1.4 per cent. is reached. Is that figure accepted by the Treasury? If it is, how does the Economic Secretary justify the 1.6 per cent. VAT figure in the treaty documents? Is that not a give-away for the next stage of the operation?

What will the new arrangements do to the net contribution by Britain in relation to other countries? The Foreign Secretary said that it was likely that in a few years' time France would become a net contributor. Other suggestions are that France will be a significant net contributor almost immediately. One of the many promises made by the Government Front Bench in recent years has been that the injustice whereby we are the second largest contributor would be put right in the negotiations. Even allowing for certain elements of speculation, we are entitled to know what forecasts the Treasury and the Foreign Office can make about who will and who will not be the largest contributors in the league table of net contributors to the European Community.

Many promises have been made by leading Ministers. We were led to expect much more than is being delivered by the Government tonight. The Government have themselves to blame for any disappointment. Our expectations were raised. We were promised fundamental reform of the CAP.

Some hon. Members who have spoken today do not believe in the need for that fundamental reform. They might argue that there should be some marginal improvement, but they are in a minority. The Opposition, the majority on the Government Benches and certainly the Government have argued for a long time for fundamental changes in the CAP.

Let me make my position clear. Arguments about idealism, reform and anti-Marketeering have been thrown about. I am one of those who resisted entry into the Community, but, ever since the clear mandate in the referendum, I have argued for reform of the Community. That is what we are after. We are in the Community and will stay in it, but if we are staying in, we are entitled to fight for reform in the interests of Britain and of Europe. The Government, the Prime Minister and the Foreign Secretary built up our expectations that the 1 per cent. ceiling would be used as a technique to secure fundamental and durable change. They have failed to deliver what they promised us.

If we remove the discipline of the 1 per cent. and have a considerably higher figure in two or three years' time, where is the discipline? The Government have thrown away an opportunity for reform. That will be regretted by the people of Britain and Europe. It is a tragedy that many of the follies of the CAP will continue. My constituents and others will continue to witness hillsides and estuarial lands being ploughed in pursuit of a foolish cereal policy, or taxpayers being called upon to compensate farmers for not following that policy. We shall have a continuation of nonsensical cheap exports to Russia, and we shall continue to pour out money on the destruction of oranges or lemons rather than on the things that right hon. and hon. Members want the Community to be doing. This is a missed opportunity, and I shall vote against the Bill.

9.11 pm

Mr. Eric Cockeram (Ludlow)

My right hon. and hon. Friends will know that I have always been a supporter of the Common Market. Nevertheless, I have been critical of the inadequacy of the safeguards to control expenditure from the outset. Not enough was written into the original constitution on that subject. History has proved my criticism to be right.

I differ from several of my right hon. and hon. Friends who support the Common Market and who believe that they can show their sympathy with the cause of co-operation in Europe by throwing ever more money at the Brussels bureaucracy, as if it were some sort of virility symbol. Co-operation in Europe is not achieved merely by throwing still more money in that direction.

I accept that the United Kingdom has got a good deal in this transaction because we have an inbuilt refund mechanism. That does not satisfy me, however, because the increase in own resources from 1 to 1.4 per cent. is pretty substantial on any analysis. This was the moment when the Government should have ensured that there were sufficient safeguards to control expenditure. The opportunity will not recur.

The Common Market more than once has demonstrated its inability to control expenditure. It was literally running out of money in the autumn of 1983. The House should imagine what would happen if the Treasury ran our affairs on that basis. We should imagine what would happen if, one autumn, we could not pay pensions, unemployment benefit or the National Health Service. What a way to run a railway! What a way to run a Government or a European institution!

Something must be done. The problem is that the European Assembly—or Parliament as it likes to call itself—is a spending body. It is a pressure group that constantly requires more resources. Its virility symbol is its ever increasing expenditure. It constantly puts pressure on member Governments for more money, but it does not control expenditure.

The 1 per cent. income on VAT under the present constitution is index-linked twice. It is index-linked because, as expenditure rises in line with inflation in each country year by year, so the 1 per cent. yield rises. On top of that, there is the increased GNP of each member state, and as output and wealth rises in each country, so GNP expands. The 1 per cent. increase in VAT resources is also written into that. At present the EC is protected with an ever increasing income, without having to come back and ask for an increase from 1 per cent. to 1.4 per cent.

Substantial savings could be made in the Community by not duplicating expenditure. An argument in favour of the CAP is that that policy is administered from Brussels and not duplicated in each nation state, unlike expenditure on roads, by-passes and the many new constructions that one sees when one drives about the country, which are advertised as being assisted by, for example, a 10 per cent. grant from the Common Market funds. Assisted, be blowed. It is our money that is being expended on those projects. That money has been laundered not by one bureaucracy in Westminster, but by a second in Brussels. Overseas aid is another example of that. It is not necessary in developments of that nature, although the projects are worthy.

Why do we employ a Civil Service in this country to oversee a 90 per cent. expenditure and another Civil Service in Brussels to oversee Community expenditure? The same applies to overseas aid, which is duplicated by national Governments and in Brussels. It is time for the Government to devote more thought to that expenditure and, therefore, I oppose the measure. In my view, the Government should have ensured that greater powers and ability to control expenditure were written into the EC constitution before they conceded the principle of an increase from 1 per cent. to 1.4 per cent. in own resources.

9.17 pm

Mr. Teddy Taylor (Southend, East)

As I have only a few minutes, it will not be possible to comment on the remarkable speech of my right hon. Friend the Member for Old Bexley and Sidcup (Mr. Heath). However, I should at least correct the record. My right hon. Friend said that the staff of the Commission was smaller than that of the Scottish Office and that he had checked the figures yesterday. There has not been a remarkable change over the past 24 hours, and the Commission staff today number 12,747, whereas the Scottish Office staff, including the staff at all Scottish prisons and the mental health hospital at Carstairs, number fewer than 10,000.

It would be tragic to pass the Bill. It provides for a massive increase in the public expenditure of the Common Market, which is spending more than half its income on the dumping, destruction and disposal of food surpluses. Conservative Members in particular, who are supporting spending cuts and the cutting out of waste, should realise that if they vote for the Bill they are voting for a massive increase in the expenditure of an organisation which spends more than half its cash on food dumping, with east Europe being the main beneficiary. How can we justify that if we believe in controlling public expenditure?

It might be worth doing that if we were receiving something in return. The tragedy is that we are committing ourselves to a consistently high contribution to the EC, which, according to the Treasury, in 1987 will be £973 million net. That is about £1 billion net a year compared with about £400 million on average during the past 12 years. We will not control agricultural spending. The Government have said that there are guidelines, but they know that the guideline agreement says that the figures can be exceeded if the majority of European states agree that the year has been exceptional or if there have been aberrant circumstances. Prices will certainly not control the spending of the CAP. My hon. Friend the Economic Secretary is aware that it is not prices, but dumping costs, that cause the expenditure, and nothing in the package will restrain the increase in agricultural spending.

This will not be a good Bill for the British taxpayer, because it seems that we are committed for all time to a net expenditure of about £1 billion. It is not a good Bill for the British farmer, because, when the crunch eventually comes the effects on British agriculture will be disastrous. It is an appalling Bill for the Third world, because the people who are suffering most from the EEC's scandalous dumping policies are those in the Third world, who, because of Common Market policies, are denied a reasonable return for their produce. When we see countries getting £80 or £90 a tonne for their sugar, which is a low price established because of Common Market dumping, we should be ashamed of ourselves.

The one group of people who will be happy with the measure are those in eastern Europe, who will continue to get a massive amount of dumped food at knock-down prices, such as top quality beef at 35p a pound and wine at 4.5p a litre. It seems crazy that we are voting more spending to increase surpluses and subsidise eastern Europe.

People such as myself who originally opposed our membership of the EEC, and those who supported it, all accept that we are in the EEC, and there is no lawful way of withdrawing. For the past 12 years we have been told that the only chance of reforming the EEC would come when the money ran out. Now the money has run out. The Government said that there were two specific things on which they would not accept an increase unless they had been achieved. One was budgetary limits, which were legally binding. We do not have them. The second was a reform of the CAP. We do not have that.

As an hon. Member who supports the Government's policy of restraining public spending and cutting out waste, I believe that it is utterly shameful that we are voting for a Bill to provide for huge additional spending by the EEC when it is wasting more than half the money on food dumping. We should say to the EEC, "You save some money and cut out waste." In those circumstances, it would be a better deal for Britain, and, more important, a better deal for the Common Market as a whole.

9.22 pm

Dr. Oonagh McDonald (Thurrock)

From press, television and radio reports over the past few days, it is clear that the Government have been carrying out a strong propaganda exercise to try to convince the people of Britain that the deal obtained at Fontainebleau last year is a good deal for Britain. There are many examples, including the Economic Secretary to the Treasury's article in The Times this morning, in which he presented the Bill as a change in the rules for good. Yet it is clear from the debate that most hon. Members have not been deceived by that propaganda exercise. Some hon. Members have declared themselves to be on the Government's side, in support of the Bill, such as the hon. Member for Ludlow (Mr. Cockeram), but it is clear from the content of their remarks that they are most critical of what the Government are doing tonight. If the hon. Member for Ludlow had not said that he supported the Government, one would not have guessed it from his speech.

It is clear that in the efforts to present the European Communities (Finance) Bill as a good thing for Britain, some of its implications have been played down. It increases own resources from 1 per cent. to 1.4 per cent. It also provides for an immediate gift from the United Kingdom to the EC of about £250 million to cover the EC's 1985 budget deficit. The Bill also provides for the £595 million rebate, which was unconditional only a year ago. Now it is conditional on the United Kingdom Parliament and all other national Parliaments agreeing to the increase in our own resources. The Economic Secretary referred to the extra £240 million that is to be paid to the EC. Even that figure instead of £252 million implies a more favourable exchange rate for 1985–86 than the explanatory memorandum in the public expenditure White Paper.

The increase in own resources from 1 per cent. to 1.4 per cent. tends to conceal the amount that we are paying into the EC. As the Select Committee on European Legislation once pointed out, 1 per cent. means an 11 per cent. contribution from our VAT take. Increasing the ceiling for own resources to 1.4 per cent. means that our contribution to the EC from our VAT take is probably nearer 14 per cent. We are therefore paying more into the Community despite the Bill and the so-called abatement mechanism that forms part of it.

The figures in the public expenditure White Paper show that, while for 1985–86 the net payments, including overseas aid, are £898 million, by 1987–88 they will rise to £973 million. The hon. Member for Southend, East (Mr. Taylor) was right, therefore, to talk about the Bill leading in future to payments of almost £1 billion a year to the Community without any firm agreement on budget discipline.

It is noteworthy that the Bill allows for extra payments to the Community, although there is no reference in it to budgetary discipline, which was supposedly agreed at Fontainebleau as being binding on each member state. Hon. Members have referred to gaps in relation to so-called budgetary discipline, and I shall return to that later. The fact that there is no reference in the Bill to budgetary discipline is a glaring omission. A provision dealing with that issue should be in the measure if it is to ensure that future spending by the EC is controlled.

As hon. Members have said, the new ceiling of 1.4 per cent. may last for only a further two years. The preamble to the decision recalls the Fontainebleau conclusion that the maximum rate may be increased to 1.6 per cent. on 1 January 1988. The ceiling of 1.4 per cent. is likely almost to be reached in the 1986 budget. Indeed, that budget suggests that the ceiling will be 1.35 per cent., only 900 million ecu below the 1.4 per cent. ceiling. Thus, the 1986 budget is already reaching the limits laid down in the agreement which the Prime Minister described as a triumph following her return from Fontainebleau.

Agricultural spending will account for two thirds of the 1986 budget. We do not yet know what the outturn will be, but it is likely that agricultural spending will form a greater proportion of the 1986 budget than the two thirds suggested in the draft budget provided by the Commission.

The preliminary draft budgets for 1983 and 1984 forecast that agricultural spending would account for about two thirds of the total. The outturn in each case resulted in agricultural spending taking a higher proportion, and the same is likely to happen in 1986.

The actions already taken by the Commission show how those price rises are likely to occur. The Economic Secretary, in evidence to the Select Committee on the Treasury and Civil Service, and other hon. Members who support the Bill have referred to "firm" action by the Commission in laying down a 1.8 per cent. cut in cereal prices, but the original proposal was for a 5 per cent. cut. It was then knocked back to 3.6 per cent. and Agro Europe describes the present 1.8 per cent. proposal as "meaningless" because the price of cereals is already more than 20 per cent. too high. Cereal prices form an important part of the agricultural budget, so that meaningless cut gives us no confidence that agricultural spending in 1986 will be any more under control than it was in 1985 or in any previous year.

The hon. Member for Mid-Worcestershire (Mr. Forth) and the right hon. Member for Worthing (Mr. Higgins) have shown that the so-called budgetary discipline is utterly ineffective. It allows member countries to plead for price rises in exceptional circumstances, including changes in exchange rates affecting world food prices. Moreover, the budgetary discipline proposals put forward at Fontainebleau are not legally binding on the whole Community. The Prime Minster said on her return from Fontainebleau that she wanted those proposals to be legally binding, but she did not succeed in achieving that at Fontainebleau and she has not succeeded since. Neither Select Committee of this House believed that the proposals were legally binding and the House of Lords second report describes them as merely "a legal enigma". Budgetary discipline cannot be enforced. It is not included in the Bill and the Government have cheerfully ignored it in presenting legislation which allows increased spending in the Community. They have merely talked about the possibility of obtaining discipline over agricultural and other spending. They have abandoned any attempt to control the common agricultural policy which alone would ensure that spending on agriculture could be brought under control.

The Government have entirely abandoned all those objectives and have instead tried to present a con job, suggesting that the Bill is good for Britain and will ensure an abatement for us in the future and an end to the squabbling about farm prices and about spending in the Community as a whole. Not only have the Government failed to achieve that purpose. They do not even agree that it is a purpose. The Economic Secretary spoke in those terms in The Times. The Foreign Secretary, however, expects to be engaged in budgetary wrangles within the Government and in Brussels this year, next year and in years to come because he is perhaps more realistic about the Government's failure in Brussels, Fontainebleau and Stuttgart, even though he is not prepared to spell that out to the House of Commons. Both this year and in the future, agricultural spending will continue to rise as a proportion of the budget.

Mr. Anthony Beaumont-Dark (Birmingham, Selly Oak)

Bearing in mind the case that the hon. Lady is making, in the terrible eventuality that at some distant time there is another Labour Government, what would she do in negotiations that is different from what this Government are now doing? What would she do that this Government are not doing?

Dr. McDonald

The hon. Gentleman's criticism of the Government's policy towards Europe is well known. The more important question that he should face is what he will do in tonight's vote. The hon. Gentleman has frequently opened his mouth on the European Community and farm spending. Let us now see whether he has the courage to put his money where his mouth is. We want to know whether he will respond to the requests of many of his hon. Friends, who would very much like to see him voting in the Lobby against the Bill. We want to see whether the hon. Gentleman's position is entirely consistent. Let us see whether he can summon up the courage to vote against the Bill, given what he has said in the past.

On this and many previous occasions, the Opposition have simply said that the Government threw away a golden opportunity when the Community was running out of money and pressure could have been exerted to ensure that agricultural spending was brought under control through a reform of the CAP. That would have overcome the obscenities about which the hon. Member for Southend, East (Mr. Taylor) spoke — [HON. MEMBERS: "Obscenities?"] Yes, the obscenities of food mountains, of food going to waste in storage that is desperately needed in the Third world, and of food which the Community cannot even deliver to Ethiopia in time. Those are the obscenities of the CAP, yet when given the opportunity presented to them, the Government let it slip by.

They have given the game away by agreeing to pay more into the European Community. In 1988 at the latest, but probably much earlier, they will have to agree to raising the ceiling to 1.6 per cent. To find the money for such contributions they will perhaps agree to the proposal to be considered in Milan to widen the VAT base as part of VAT harmonisation. In order to achieve that, they may have to tax food, transport, or heating, in order to find the necessary resources, not only to pay more into the EEC but also to fritter away on tax cuts. The Government failed to take that opportunity, and instead agreed to pay more. They accepted budgetary discipline proposals which they know to be ineffective, and which have not been included in the Bill.

At the same time, the Community has 14.5 million people unemployed, 38 per cent. of them aged under 25. This year and next year, the regional and social funds will each represent only 5 per cent. of total spending. The Bill does nothing to deal with unemployment, which is the crucial problem in the Community. Instead, the Government have meekly given in to pressure from the farming members of the Community to give them the money that they want, and now they are trying to whitewash it in their presentation of the Bill. They also tried to whitewash it in the press briefings that they gave about the Bill, and too many members of the press swallowed the story that the Bill would be good for Britain. It will be a disaster for Britain. The EC will continue to waste money on unnecessary agricultural spending.

The House should reject the Bill, and I call on those Conservative Members who have been so critical of the Bill inside and outside the Chamber to have the courage to vote against it tonight.

9.41 pm

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

The idea that the Government should take lessons in budgetary discipline from the Labour party is so absurd that it does not deserve comment. My right hon. and learned Friend the Foreign Secretary raised several of the wider issues of our membership of the EC, and those themes were repeated in the debate by my right hon. Friend the Member for Old Bexley and Sidcup (Mr. Heath) and by many hon. Members on both sides of the House.

Time does not permit me to consider all the contents of the Bill this evening, so I shall concentrate on its European budget aspects. I should explain that part of the Fontainebleau agreement—this is the anniversary of the meeting at Fontainebleau when those decisions were taken—has been brought forward in several specific measures designed to carry out what was agreed by the leaders of the Community countries. The own resources decision provides for the increase in VAT to 1.4 per cent. and for the United Kingdom abatement. The Bill also contains the inter-governmental agreement which provided for transitional finance for 1985. At last, we have a budget for 1985, although it was rejected in the latter part of last year, and towards the end of this year the House will be asked to decide upon the accession of Spain and Portugal. In answer to my hon. Friend the Member for Mid-Worcestershire (Mr. Forth), who asked about this matter earlier, I should say that the provision for the increased contribution under the own resources decision is contingent on the ratification of the accession treaty.

The debate has, not surprisingly, concentrated on previous agricultural and other expenditure by the Community. Most hon. Members who are against the Bill have said that, because in the past the Community has spent too much money on agriculture, we should not vote for a Bill which is part of a package that includes measures to contain future expenditure. That is an absurd proposition. Of course, it is highly unsatisfactory that surpluses have grown in recent years and that they now cost so much to store and to dispose of. That excess production has imposed a great burden upon the European Community's budget. As my hon. Friend the Member for Mid-Worcestershire said, this is now a declining problem.

Mr. Marlow rose—

Mr. Stewart

Three years ago, the increase in agricultural expenditure was 27 per cent., two years ago it was 16 per cent., last year it was 9 per cent. and next year it will be less than 3 per cent.

Mr. Marlow

Is my hon. Friend saying that agricultural surpluses will decline? Will there be fewer surpluses next year compared with this year and fewer surpluses the year after that? If so, how does he know?

Mr. Stewart

If my hon. Friend will allow me to continue with my speech, I shall talk about the future for agricultural expenditure.

The hon. Member for Thurrock (Dr. McDonald) referred to the contribution to the European budget this year of £240 million as if that were money thrown down the drain. She forgets that part of that money will come back to this country in agricultural and other payments and that the balance will be subject to the Fontainebleau mechanism, so we shall probably pay only about 40 million. This is a measure of the importance of the abatement mechanism.

Many hon. Members have concentrated upon the guideline. The matters that are agreed between the Council members—they are in the form of conclusions which are binding on the Council — relate to agricultural expenditure and to non-obligatory other expenditure. The reference framework covers both. The guideline has not yet been brought forward merely because the whole budgetary process this year is late because last year the European Parliament threw out the 1985 budget. The budgetary discipline with respect to the agricultural guideline is fully endorsed by the European Commission. It has said that it will not permit the agricultural proposals to exceed the guideline as already established. For 1986 that is 20.6 billion ecu, which is an increase of only 3.5 per cent. over the current year's budget—a decline in real terms. The Commission's proposals are within that guideline; they are only 2.5 per cent. Last year, we had a zero price increase in the agricultural price fixing. This year, we are having a similar zero price increase. That meant a reduction in real terms last year of about 3.5 per cent. We expect a further reduction this year of the same order. That is a great change of direction for the Community and represents a significant impact on the budgetary discipline arrangements on the very first occasion on which the Community has been called upon to comply with them.

Mr. Forth

Why does the 1986 preliminary draft budget already represent a 1.35 per cent. VAT rate? How can my hon. Friend explain that in the context of what he is claiming for budgetary discipline?

Mr. Stewart

I shall explain the VAT rate in a moment. I said that the percentage increase proposed in the 1986 budget is only 2.5 per cent. — the lowest increase for a very long time. It represents a tight and tough target for the Community. [HON. MEMBERS: "Answer the question."] I shall come to the question of the 1.4 per cent. and 1.35 per cent. rates. Let me finish on the point about budgetary discipline.

Some hon. Members have said that this was a missed opportunity. They are complaining not about the fact that we do not have budgetary discipline but about the fact that we have not had budgetary discipline in the past. The problems with the budgets during the past year or two have been caused by the lack of budgetary discipline in the past. As part of the agreement at Fontainebleau, we have come to an agreement with other member states that budgetary discipline will be rigorously applied.

Mr. Teddy Taylor rose—

Mr. Budgen rose—

Mr. Stewart

My hon. Friends have drawn attention to exceptional circumstances and other technical provisions in the text, but how on earth can there be an absolutely rigid guideline for agriculture when one cannot even predict the weather at the beginning of the year? Of course we cannot. Any hon. Members who pretend otherwise are merely demonstrating how unrealistic is their approach to the Community budget.

The fact that the guideline is not rigid does not mean that it is not fast and tight. [Interruption.] The budgetary disciplinary measures are proving effective. I was asked whether France would be a net contributer. [Interruption.] France will be a net contributor in the coming year. That may be why French Ministers have shown themselves so much more interested and tougher in their approach to expenditure in the European Community.

The West Germans are in a contradictory position. They voted to support budget discipline and for guaranteed thresholds. They now find it difficult to accept the cereal price proposals.

The long and difficult negotiations that have taken place in the Agriculture Council over the past four months are not a demonstration that budget discipline is not working. They are a demonstration that budget discipline is exercising a tight constraint on the decisions of Ministers of Agriculture.

If the budget discipline were not in place, I have no doubt that, as in previous years, if one country such as West Germany said that it was essential that it should put forward extra expenditure on cereals that would have been accommodated. That would probably have been the case in most past years. On this occasion, because budget discipline has been agreed by the Council and all member states and because the Commission is sticking by that, the Commission will not accept measures that will increase the budgetary cost of the Community's agricultural policy. The Commission has said that it will take the necessary measures in managing the markets to avoid any recourse to a supplementary or rectifying budget in 1985. It also said that the final outturn of the agriculture budget for 1986 and in the new price-fixing year will be budget neutral as a result of the proposals that it originally put forward.

Hon. Members may not like the fact that budget discipline is biting so hard. They may complain and say that it will impose too sharp a constraint on agriculture. Some may say that, because budget discipline applies to next year and the decisions which are now being taken, we should study what happened in the past and judge the future from that. That would be out of keeping with the arrangements agreed at Fontainebleau. The purpose of that agreement was to come to a new arrangement which would provide a lasting settlement of the British budget problem and deal with the problem of future agricultural overspending. The tight guidelines which have been agreed will ensure that that occurs.

Mr. Teddy Taylor

Does my hon. Friend agree that the strict budgetary guidelines which he has explained can be exceeded if the weather is unexpected and can be ignored by any amount, in any year, if the majority of member states decides that there have been exceptional or aberrant circumstances during that year? How can the guideline be strict?

Mr. Stewart

For good reasons. In the case of enlargement, comparable discipline must be applied to the new member states on accession. The Council of Ministers must be entitled to make its own decisions in the light of circumstances, but price fixing and the arrangements for clawback have been implemented to the letter by the Council and the Commission. That is the greatest assurance that the reforms for which we have worked for so long are now being put into practice.

I come to the 1.4 per cent. VAT ceiling. In 1983 and 1984, Community expenditure exceeded the 1 per cent. VAT rate. If the proposals put forward for the 1986 budget were accepted in full—that assumption cannot be taken for granted because the Budget Council has not yet studied them and the details have not been published — the illustrative figures given by the Commission suggest that even if the Community budget went to a rate of 1.35 per cent. it would still leave the United Kingdom contribution at 0.82 per cent.

I have been asked why the United Kingdom contribution will stay below 1 per cent. That question has been at the heart of the debate. Opposition Members and some of my hon. Friends complain that this would impose an extra burden upon the British taxpayer. The precise opposite is the case. Because of abatement, Britain will receive an automatic refund. It is called an abatement because we shall be able to deduct it from our contributions. Refunds will not have to be negotiated. Our contribution will remain below 1 per cent. Only in absolutely exceptional and unforeseeable circumstances would our contribution exceed 1 per cent. within the limit of 1.4 per cent.

For our receipts from the European budget to increase sufficiently, for our contribution to exceed 1 per cent., either FEOGA expenditure would have to rise in our favour from 11 per cent. of the Community budget to 14 per cent., which is far higher than it has ever been in the past and is unlikely to happen in the future, or our share of the regional and social fund, from which we receive about 25 per cent. of Community expendiure, would have to rise to about 45 per cent. That is clearly inconceivable. It is therefore a remote possibility that we should reach the 1 per cent. ceiling within the 1.4 per cent. limit.

Mr. John Townend

Some hon. Members who have reservations about the Bill might be persuaded not to oppose the Government if they were to give an undertaking that if proposals were introduced in this Parliament that own resources would be further increased by increasing VAT to 1.6 per cent. the Government would veto it.

Mr. Stewart

The 1.6 per cent. that is mentioned in the Fontainebleau text is not a commitment by anybody. This Government are not committed to increasing the ceiling. For the time being 1.4 per cent. is right, although what may happen in future years is not for me to predict. However, the unanimous agreement of all member states would be required and it would have to be approved by the Parliaments of all member states. Therefore, the possibility that that could happen without the full agreement of the Government of the day and of Parliament does not arise.

It has been suggested that we should be better off if the 1 per cent. ceiling were to be left in place. Nothing could be further from the truth. In domestic terms, our contribution would be about double what we shall be paying under the Fontainebleau abatement. If we kept our contributions at the 1 per cent. ceiling without abatement — and surely we should never get any abatement — [Interruption.] How could we negotiate an abatement or a refund if we were unwilling to ratify the agreement to which we have contributed so much? Our contribution would then be about £1.5 billion, which in today's values is what it was under the Labour Government. Are my hon. Friends asking the Government to return to the position in 1978 and 1979 when our net contribution, in today's prices, was about 01.5 billion? I cannot believe that they are.

We have not abandoned our bargaining power. We have used it to obtain a satisfactory and lasting settlement. It would be ridiculous to punish the European Community for its past excesses by voting against the Bill just at the time when the Community has accepted reforms that we have worked so hard to achieve. On that basis, I urge my right hon. and hon. Friends to support the Bill.

Question put, That the Bill be now read a Second time:—

The House divided: Ayes 352, Noes 184.

Division No. 246]	[10 pm
AYES
Adley, Robert	Edwards, Rt Hon N. (P'broke)
Alexander, Richard	Eggar, Tim
Alison, Rt Hon Michael	Emery, Sir Peter
Alton, David	Evennett, David
Amery, Rt Hon Julian	Eyre, Sir Reginald
Amess, David	Fairbairn, Nicholas
Ancram. Michael	Fallon, Michael
Arnold, Tom	Favell, Anthony
Ashby, David	Fenner, Mrs Peggy
Ashdown, Paddy	Finsberg, Sir Geoffrey
Aspinwall, Jack	Fletcher, Alexander
Atkins, Rt Hon Sir H.	Fookes, Miss Janet
Atkins, Robert (South Ribble)	Forman, Nigel
Atkinson, David (B'm'th E)	Forsyth, Michael (Stirling)
Baker, Rt Hon K. (Mole Vall'y)	Fowler, Rt Hon Norman
Baker, Nicholas (N Dorset)	Fox, Marcus
Baldry, Tony	Franks, Cecil
Banks, Robert (Harrogate)	Fraser, Peter (Angus East)
Batiste, Spencer	Freeman, Roger
Beith, A. J.	Freud, Clement
Bellingham, Henry	Gale, Roger
Bendall, Vivian	Galley, Roy
Bennett. Rt Hon Sir Frederic	Gardiner, George (Reigate)
Benyon, William	Gardner, Sir Edward (Fylde)
Best, Keith	Garel-Jones, Tristan
Biffen, Rt Hon John	Gilmour, Rt Hon Sir lan
Biggs-Davison, Sir John	Glyn, Dr Alan
Blackburn, John	Goodhart, Sir Philip
Blaker, Rt Hon Sir Peter	Goodlad, Alastair
Bonsor, Sir Nicholas	Gorst, John
Bottomley, Peter	Gow, Ian
Bottomley, Mrs Virginia	Gower, Sir Raymond
Bowden, A. (Brighton K'to'n)	Grant, Sir Anthony
Bowden, Gerald (Dulwich)	Greenway, Harry
Boyson, Dr Rhodes	Gregory, Conal
Braine, Rt Hon Sir Bernard	Griffiths, Sir Eldon
Brandon-Bravo, Martin	Grist, Ian
Bright, Graham	Ground, Patrick
Brittan, Rt Hon Leon	Gummer, John Selwyn
Brooke, Hon Peter	Hamilton, Hon A. (Epsom)
Bruce, Malcolm	Hampson, Dr Keith
Bryan, Sir Paul	Hancock, Mr. Michael
Buchanan-Smith, Rt Hon A.	Hanley, Jeremy
Buck, Sir Antony	Hannam, John
Burt, Alistair	Hargreaves, Kenneth
Butcher, John	Harris, David
Butler, Hon Adam	Harvey, Robert
Butterfill, John	Haselhurst, Alan
Carlile, Alexander (Montg'y)	Havers, Rt Hon Sir Michael
Carlisle, Kenneth (Lincoln)	Hawkins, Sir Paul (SW N'folk)
Carlisle, Rt Hon M. (W'ton S)	Hayes, J.
Carttiss, Michael	Hayhoe, Rt Hon Barney
Cash. William	Hayward, Robert
Chalker, Mrs Lynda	Heath, Rt Hon Edward
Chapman, Sydney	Heathcoat-Amory, David
Chope, Christopher	Heddle, John
Clark, Hon A. (Plym'th S'n)	Henderson, Barry
Clark, Dr Michael (Rochford)	Heseltine, Rt Hon Michael
Clark, Sir W. (Croydon S)	Hickmet, Richard
Clarke, Rt Hon K. (Rushcliffe)	Hicks, Robert
Clegg, Sir Walter	Hill, James
Colvin, Michael	Hind, Kenneth
Coombs, Simon	Hirst, Michael
Cope, John	Hogg, Hon Douglas (Gr'th'm)
Cormack, Patrick	Holland, Sir Philip (Gedling)
Corrie, John	Holt, Richard
Couchman, James	Hordern, Sir Peter
Cranborne, Viscount	Howard, Michael
Critchley, Julian	Howarth, Alan (Stratf'd-on-A)
Crouch, David	Howe, Rt Hon Sir Geoffrey
Currie, Mrs Edwina	Howell, Rt Hon D. (G'ldford)
Dickens, Geoffrey	Howell, Ralph (N Norfolk)
Dorrell, Stephen	Hubbard-Miles, Peter
Douglas-Hamilton, Lord J.	Hughes, Simon (Southwark)
du Cann, Rt Hon Sir Edward	Hunt, David (Wirral)
Dunn, Robert	Hunt, John (Ravensbourne)
Durant, Tony	Hunter, Andrew
Dykes, Hugh	Irving, Charles

Jackson, Robert	Oppenheim, Phillip
Jenkin, Rt Hon Patrick	Oppenheim, Rt Hon Mrs S.
Jenkins, Rt Hon Roy (Hillh'd)	Osborn, Sir John
Johnson Smith, Sir Geoffrey	Ottaway, Richard
Johnston, Sir Russell	Page, Sir John (Harrow W)
Jones, Gwilym (Cardiff N)	Page, Richard (Herts SW)
Jones, Robert (W Herts)	Parkinson, Rt Hon Cecil
Jopling, Rt Hon Michael	Patten, Christopher (Bath)
Joseph, Rt Hon Sir Keith	Patten, J. (Oxf W & Abdgn)
Kellett-Bowman, Mrs Elaine	Pawsey, James
Kennedy, Charles	Peacock, Mrs Elizabeth
Kershaw, Sir Anthony	Percival, Rt Hon Sir Ian
Key, Robert	Pollock, Alexander
King, Rt Hon Tom	Porter, Barry
Knight, Greg (Derby N)	Portillo, Michael
Knight, Dame Jill (Edgbaston)	Powell, William (Corby)
Knowles, Michael	Powley, John
Knox, David	Prentice, Rt Hon Reg
Lang, Ian	Price, Sir David
Lawler, Geoffrey	Prior, Rt Hon James
Lawrence, Ivan	Raison, Rt Hon Timothy
Lawson, Rt Hon Nigel	Rathbone, Tim
Lee, John (Pendle)	Rees, Rt Hon Peter (Dover)
Leigh, Edward (Gainsbor'gh)	Renton, Tim
Lennox-Boyd, Hon Mark	Rhodes James, Robert
Lester, Jim	Rhys Williams, Sir Brandon
Lewis, Sir Kenneth (Stamf'd)	Ridley, Rt Hon Nicholas
Lightbown, David	Ridsdale, Sir Julian
Lilley, Peter	Rifkind, Malcolm
Lloyd, Ian (Havant)	Rippon, Rt Hon Geoffrey
Lloyd, Peter, (Fareham)	Roberts, Wyn (Conwy)
Lord, Michael	Robinson, Mark (N'port W)
Luce, Richard	Roe, Mrs Marion
Lyell, Nicholas	Rossi, Sir Hugh
McCrindle, Robert	Rost, Peter
McCurley, Mrs Anna	Rowe, Andrew
Macfarlane, Neil	Rumbold, Mrs Angela
MacGregor, John	Ryder, Richard
MacKay, Andrew (Berkshire)	Sackville, Hon Thomas
MacKay, John (Argyll & Bute)	Sainsbury, Hon Timothy
Maclean, David John	Sayeed, Jonathan
Maclennan, Rober	Scott, Nicholas
McNair-Wilson, P. (New F'st	Shaw, Giles (Pudsey)
McQuarrie, Albert	Shaw, Sir Michael (Scarb')
Madel, David	Shelton, William (Streatham)
Major, John	Shepherd. Colin (Hereford)
Malins, Humfrey	Shersby, Michael
Malone, Gerald	Silvester, Fred
Maples, John	Sims, Roger
Marland, Paul	Skeet, T. H. H.
Marshall, Michael (Arundel)	Smith, Sir Dudley (Warwick)
Mates, Michael	Smith, Tim (Beaconsfield)
Maude, Hon Francis	Soames, Hon Nicholas
Mawhinney, Dr Brian	Speed, Keith
Maxwell-Hyslop, Robin	Spence, John
Mayhew, Sir Patrick	Spencer, Derek
Meadowcroft, Michael	Spicer, Jim (W Dorset)
Mellor, David	Spicer, Michael (S Worcs)
Merchant, Piers	Squire, Robin
Meyer, Sir Anthony	Stanbrook, Ivor
Miller, Hal (B'grove)	Sranley, John
Mills, Lain (Meriden)	Steel, Rt Hon David
Miscampbell, Norman	Steen, Anthony
Mitchell, David (NW Hants)	Stern, Michael
Monro, Sir Hector	Stevens, Lewis (Nuneaton)
Montgomery, Sir Fergus	Stevens, Martin (Fulham)
Moore, John	Stewart, Allan (Eastwood)
Morris, M. (N'hampton, S)	Stewart, Andrew (Sherwood)
Morrison, Hon C. (Devizes)	Stewart, lan (N Hertf'dshire)
Morrison, Hon P. (Chester)	Stradling Thomas, J.
Moynihan, Hon C.	Sumberg, David
Neale, Gerrard	Taylor, John (Solihull)
Needham, Richard	Tebbit, Rt Hon Norman
Nelson, Anthony	Temple-Morris, Peter
Neubert, Michael	Terlezki, Stefan
Newton, Tony	Thatcher, Rt Hon Mrs M.
Nicholls, Patrick	Thomas, Rt Hon Peter
Normanton, Tom	Thompson, Donald (Calder V)
Norris, Steven	Thompson, Patrick (N'ich N)
Onslow, Cranley	Thorne, Neil (Ilford S)

Thornton, Malcolm	Warren, Kenneth
Townsend, Cyril D. (B'heath)	Watts, John
Tracey, Richard	Wells, Bowen (Hertford)
Trippier, David	Wells, Sir John (Maidstone)
Twinn, Dr Ian	Wheeler, John
van Straubenzee, Sir W.	Whitney, Raymbnd
Vaughan, Sir Gerard	Wiggin, Jerry
Viggers, Peter	Wigley, Dafydd
Waddington, David	Wilkinson, John
Wainwright, R.	Wolfson, Mark
Wakeham, Rt Hon John	Wood, Timothy
Waldegrave, Hon William	Woodcock, Michael
Walden, George	Wrigglesworth, Ian
Walker, Rt Hon P. (W'cester)	Yeo, Tim
Wall, Sir Patrick	Young, Sir George (Acton)
Wallace, James	Younger, Rt Hon George
Waller, Gary
Walters, Dennis	Tellers for the Ayes:
Ward, John	Mr. Carol Mather and
Wardle, C. (Bexhill)	Mr. Robert Boscawen.
NOES
Abse, Leo	Craigen, J. M.
Aitken, Jonathan	Cunliffe, Lawrence
Anderson, Donald	Davies, Rt Hon Denzil (L'lli)
Archer, Rt Hon Peter	Davis, Terry (B'ham, H'ge H'l)
Ashley, Rt Hon Jack	Deakins, Eric
Ashton, Joe	Dewar, Donald
Atkinson, N. (Tottenham)	Dicks, Terry
Barnett, Guy	Dixon, Donald
Barron, Kevin	Dobson, Frank
Beckett, Mrs Margaret	Douglas, Dick
Beggs, Roy	Dubs, Alfred
Bell, Stuart	Dunwoody, Hon Mrs G.
Benn, Tony	Eadie, Alex
Bennett, A. (Dent'n & Red'sh)	Eastham, Ken
Bermingham, Gerald	Edwards, Bob (W'h'mpt'n SE)
Blair, Anthony	Evans, John (St. Helens N)
Body, Richard	Ewing, Harry
Boothroyd, Miss Betty	Fatchett, Derek
Boyes, Roland	Faulds, Andrew
Bray, Dr Jeremy	Field, Frank (Birkenhead)
Brown, M. (Brigg & Cl'thpes)	Fisher, Mark
Brown, N. (N'c'tle-u-Tyne E)	Flannery, Martin
Brown, Ron (E'burgh, Leith)	Foot, Rt Hon Michael
Buchan, Norman	Forrester, John
Budgen, Nick	Forsythe, Clifford (S Antrim)
Caborn, Richard	Forth, Eric
Callaghan, Jim (Heyw'd & M)	Foster, Derek
Campbell, Ian	Foulkes, George
Campbell-Savours, Dale	Fraser, J. (Norwood)
Carlisle, John (N Luton)	Freeson, Rt Hon Reginald
Carter-Jones, Lewis	George, Bruce
Clark, Dr David (S Shields)	Godman, Dr Norman
Clarke, Thomas	Golding, John
Clay, Robert	Gould, Bryan
Cocks, Rt Hon M. (Bristol S.)	Gourlay, Harry
Cohen, Harry	Hamilton, James (M'well N)
Concannon, Rt Hon J. D.	Hamilton, Neil (Tatton)
Conlan, Bernard	Hamilton, W. W. (Central Fife)
Conway, Derek	Hardy, Peter
Cook, Frank (Stockton North)	Harrison, Rt Hon Walter
Cook, Robin F. (Livingston)	Hart, Rt Hon Dame Judith
Corbett, Robin	Hawksley, Warren
Cowans, Harry	Healey, Rt Hon Denis
Cox, Thomas (Tooting)	Heffer, Eric S.

Hogg, N. (C'nauld & Kilsyth)	Pendry, Tom
Holland, Stuart (Vauxhall)	Pike, Peter
Howarth, Gerald (Cannock)	Powell, Rt Hon J. E. (S Down)
Hoyle, Douglas	Proctor, K. Harvey
Hughes, Robert (Aberdeen N)	Radice, Giles
Hughes, Sean (Knowsley S)	Randall, Stuart
Janner, Hon Greville	Redmond, M.
John, Brynmor	Rees, Rt Hon M. (Leeds S)
Kaufman, Rt Hon Gerald	Richardson, Ms Jo
Kinnock, Rt Hon Neil	Roberts, Ernest (Hackney N)
Lambie, David	Robertson, George
Lamond, James	Robinson, G. (Coventry NW)
Leadbitter, Ted	Ross, Wm. (Londonderry)
Leighton, Ronald	Rowlands, Ted
Lewis, Ron (Carlisle)	Ryman, John
Lewis, Terence (Worsley)	Sedgemore, Brian
Litherland, Robert	Sheldon, Rt Hon R.
Lloyd, Tony (Stretford)	Shepherd, Richard (Aldridge)
Lofthouse, Geoffrey	Shore, Rt Hon Peter
Loyden, Edward	Short, Ms Clare (Ladywood)
McCartney, Hugh	Short, Mrs R.(W'hampt'n NE)
McCusker, Harold	Skinner, Dennis
McDonald, Dr Oonagh	Smith, C. (Isl'ton S & F'bury)
McGuire, Michael	Smyth, Rev W. M. (Belfast S)
McKay, Allen (Penistone)	Snape, Peter
McKelvey, William	Soley, Clive
MacKenzie, Rt Hon Gregor	Spearing, Nigel
McTaggart, Robert	Stewart, Rt Hon D. (W Isles)
McWilliam, John	Stott, Roger
Madden, Max	Strang, Gavin
Maginnis, Ken	Straw, Jack
Marlow, Antony	Taylor, Rt Hon John David
Martin, Michael	Taylor, Teddy (S'end E)
Mason, Rt Hon Roy	Thompson, J. (Wansbeck)
Maxton, John	Thorne, Stan (Preston)
Maynard, Miss Joan	Torney, Tom
Milian, Rt Hon Bruce	Walker, Cecil (Belfast N)
Miller, Dr M. S. (E Kilbride)	Weetch, Ken
Mitchell, Austin (G't Grimsby)	Whitfield, John
Moate, Roger	Williams, Rt Hon A.
Molyneaux, Rt Hon James	Wilson, Gordon
Morris, Rt Hon A. (W'shawe)	Winnick, David
Nicholson, J.	Winterton, Mrs Ann
Oakes, Rt Hon Gordon	Winterton, Nicholas
O'Brien, William	Woodall, Alec
O'Neill, Martin	Young, David (Bolton SE)
Park, George
Parry, Robert	Tellers for the Noes:
Patchett, Terry	Mr. Frank Haynes and
Pavitt, Laurie	Mr. Ray Powell.

Question accordingly agreed to.

Bill read a Second time.

Bill committed to a Committee of the whole House. —[Mr. Lennox-Boyd.]

Committee tomorrow.