European Community Budgets

HC Deb 14 November 1985 vol 86 cc712-78

Mr. Speaker

Before I call the Minister to open the debate, I should inform the House that I have selected the amendment in the name of the Leader of the Opposition.

5.4 pm

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

I beg to move,

That this House takes note of European Community Documents Nos. 5874/85, Letter of amendment No. 3 to the Preliminary Draft Budget of the European Communities for 1985, 6378/85 and 6379/85, New Draft General Budget of the European Communities for 1985, 6882/85, the European Parliament's amendments and modifications to the New Draft Budget of the European Communities for 1985, 6907/85 to 6914/85, the Council's decisions on the European Parliament's amendments and proposed modifications to the New Draft Budget of the European Communities for 1985, 7882/85 and COM(85)325, Communication from the Commission concerning key figures for the 1986 Budget, COM(85)175, Preliminary Draft General Budget of the European Communities for 1986, COM(85)550, Letter of amendment to the Preliminary Draft Budget of the European Communities for 1986, 9336/85, Draft General Budget of the European Communities for 1986, and 8479/85, Proposal for a Council regulation on Community financing of expenditure incurred in respect of the supply of agricultural products as food aid; and supports the Government's continuing policy of seeking greater equity and restraint in the Community's budgetary arrangements. The motion lists nine sets of documents which the Scrutiny Committee has recommended for debate. Those relate to the Community budgets for 1985 and 1986. The House has recently debated the wider issues of Community finance during the Third Reading of what is now the Act permitting an increase in the Community VAT own resources ceiling to 1.4 per cent., and implementing the abatement system for the United Kingdom. I do not propose to cover the same ground again. Our concern this afternoon is with specific documents put forward in connection with the established annual budgetary process.

I should like to begin by thanking the Scrutiny Committee, under the chairmanship of the hon. Member for Newham, South (Mr. Spearing), for its hard work on these, and many other documents. I assure the House that the Government attach great importance to safeguarding the interests of this House. The Scrutiny Committee has a vital role to play in this—a role that it carries out with distinction.

I now propose to place those documents in context by outlining, briefly, the main events in the 1985 and 1986 budgetary procedures to date.

Mr. Eric Forth (Mid-Worcestershire)

I crave my hon. Friend's indulgence for an intervention at this early stage. I hope to be helpful. Will he take us through the procedures for 1985, and more particularly for 1986? Will he help the House by saying what stage the 1986 budgetary procedure has reached, and will he further help by saying what the European Parliament is currently seeking to do as regards the 1986 budget? On the basis of that information, will he tell us what the Government's reaction is likely to be in the Council of Ministers to what the European Parliament is seeking to do? That would give us a better idea of how the 1986 budget might end up.

Mr. Rifkind

My hon. Friend is always helpful. He will know that this morning the European Parliament started voting on the draft budget and on various amendments to it. I shall come to that particular matter in due course.

Mr. Eric S. Heffer (Liverpool, Walton)

We are discussing not a food mountain, but a paper mountain. When will the hon. Gentleman deal with some of the points in detail? I do not know what it is all about. I do not know how, within reason, hon. Members can be expected to look at this mass of rubbish. That is what it is as far as I am concerned. How can we debate the issues properly, despite what the Scrutiny Committee has done? Will the Minister deal with some of the real issues involved, rather than with all this bumf in front of us?

Mr. Rifkind

I also thank the hon. Gentleman for his helpful intervention. I paid tribute to the Scrutiny Committee partly because it has given serious consideration to what is a substantial amount of detailed information, all of which relates to the budgetary procedures for 1985 and 1986. It is for the convenience of the House that all these matters be considered in this debate rather than as separate issues, because they are so interrelated.

The scrutiny debate, which I opened on 11 December last year, considered the preliminary draft budget and the draft budget for 1985. That debate took place just two days before the European Parliament voted by 390 votes to five to reject the latter. Consequently, from 1 January 1985, the Community functioned on the so-called provisional twelfths regime, being limited, in general, in each month to one twelfth of the expenditure on the equivalent items in 1984. The House will recall that the European Parliament's declared reason for rejecting the budget was that it did not provide sufficient revenue for a full 12 months. The Parliament chose to disregard the Council's assurance, given in October last year, that the necessary additional funds would be made available in the course of 1985.

The budget process had then to start again. In April of this year, acting on the basis of the Commission's letter of amendment No. 3 to the 1985 preliminary draft budget—one of the documents before us today—the Council established a new draft budget for 1985. That is also before us today, in the documents referred to by the hon. Member for Liverpool, Walton (Mr. Heffer).

Apart from the additions contained in the letter of amendment, which provided for an additional 1,955 mecu of agricultural expenditure and a 26 mecu increase in food aid appropriations to ensure that the Dublin European Council commitments on food aid were honoured, provision for expenditure in the draft budget was the same as that agreed in November 1984.

Mr. Tony Marlow (Northampton, North)

For once in his lifetime I believe that the hon. Member for Liverpool, Walton (Mr. Heffer) made a serious point about the weight of paper with which we are submerged in this debate. There are 1,000 sides of foolscap—a third of a million words. Surely my hon. Friend can give us some hope for the future that these Community measures will be put to us in a more digestible form so that hon. Members can make a more serious contribution to the debate. I notice that my hon. Friend is reading his speech instead of his customary method of speaking without notes. Is that because he is finding it difficult to plough through the detail? If so, may I ask him to go a little more slowly so that milder souls like myself can follow what he is saying?

Mr. Rifkind

I appreciate the point that my hon. Friend has made. It is precisely because of the complexity of these documents that an explanatory memorandum is provided which is intended to summarise the contents of each of the documents in a way that will be helpful to the House. I would also make the point, which I think is a fair one, that we are here dealing with documents that cover the complete budget for the European Community for two years. It would be somewhat extraordinary if they could properly be presented to the House in all their complexity except through the fairly bulky documents provided. Even the budgets for individual members of the Community would be unlikely to be less bulky, in terms of their full details, than the documents that we are dealing with today.

Sir Russell Johnston (Inverness, Nairn and Lochaber)

First, I would certainly encourage the Minister to go slowly for the benefit of his hon. Friend the Member for Northampton, North (Mr. Marlow) as this may well bring some benefit to our proceedings.

Secondly, the hon. Gentleman might like to consider setting up, instead of a scrutiny committee, an abbreviation committee.

Mr. Rifkind

I am grateful to the hon. Gentleman, who has also made a most helpful intervention.

The Council agreed last year that the net additional expenditure should be covered by national contributions under a second intergovernmental agreement. In sterling, the total of the intergovernmental agreement is about £1,200 million, of which the United Kingdom's share is some £250 million. Authority to pay this has been given by the European Communities (Finance) Act, which became law two weeks ago. Our net payment under the 1985 intergovernmental agreement is eligible for rebate under the Fontainebleau mechanism, and its net cost, taking into account receipts to United Kingdom farmers and traders, should, therefore, be reduced to about £40 million.

Returning to the 1985 budget process, at its May plenary session, the European Parliament proposed amendments and modifications to the new 1985 draft budget. These are set out in document 6882/85. In total, they were unacceptable and, on its Second Reading, the Council took decisions on the Parliament's amendments and modifications which respected the maximum rate provision, allocating an increase in 1985 in non-obligatory expenditure of 8.5 per cent. The 1985 budget was finally adopted by the European Parliament on 15 June, thereby ending the provisional twelfths regime.

The need to agree additional provision of 1,955 mecu for agricultural support expenditure in the context of the 1985 budget related to policy decisions taken in past years before the budget discipline agreement took effect. The new budget discipline procedures, which form part of the Fontainebleau settlement, come into full effect for the 1986 budget, and that is the first time that they will be relevant to the budget in question.

A most significant element in the 1985 budget was its provision for payment of the United Kingdom's 1,000 mecu abatement of VAT for 1984, as agreed at the Fontainebleau summit in June 1984. This, as agreed subsequently, was to take place when the Community's new own resources decision had been ratified by all member states. This marked an end to the old system of expenditure refunds and the beginning of the new system, whereby United Kingdom net contributions are substantially reduced in the following year by an abatement of our VAT payments to the Community. The full Fontainebleau abatement system will operate for 1986 and for future years.

As the House will be aware, under the new system, unlike the past, it will not be possible for the European Parliament to prevent or delay the payment of the sums that are due. That is a substantial advantage, and one which successive British Governments have sought to achieve.

I turn now to the 1986 budgetary procedure. The Commission's outline of the 1986 preliminary draft budget set out the main features of the Commission's proposals. These provided for a level of non-obligatory expenditure well above what the Council thought appropriate, although the proposed level of agricultural guarantee spending was within the limits imposed by budget discipline.

The agreement at the ECOFIN Council on 8 July on a reference framework for the 1986 budget marked a further stage in the more rigorous control of Community spending for which we have been working. The reference framework sets out maximum amounts of expenditure on agricultural markets, on non-obligatory expenditure and on other obligatory expenditure. It also provides for the impact of enlargement and the problems of the overhang of past commitments in the Community's structural funds to be considered during the budgetary procedure.

Within the reference framework there is a specific financial guideline for agricultural expenditure, designed to ensure that spending on agricultural market support measures increases no faster than the own resources base.

Mr. Forth

Could my hon. Friend put this in the context of the fact that the reference framework can itself be changed and that, therefore, the impression that may be given to the House—although I am sure that my hon. Friend does not mean to give it—that there is something fixed and immutable about this discipline, might well be breached if there were a decision during the course of the year to change the reference framework, which would allow an increase in expenditure?

Mr. Rifkind

That is certainly a theoretical possibility, but one must remember that the reference framework consists of the agricultural guarantee expenditure, of non-obligatory expenditure and of other obligatory expenditure, other than the agricultural aspects. Of these component parts, the greatest is the agricultural guarantee expenditure, and that is controlled by the financial guideline, under which any increase must be less than the growth in the own resources base. So there is an in-built control as far as agricultural expenditure is concerned. There is also a formula which limits the increase in non-obligatory expenditure that the Parliament can insist on, according to the maximum rate that has been laid down. It is a complicated procedure, but it enables control to be exercised on that aspect of spending.

Mr. Marlow

Could my hon. Friend explain to the House beyond doubt how the financial mechanism will work? Let us assume that the financial mechanism said that a certain amount of money should be spent on agriculture. If there were massive harvests and the world was flooded with grain and all sorts of other commodities, and the Community had to offload at massive discounts many of the surpluses that were being held in its bulging stores, how would the system then operate?

Mr. Rifkind

As my hon. Friend is well aware, the Community in this respect can be no different from any individual member state. It is quite right to say that there can be circumstances which, by their very nature, are unpredictable. That is not a problem peculiar to the Community. It is one that this Government, or any other national Government, face if they have a system of agricultural support. We have explained on previous occasions how the system is intended to operate. There is nothing new that I can convey to my hon. Friend on this particular occasion. I entirely accept that, with a system of agricultural support, it is impossible to predict with certainty the effects of climate on agricultural yields. I would emphasise, however, that it is not a problem peculiar to our membership of the Community or to the way in which the Community operates at present. It would be true of any system of agricultural support in either a member state or in the Community, whatever reform could be agreed upon.

It is important to make that point because it is sometimes implied that somehow there is a magic formula available which, if only people were prepared to accept it, would somehow solve these problems. Many improvements and reforms could be made, but we should not allow ourselves to be led into believing that somehow climate itself can be anticipated and taken into account at the beginning of the financial year.

Mr. Marlow

Under previous systems we had the advantage, of course, that if we had surpluses and the price fell, the consumer got the advantage of it, even though the taxpayer paid more money. That does not happen under this system.

Mr. Rifkind

Not as much as we would like it to happen, that is perfectly true; but my hon. Friend should acknowledge the fact that over the past two or three years all the discussions that Agriculture Ministers have had at the annual price fixing have, for the first time in the Community's history, been not about the level of increase but about the level of reduction in agricultural price support. In each of the past three years, there have been real reductions in price support, to take account of the factors to which my hon. Friend has referred. I accept that these cuts in agricultural price support have not been as substantial as the British Government would have liked, but it is fair to acknowledge, at least, that the whole trend in the Community has changed in a very dramatic way. This year the West German Government held out against the other nine member states and acknowledged the need for some reduction; but the debate was about the size of the reduction, not the principle.

The 1986 draft budget sets a spending limit for the Community of Ten—without Spain and Portugal—of 220,619 mecu of relevant agricultural expenditure. That is only 2.5 per cent. above the 1985 total and below the Community's inflation rate. That is an important achievement, which is fully in accordance with the agreement at Fontainebleau that the financial guidelines should be respected. We are talking about a cut, not an increase.

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

That is rubbish and a fiddle.

Mr. Rifkind

I am sure that the hon. Gentleman will have the opportunity later to explain why he thinks that is rubbish.

Separate provision is made for agricultural spending in Spain and Portugal. The Commission is committed to drawing up proposals in the light of the guidelines, and it has done so.

The Council's setting of the 1986 reference framework represents a new departure in the budgetary procedure and implements the budget discipline conclusions agreed last December by the Council. It is encouraging that decisions which were strongly attacked by many—including some hon. Members—because it was thought that the proposals would not be implemented in good faith, have been respected by member states and the Commission. Even the differences between the Commission and the Council of Ministers are not about whether the financial guidelines should be respected, but about what level of spending within the guidelines is appropriate.

The 1986 preliminary draft budget, as put forward by the Commission, includes the 1,400 mecu estimated abatement for the United Kingdom in respect of its excessive net contribution in 1985. For the first time the automatic system agreed at Fontainebleau, which ensures that two thirds of the United Kingdom's excess payment is received as abatement in the following year, will come into operation. This is a major step towards greater budgetary equity.

The Commission's original expenditure proposals in the preliminary draft budget were in excess of what the Council considered reasonable for 1986. The September Budget Council therefore, cut back the budgetary provision to more acceptable levels, while making it clear that further consideration would be given to the special problems posed by enlargement.

The Council established its draft budget and the European Parliament is voting today on amendments and modifications. They will be considered at the Budget Council's second meeting on 26 November.

My hon. Friend the Member for Mid-Worcestershire (Mr. Forth) intervened earlier to ask about the likely implications of the European Parliament's debates on these matters. Voting is taking place today on a series of amendments. Amendments will be proposed which, if accepted, will result in a substantial increase in the budget. My hon. Friend the Member for Mid-Worcestershire is right to draw attention to the history of the European Parliament. Amendments passed by the European Parliament will be considered by the Budget Council in November. The British Government have made their views known, as have other Governments. We shall obviously wish to study the detailed amendments, but it is unlikely that we shall be sympathetic to the increases contemplated.

Mr. Heffer

Can the Minister explain in clear, simple terms what, under the draft budget, our net contribution will be to the European Community and what benefit we will derive from it?

Mr. Rifkind

The Commission's proposal was substantially reduced by the Council of Ministers. The draft budget sent to the European Parliament represents an effective VAT rate for member states of 1.17 per cent. of the ceiling. For the United Kingdom the figure is substantially less at less than 1 per cent. because the United Kingdom has the benefit of the two thirds rebate agreed under the Fontainebleau proposals, notwithstanding the House's approval of an increase in the overall ceiling to 1.4 per cent.

Mr. Foulkes

My hon. Friend the Member for Liverpool, Walton (Mr. Heffer) asked how much money is to be paid by the United Kingdom. In the autumn statement it was said that the amount payable in 1985–86 would be 800 mecu, whereas in January this year that sum was said to be only 750 mecu. Next year the sum will be 650 mecu when it was to be 640 mecu. In 1987–88 the sum will be a staggering 1,150 mecus instead of 830 mecu. We are to pay 300 mecu more to the EEC in three years' time than we thought we should have to pay a few months ago.

Mr. Rifkind

We acknowledge that if overall Community expenditure increases, the contribution by all member states is bound to go up. However, the United Kingdom has the protection that is not available to any other member state. The United Kingdom's contribution to any new expenditure approved for the Community, instead of being 21 per cent. of the total, is reduced under the Fontainebleau mechanism by a full two thirds down to 7 per cent. France will pay 27 per cent. and West Germany 32 per cent.

I do not deny that the United Kingdom's contribution will be increased, but the United Kingdom, although one of the larger member states, will not pay 93 per cent. of the additional expenditure.

Mr. Foulkes

The Minister cannot get away from the fact that the British Government are today budgeting for 380 mecu more than they were in January. That represents a huge increase in payments to the EEC. How does the Minister explain it?

Mr. Rifkind

As the hon. Gentleman knows, the bulk of Community expenditure is for agriculture. United Kingdom farmers benefit considerably from that expenditure. The United Kingdom also receives considerable benefit from the other structural funds. Part of the increase in budgetary requirement is needed to pay Britain's rebates under the Fontainebleau mechanism. That is a balanced assessment.

Mr. Teddy Taylor (Southend, East)

Do not my hon. Friend's devastating figures understate the real position? To the net contribution we must add £350 million a year of so-called British receipts which do not come to Britain but are simply subsidies to enable British traders to export cheap food to Russia?

Mr. Rifkind

My hon. Friend is referring to the export subsidy system. He knows perfectly well that the United Kingdom Government have been seeking reforms of the common agricultural policy which would remove the problem of structural surplus that leads to the system that he rightly criticised. My hon. Friend also knows that, as long as we have structural surpluses, it is sensible and in the interests of Community taxpayers to try to dispose of them in a helpful rather than a harmful way.

Any proposals taken up by the Soviet Union are the same as those to which any other country which wishes to purchase from Community surpluses is entitled. There are no special terms or provisions for the Soviet Union.

Mr. Teddy Taylor

I follow that point. As my hon. Friend knows, I received a helpful letter from my right hon. Friend the Minister of State, Ministry of Agriculture, Fisheries and Food referring to a new proposal under which beef is exported to Russia at 15p a pound. In the Government's consideration of reform, would it not be more sensible for the beef to be sold to British rather than to Russian consumers?

Mr. Rifkind

The provision available to the Soviet Union is identical to the provision that is available to any other state interested in purchasing from Community surplus stocks. The price of agricultural products in the Community is determined annually by Agriculture Ministers. We have made clear our dissatisfaction with many of the arrangements, but until there is sufficient will power to achieve the changes that we wish to see—

Mr. Nicholas Budgen (Wolverhampton, South-West)

I thought there was.

Mr. Rifkind

No, I have deliberately sought not to exaggerate the position. My hon. Friend knows perfectly well what I have said. There is a greater realisation than ever before of the need to cut rather than to increase agricultural prices and to deal with the problem of surpluses. I have never suggested that somehow that problem has been sweetly resolved in the way that we should like.

Mr. Budgen

Will my hon. Friend comment on the Commission's proposals for reducing the surplus in cereals? Those proposals, which are of great interest to the British farming community, include a two-tier system. What is the Government's attitude towards that suggestion?

Mr. Rifkind

The Commission has put forward a series of proposals about the future not just of cereals but of the whole common agricultural policy. I hope that my hon. Friend will accept that it might be more appropriate if the details of those proposals were dealt with by my right hon. Friend the Minister of State, Ministry of Agriculture, Fisheries and Food and his colleagues. Those proposals, although crucially important, are not strictly relevant to the documents before us.

Mr. Budgen

They are relevant.

Mr. Rifkind

No, because they have not yet been properly considered, even by Agriculture Ministers. They are certainly not relevant to the budgetary documents that we are discussing today.

I wish to discuss the letter of amendment to the 1986 preliminary draft budget. The letter proposes changes to increase the United Kingdom's VAT abatement under the Fontainebleau system—to reduce the amount of VAT that we shall pay to the Community in 1986. Those changes resulted from an extra VAT payment that we made last August, under the Community's annual VAT adjustment procedure, to correct underpayments of VAT contributions in 1984 and earlier years. The increase in our entitlement to abatement is 264 mecu—about £155 million. The Commission felt that prudent financial management required it to make provision for a correction of this size in the main annual budget.

As my hon. Friend the Minister of State, Treasury, informed the House on 30 October, at column 501, the ECOFIN Council discussed the letter of amendment at its meeting in Luxembourg on 30 October and agreed that the United Kingdom was entitled to receive the additional 264 mecu during 1986. The Commission was invited to bring forward a supplementary budget in September 1986 to take account not only of the 264 mecu but of any other corrections shown to be necessary by the budgetary information then available. The Council undertook to take the necessary decisions on the basis of the Commission's proposals at that time.

The possibility of such a supplementary budget is clearly provided for in the agreed methodology, but it is not obligatory. The undertaking to present a supplementary budget next September is therefore an important gain for the United Kingdom. Our right to the 264 mecu in 1986 has been formally acknowledged. We expect that the actual increase in our abatement will be considerably larger than this, when account is taken of outturn information on receipts from the 1985 budget.

The final document recommended for debate today, draft instrument 8479/85, also relates to the 1986 budgetary procedure. The proposal would affect the 1986 budget and subsequent years. The draft instrument would affect the classification of Community financing of expenditure incurred in the supply of agricultural products as food aid. This is a matter with which my hon. Friend the Minister of State, Treasury will deal if he is able to catch your eye, Mr. Speaker.

Mr. Nigel Spearing (Newham, South)

If the Government's view on the document which the Scrutiny Committee has recommended for urgent debate is not to be known until his hon. Friend deals with it at the end of the debate, it will be impossible for hon. Members to comment on the Government's position, which I thought was the object of tonight's debate.

Mr. Rifkind

I am happy to inform the hon. Gentleman that the Government take the view, as do the French and other Governments in the Community, that it is inappropriate to accede to the Commission's proposal, not because we do not wish to provide sufficient food aid, but because the means of provision are not thought to be appropriate. My hon. Friend will be happy to expand on that later.

Mr. Teddy Taylor

I am trying to understand this proposal, which I have read several times. I appreciate my hon. Friend's points, but the proposal is that most of the cost of food aid should be transferred to what is called "chapter nine" in the European Community budget. That would have the effect of taking a substantial chunk of agricultural spending out of the agricultural budget. The Commission is determined to curb agricultural spending within certain limits, but is this not the creative accounting that we condemn in Liverpool? Is it not simply a device whereby the amount spent on food is presented as being less than it is?

The other proposal, which my hon. Friend has not mentioned, calls for the downgrading in value of existing food mountains and transferring their cost to a separate non-agricultural budget. If these proposals are a device to make agricultural spending appear less than it is, will the Government condemn that and ensure that it does not happen?

Mr. Rifkind

The Community has had a food aid programme for some years. The opinion of the British Government, and that of the majority of Community Governments, is that any emergency food aid should be provided through the food aid programme, which may have to be increased if necessary, rather than through some new device such as that proposed by the Commission. We believe that to be a more sensible way of dealing with the matter.

The Community budget continues to raise many problems for the United Kingdom, as for other member states. However, we have made a start during the past 18 months in seeking to apply the same principles of budgetary rigour and equity to Community expenditure as apply in other member states.

This afternoon I have tried to put forward the Government's view on budgetary matters that are of crucial importance to the Community. I hope that when the hon. Member for Thurrock (Dr. McDonald) responds to the debate she will not just criticise what she perceives to be the problems of Government policy, but will tell the House how a Labour Government, if we ever have one, intend to deal with budgetary problems and the future of the Community. That is an important task because an Opposition who wish to present themselves as a credible alternative Government have an obligation of that kind.

I hope the hon. Member for Thurrock will also use the opportunity to comment on a crucial document published recently by the Labour party that is very relevant to what we are discussing today. It is headed: Jobs or the Treaty of Rome? A Choice for Labour". The document is important because it was largely written and edited by the hon. Member for Dagenham (Mr. Gould) who, as well as being an hon. Member, is also a shadow Front Bench spokesman on trade. Trade is so relevant to the European Community that what he says on the matter is of crucial significance.

Dr. Oonagh McDonald (Thurrock)

Before the hon. Gentleman proceeds, no doubt he is aware that that document is not an official expression of Labour party policy and that a member of the Opposition Front Bench team is entitled to express a personal opinion, just as the Secretary of State for Energy is entitled to express his opinion about Government policy.

Mr. Rifkind

Yes, indeed. We are all entitled to express our opinions. We do not normally find the views of Government spokesmen being disowned by the Government, but the hon. Lady seems anxious to disown the comments of the shadow Front Bench spokesman for trade.

Dr. McDonald

Does that mean that the hon. Gentleman supports the criticisms which have recently been made by the Secretary of State for Energy of his Government's economic policy? It would be interesting to hear the hon. Gentleman expand on that. Why does he not do so?

Mr. Rifkind

As my right hon. Friend the Prime Minister has made it clear that she is happy with everything that my right hon. Friend the Secretary of State for Energy has said, I see no reason to differ from her assessment. The crucial difference is that the hon. Lady is not able to do the same. She is seeking to disown what the shadow Front Bench spokesman for trade has said. As my hon. Friends may be getting curious about what the shadow Front Bench spokesman for trade said that the hon. Lady is so keen to disown, I shall be happy to refer to it.

The crucial point is that the title of the document contains the words "A choice for Labour". The choice that the shadow spokesman for trade has said that the Labour party faces is either to renege on the Labour party's programme or to break Community law. It is in such conflict with the new commitment of the Leader of the Opposition to observe the rule of law that the House is entitled to know what the hon. Member for Dagenham has said.

I refer to page 18 of the document where the hon. Gentleman deals with the various proposals of the Labour party: Exchange controls, tariffs and other means of limiting imports, the use of public purchasing policy to favour British suppliers, subsidies, price controls, grants, soft loans, direct investment, planning agreements, changes of VAT and other taxes. He then says: These and many other aspects of Labour policy would all fall foul of the Treaty of Rome. This is well worth listening to: There can be no doubt that much of what the next Labour Government must do in order to defeat unemployment and to revise our economy would be forbidden by European Community rules … A Labour Government which agreed to comply with the European Community obligations under all these heads might as well abandon its programme before it starts.

Mr. Nicholas Soames (Crawley)

A very good idea.

Mr. Rifkind

As my hon. Friend says, that would be a good idea. The remedy that the shadow Front Bench spokesman for trade has put forward to the predicament is not that a Labour Government should abandon their proposed policies which would fall foul of our international treaty obligations and our legal obligations; but that we should simply fail to implement them and that the first thing that a Labour Government should do on taking office is to repeal the provisions of the European Communities Act 1972 that require us, by law, to implement in the United Kingdom the provisions of the treaty of Rome.

We are entitled to ask the Leader of the Opposition, who says that he believes in the rule of law, whether he would make the choice that the hon. Member for Dagenham calls upon him to make. It is not a choice which he can fudge, because his hon. Friend actually says:

The Labour movement must be clear that compliance with European Community rules is an issue which cannot be ducked or set aside. It will be crucial to the accomplishment of the tasks we set ourselves in government. It must be resolved well before we take power and it must be resolved so that Labour's programme for Britain is given priority over all other considerations. I conclude, in a very friendly, constructive and inquiring spirit, by inviting the hon. Member for Thurrock to express the views of Her Majesty's Opposition.

I commend the motion to the House.

5.45 pm

Dr. Oonagh McDonald (Thurrock)

I beg to move as an amendment to the Question, in line 13, leave out from 'aid' to end and add 'and deplores the continued and uncontrolled increase in farm spending, and the agreement of British Ministers to preserve the level of farm spending in the 1986 draft Budget by accepting a cut of six per cent. in real terms in food aid, cuts in the Regional and Social Funds, and the omission of special provisions for the accession of Spain and Portugal.'. Before I turn to the documents mentioned in the motion I want to comment briefly on what the Minister has just said. He has, of course, adopted the time-honoured manoeuvre of trying to distract attention from the faults of his own Government by attacking the Opposition. I am not here to discuss amongst all the documents in front of us what is simply an informal contribution to a public debate on these matters, and I suggest that the Minister got a bit carried away with his diversionary tactics. Some of the proposals which he read out with such glee were beginning to capture the interest and attention of hon. Members behind him, who he knows full well are deeply critical not only of his Government's behaviour within the European Community but of the very structure of the European Community itself.

Mr. Marlow

If the House decided in its wisdom, which it might think it wise to do, to repeal section 2 of the European Communities Act 1972, would not anything that it then did be legal?

Dr. McDonald

There is no reason why I should pursue that red herring.

Mr. Rifkind

I think that the House is entitled to have at least one clear final expression of the hon. Lady's view. She is speaking for the Opposition. May we have a categorical statement that Her Majesty's Official Opposition—the Labour party—do not accept, indeed reject, the recommendation of the shadow Front Bench spokesman on trade because it would lead to Britain not complying with its international treaty obligations? A straightforward answer would be helpful.

Dr. McDonald

I will not answer to an informal document. The hon. Gentleman has had his bit of fun—because that is all it was. He has tried in his comments to distract attention from what his own Government have done with the 1985 budget and the 1986 budget and what the Government are failing to do over the common agricultural policy—all issues which are highly relevant to the pile of documents before us. It is far more important to concentrate our attention on those documents. As I said, the hon. Gentleman has had his bit of fun and it is now over. He will have to answer both our criticisms and the criticisms which many of his hon. Friends will make about the 1985 budget and the 1986 budget.

What has happened with the 1985 budget is that our net contribution to the European Community this year will be more than £1 billion, £300 million more than was expected in January of this year. The Government tried to suggest that that amount was not expected even though it should have been at that time. The increase of £300 million is due to a supplementary payment of £190 million in January 1985, to a supplementary payment of £250 million or so which has now been approved as part of the EC financial arrangements, and to the change at the time of the 1984 budget in the method of VAT collection.

The excuses that the Government made about the additional £300 million being unexpected do not hold up. The first and last were known in January, and the need for the additional £250 million was known at the time of the White Paper. Thus, the net budget contribution has increased this year and has increased further during the year.

I will not follow the Minister into the history of the 1985 budget—its defeat in the European Assembly and the ultimately increased budget that was finally accepted—because I want to discuss the amount of money that we are paying into the EC this year, for that is the issue that the Minister tried to evade.

Even with the 1985 budget, we are not entirely sure of the outcome. In its recent report, the Commission said of the 1984 budget—the farm-spending budget—that dairy spending had reached a new peak. It was 24 per cent. up on 1983.

Mr. Robert Jackson (Wantage)

rose—

Dr. McDonald

The hon. Gentleman's moment has certainly passed. [HON MEMBERS: "Give way."] Perhaps it would be kind of me to do so.

Mr. Jackson

The hon. Lady has spoken of the size of the net contribution for 1985. What is the Commission's estimate of the amount of the abatement that we shall be paid next year in respect of that contribution?

Dr. McDonald

My hon. Friend the Member for Carrick, Cumnock and Doon Valley (Mr. Foulkes) will deal with that when he winds up the debate.

Mr. Hugh Dykes (Harrow, East)

rose—

Dr. McDonald

I will not give way again.

As for the 1984 budget, the cost-stabilising effect of the dairy quotas did not show up in the figures; farm spending continued to increase. The latest estimate for farm spending in 1985 is over 21 billion ecu, which is a 15 per cent. increase on the 1984 budget. Even that figure, however, does not show the whole cost of the burden to the taxpayer. Various elements have yet to enter into the 1985 budget, and that means that we cannot know the final outcome. For example, Andre Khan, the agricultural policy adviser to the Commissioner Lord Cockfield, in a paper to the United Kingdom agricultural conference in the last month, said: At the end of 1985, intervention stocks will probably be worth 9 billion ecu. The annual cost of servicing these stocks is about 3.5 billion ecu, which represents a contingent liability which has not yet been paid for. That is one element in the 1985 budget that is yet to come.

Another element in that budget that is yet to come is the cost of the cereal harvest. The harvest runs from July until late November, and therefore we have no final information of the cost of that. The Times pointed out on 14 June that failure to reach agreement on the cereals price meant that the EC would have to police its budget carefully if its costs were not to exceed income. During this year, farm spending is undoubtedly entirely farm led. We do not know what the results will be; hence we do not know what the costs will be.

All those pressures have again led the Community to its usual desperate measures—for example, feeding a large part of the butter surplus back to the cattle herds that produced it, hiring additional storage capacity for butter in Austria and Switzerland and hiring ships with cold storage capacity in France, Italy and Ireland to hold surplus beef, which is passing to the intervention stocks at the rate of 25,000 tonnes a week. The Economist summed it up on 23 June last by saying: Mrs. Thatcher eats her words, but nobody eats the surpluses. These costly surpluses will continue because the Prime Minister threw away the chance of agricultural reform, the radical change in the farm policy that alone would have ended such waste. No wonder the Minister referred to a pamphlet at the conclusion of his remarks; and he did not want the House to be reminded that the costs of the 1985 budget had yet to be settled. Those costs could continue to increase. He wanted a diversionary tactic. The 1985 budget is part of a steady increase in the United Kingdom's net contribution. In 1982 it was £605 million; in 1983, £647 million; in 1984, £656 million; and in 1985 it will be at least £1.2 billion.

Despite those facts, the Chancellor of the Exchequer, speaking at the Tory party conference, boasted that he had made cuts where cuts were needed, and one item he mentioned was Britain's contribution to the EC. The Guardian, on 10 October, described the Chancellor as being "in a boisterous mood." Certainly his recital of the facts about the EC had as little contact with reality as most of his recitals of facts.

Our net contributions to the EC in the six years of Tory rule have totalled over £4 billion. The average has been £708 million, compared with Labour's average during our years in office of £450 million. That is the reality of the 1985 budget. No wonder the Minister cited a list of documents: he wanted to avoid the fundamental issues relating to the costs of our EC contributions in the past six years.

Questions remain to be asked about the 1985 budget. Apparently, Greece is the only country that has paid its contribution under the intergovernmental agreement of 23 April. But it is not clear whether Greece has paid half or the total of its budget contribution. I asked the Library to inquire whether the United Kingdom or other member states had paid part or all of their contributions to the EC budget. The reply from the staff of the Library included the comment that the Treasury official asked the question was "very coy" about Greece and the other member states. As "coy" is not an adjective that springs to mind in relation to the Minister of State, Treasury, perhaps he will be less coy than his officials when he replies to the debate. Have we now paid? If not, when do we expect to pay? Have the others paid, and have they paid the whole of their contributions? Those are important questions about the 1985 budget.

We have not yet received the £600 million abatement, as agreed at Fontainebleau, in respect of the 1984 budget. The statement on the 1985 budget says that the Government assume that the abatement will be received before the end of this year. Time is marching on and we still have not received it. Its payment depends upon each member state ratifying the new own resources decision and notifying Brussels. Can the Minister of State, Treasury, also tell us how many states have carried this out and when we can expect to receive the £600 million? This is a complex issue. The ratification of the new own resources agreement is tied up with enlargement. Payment could therefore be delayed. Have the Government taken into account the possibility of such a delay? How long will we have to wait for the £600 million?

The Commission's original draft budget for 1986 amounted to 34 billion ecu. That is equivalent to a VAT take-up of 1.35 per cent. and it is only 900 million ecu below the level consistent with the new 1.4 per cent. ceiling. The Commission's proposals were therefore already knocking pretty hard on the new ceiling of 1.4 per cent. Most of it was to be put towards agricultural guarantees. The Commission's initial proposals were only 150 million ecu below the budgetary discipline ceiling, which does not leave much scope for dealing with the climatic problems to which the Minister of State for Foreign and Commonwealth Affairs was at last forced to refer in his speech. Important cuts were made to the Commission's proposals. They included substantial cuts in the money available for research and innovation, money that would be very useful for the development of the Community as a whole.

The Finance Ministers got to work at their meeting in July and set a limit of 29.6 billion ecu for the 1986 budget. For the first time, they used the new budgetary discipline system. The Financial Times of 9 July 1985 reported the Chancellor as saying that it was a very positive development in the context of budgetary discipline. By September the Council of Ministers had agreed a budget of 32 billion ecu. This was more than 2 billion ecu above the self-imposed limit of 29 billion ecu which the Finance Ministers had agreed earlier.

What, then, was the Chancellor's assessment of the Finance Ministers' agreement in July? Even the Council of Ministers overturned it. That was quite apart from the activities of the Commission and the European Parliament. The Agriculture Ministers no doubt had a role to play in the 2 billion ecu increase. They met after the meeting of Finance Ministers in July. According to the report in the Financial Times of 25 September 1985, they unanimously agreed that something needed to be done. But to a man they disagreed as to what it should be … But the Ministers did find one area of agreement: that budgetary discipline provisions restricting farm spending should not necessarily be restricted in the future. However, it was not clear whether Mr. Jopling was in the room at the time of this discussion. It seems that the Government have given up to such an extent on any possibility of reforming farm spending under the common agricultural policy that they have taken to sending an invisible man to Brussels.

The Commission formed its own view of budgetary discipline. It said that in legal terms the 1986 budget was in no way bound by budgetary discipline and that it could not be compared with previous budgets because this was the first budget for the 12 members of the European Community. Since the Agriculture Ministers have decided that budgetary discipline need not be applied in future, and since the Commission has set aside budgetary discipline for the 1986 budget, as reported in Agence Europe of 16–17 September 1985, there is very little hope of containing it.

The Council then cut the Commission's proposed draft. It cut the regional and social funds by not making proper provision for the accession of Spain and Portugal. It was a budget for 10 countries only. It also, apparently, cut food aid. That issue was raised in our debate on 22 October 1985. The words of the Minister of State, Treasury, in that debate—that there is no need now for emergency food aid because there has been rain in Africa—were much quoted on both sides of the House.

There is a problem about precisely how much food aid, in which I include emergency food aid, is being set aside by the Community in 1986. I hope that the Minister of State, Treasury, will spell out exactly what he said at the meeting which was described in our debate on 22 October. Can he tell us precisely how much food aid will be made available and how much of it will be emergency food aid? He knows that on both sides of the House there is much concern about this matter. Although there has been rain in South Africa, it has by no means solved the problem. The people have eaten the seed corn. There is little left to be planted and the famine will undoubtedly continue.

In view of this great anxiety, I hope that the Minister of State, Treasury, will devote some time to telling the House precisely what the Community proposes to do about food aid, including emergency food aid, and what attitude the British Government are adopting towards it. All right hon. and hon. Members were deeply concerned when they realised that only Ireland and Denmark opposed an apparent cut in emergency food aid. Not only this House but the country wants the British Government to give a firm commitment that all possible aid will be given by the Community as well as by our Government to the famine-stricken areas of Africa.

We know how great is the extent of public concern. Apart from the Live Aid concert, many similar concerts have been held since then. The people of this country have generously given millions of pounds to help the starving in Africa. They want their Government to reflect their views and their deep feelings, even in the dryness of budget debates in Brussels. I hope that the Minister will tell us exactly what line the British Government will take.

In our debate on 22 October we discussed making provision for the accession of Spain and Portugal and the impact of the proposed budget cuts by the Council of Ministers. The Minister of State, Treasury, knows that Spanish and Portuguese Ministers were present as observers at the Council of Ministers meeting. According to The Economist of 5 October, they were shocked at the prospect of being net contributors in their first year as members. Mr. Christophersen also made it plain that the council decision undermines the Community's credibility and places the two new member states in a difficult situation. He added that Portugal, as one of the poorest countries, cannot be asked to pay a vast amount of money to enter the Community. That view was also reported in Europe on 20 September 1985.

What view do the Government take about the difference which will be caused to the 1986 budget by the accession of Spain and Portugal? Do the Government want to be part of any discussions which make life difficult for these two countries when they enter the European Community? Are not the Government aware of the foreign policy implications of taking such a line? What action will the Government take when the 1986 budget proposals are finally sorted out?

The Minister quite rightly referred to the debates and votes currently taking place in Strasbourg. He will know that speaker after speaker has accused Ministers of failing in their responsibilities to the new member states and of violating the rules of the treaty of Rome by failing to provide for known commitments.

We know that those votes will increase the expenditure for the 1986 budget, which will be raised beyond what the Council of Ministers proposed. It will not be such a protracted debate as last year, as I understand that the European Assembly has not voted to reject the budget this time, but is voting on a long series of amendments to it—I believe about 600. Nevertheless, the budget will create problems. What line will the Government take? Even the Commission's proposals pushed the 1986 budget near the 1.4 per cent. ceiling. If the proposals of the European Assembly are accepted, that ceiling may be reached in 1986. What will happen then?

In our debate on 22 October, the Treasury Minister, in response to repeated interventions from hon. Members on both sides of the House, said that he found it impossible to envisage circumstances in which the Government would return to the House either to ask for another intergovernmental agreement or for an agreement to raise the 1.4 per cent. ceiling. Why did he find that so difficult to imagine? After all, we expect the European Assembly to vote to increase the 1986 budget.

Nothing has been done to reform the CAP and the budgetary discipline rules in practice. Eventually, the Minister of State, Foreign and Commonwealth Office, was forced to draw attention to some of the holes in the budgetary discipline framework. He was obliged to talk about the climate and the exceptional or aberrant circumstances that are allowed for in the statement on the budgetary discipline rules. He could have mentioned other elements—for example, changes in the dollar-ecu rate. If the ecu falls against the dollar, that will make an enormous difference to the costs of running the CAP. When the Minister thinks about the implications of admitting such obvious facts, neither he nor the Treasury Minister should find it impossible to envisage circumstances in which the Government return to the House to ask for more money.

Mr. Marlow

The hon. Lady is a very intelligent woman, and will understand that the Minister of State, Treasury is also very intelligent. When he said that he could not visualise circumstances in which he would return to the House to ask for another intergovernmental agreement, he was well aware of the possibilities to which the hon. Lady referred. He knew that the dollar might change in value; he knew that there might be a massive surplus of European agricultural commodities. However, even knowing that, he is not prepared to return to the House to ask for another intergovernmental agreement because he has given us a commitment that he will not do so. I believe my hon. Friend, as I am sure the hon. Lady does.

Dr. McDonald

The hon. Gentleman is indeed very trusting. I hope that the Government are not obliged to ask the House for more money. However, the hon. Gentleman knows as well as I do that it is highly likely that they will have to ask either for an increase in the ceiling or for another intergovernmental agreement. I think that the hon. Gentleman's words should not be taken at their face value. His expectations of what the Government will do are pretty much the same as mine, judging by his contributions to previous debates.

The real problem is that nothing has been done to reform the CAP. Last July, the House of Lords warned that the CAP was at a crossroads—left unreformed, it could break down. If that happened, said their Lordships, they feared that the existence of the EEC would be in jeopardy. Many hon. Members might welcome that prospect, but that is not the Government's view. They should heed that stern warning—as, indeed, they should heed the many other warnings that they have received from another place. Of course, they will not do so.

If the evidence of officials at the Ministry of Agriculture Fisheries and Food is anything to go by, the Government are no longer in favour of radical reform of the CAP.

Mr. Tony Baldry (Banbury)

The hon. Lady has spoken at great length about what the Government may or may not do. Will she explain the Labour party's policy on reforming the CAP? Would it be by virtue of price, of quotas or by taking land out of production? Which of those is it?

Dr. McDonald

I will not be diverted—

Mr. Baldry

It is the central issue.

Dr. McDonald

I wish that the hon. Gentleman would sit down. The Government have been in power for the past six years, and for much of that time they have spoken about the need for a radical reform of the CAP, yet they have done nothing. Unfortunately for us, the Government will be in power for the next two years. Therefore, it is necessary that reforms take place immediately.

Mr. Baldry

What reforms?

Dr. McDonald

We need immediate reforms because without them there will be continual overspending—

Mr. Baldry

rose—

Dr. McDonald

The hon. Gentleman cannot evade the issue. His Government are in power and his Government have reneged on their promises. They have abandoned any interest in reform, and their officials now seek only adjustments.

Mr. Dykes

rose—

Dr. McDonald

I shall not give way because I have done so several times already.

Without reform of the CAP, we cannot possibly contain farm prices. That will have immediate implications for the 1986 budget. When the Minister answered interventions from his hon. Friends earlier, he had nothing to say about the Commission's recent proposals for agricultural reforms, which are now on the table and which require a Government response. Those proposals will mean higher wheat prices, which will increase not only the cost of the CAP but cereal output, which in turn will add an enormous burden to the cost of the CAP.

That is another reason to believe that in 1986 budgetary discipline will not be obeyed. It is hard to envisage how the Commission can possibly contain farm prices in 1986. Not only has it abandoned any attempt to reduce cereal prices; its new policies are likely to increase them. Indeed, as one Brussels official said recently: We have had surpluses before but never so much. Next year it is hard to see just how the budget problems can be patched up. The Government have received clear warnings from the Select Committee report of another place, from a Brussels official and from what the Commission is saying about its own price proposals, but they have chosen to ignore them. They prefer to pretend that they have budgetary discipline sewn up and that the 1986 budget will be contained within the 1.4 per cent. limit. It most certainly will not, and Ministers who have told the House that they cannot see how or why they should return to it to ask for more money will rue their words.

The Government will be back for more money next year. That is inevitable as they have not solved the problems of our contributions to the common agricultural policy, which means that our contributions to the EEC Community will overrun. Just as we have done in past years, we will end up spending more and paying more into the EEC.

6.22 pm

Sir Edward du Cann (Taunton)

The House appreciated the clarity with which my hon. Friend the Minister of State, Foreign and Commonwealth Office introduced the debate. It admired his speech, as my hon. Friend is obviously a master of what is an extremely complicated subject. At the end of his speech and the beginning of the speech of the hon. Member for Thurrock (Dr. McDonald), the House enjoyed a party political knockabout. If the hon. Lady does not mind my saying so, my hon. Friend won every round by a convincing points margin.

None of that—the compliments or the knockabout—can disguise the underlying feeling of the House, which is one of deep anxiety about the budget and the way in which it is being handled. I shall speak to the amendment in the names of many of my hon. Friends and I hope that the House will allow me a personal word to introduce my view.

This is the first speech that I have made in the Chamber on the European Community since the historic debate in October 1971 when the House voted by a majority of 112 to endorse Her Majesty's Government signature to the treaty of Rome. I said then that the decision was a profound mistake. I respected and greatly admired the idealism of the founding fathers of the European Community. After the holocaust of six years of war in which some of us had been engaged the dream of a splendid phoenix of unity arising from the bitterness and misery of the years before 1945 was attractive. I could understand that, but I could not see that political union with our neighbours—that was the ambition—was the true destiny of the United Kingdom. All our history told me otherwise. Flexibility has been our consistent keynote; the ability to make alliances as it suited us and to our advantage at the time, or defensively to combine against a dominant power or a tyrant.

I did not wish to allow our country effectively to sign a blank political cheque. I was sure also that there were alternatives in economic terms. I was certain that in a changing world it was right for us to maintain flexibility. In observing, for example, the economic explosion in the Pacific basin while our neighbours in Europe decline in competence and inventiveness, I feel once more that we have been making the wrong alliances.

I find it unbearable that we have abandoned our proven friends in the old dominions and in the old colonies of whose loyalty and shared history' we were so poignantly reminded last Sunday in the ceremony at the Cenotaph. I have seen no reason to change my mind in any way or degree since.

The House voted in favour of the proposals in 197 l and again in 1975, and the country supported them in a referendum on 15 June 1975. As a democrat, I believed then and I believe now that those decisions should be accepted happily and willingly and that we must make the best of the situation in which we find ourselves. My deep worry is that that is exactly what we are not doing. That is the concern of many of us inside the House and of many others outside it.

We all know that the European Comunity, the bureaucracy at Brussels, is hardly popular in our country and is not well understood. Indeed, one might say that it is very much misunderstood. If our membership of the Community is to endure, it is essential that the wholehearted consent and enthusiasm of the British people is maintained or, at any rate, recovered instead of the current grudging tolerance. The alternative will be growing cynicism and ennui, and eventually the anti-Common Market pressures may become too strong to resist. That is the route that we are travelling along, not simply the one that we may travel if we are not careful.

How can we check the trend and reverse it? Checking it and attempting to reverse it is the duty and obligation of us all.

Mr. Dykes

My right hon. Friend is making some important remarks and all of us are listening to him with great care, especially in view of the constructive spirit which lies behind his contribution. I understand that my right hon. Friend has recently taken over the chair of the Conservative European Reform Group and there is some anxiety among Conservative members that many members of the group would prefer to see Britain leave the Community. Bearing in mind what he has said with great clarity about wishing, happily, to improve public acceptance of our membership of the Community, will he explain, in great detail, how we should enhance enthusiasm in Britain for the Community, which will mean inevitably much greater co-operation with the other member states, all of which seem to share much greater enthusiasm than Britain for various aspects of Community development?

Sir Edward du Cann

In effect, I am coming to that. I must correct my hon. Friend on one ground. I am grateful to him for what he has said, but I am the president of the Conservative European Reform Group and not its chairman. I am happy to be associated with it. The factors which have impressed me more than anything else in the group's discussions have been the good will, the integrity of view and the constructive atmosphere—

Mr. Soames

Unbelievable.

Sir Edward du Cann

I have the advantage of being present at the group's meetings and I know what I am talking about.

The Minister of State, Treasury (Mr. Ian Gow)

For the edification of the House, will my right hon. Friend confirm that the group of which he is the president has no connection with the Tory Reform Group, of which my right hon. Friend the Secretary of State for Energy, I understand, is the president?

Sir Edward du Cann

The Secretary of State for Energy is a friend of mine and we have been political campaigners together for over 30 years, but any other resemblance is purely coincidental.

The budget that is before us is the key to reform. It is an old truth that whoever controls the cash has the power. An old friend of mine used to say that cash is king. It is entirely right that the House should consider grievances before Supply is voted.

When this debate was announced, like other hon. Members—not least the hon. Member for Liverpool, Walton (Mr. Heffer), who made a great demonstration earlier—I went to the Vote Office and asked for the relevant papers. I was given a great mass of documents. I do not know whether every right hon. and hon. Member has been through them with great attention—

Mr. Nicholas Soames (Crawley)

With a toothcomb.

Sir Edward du Cann

I am glad that some of my exceptional hon. Friends have been through the papers with a toothcomb. I went to the post office and asked the staff to weigh the papers. They weighed 2½ kilos, or, to put it in English, 5½lb. They deal with nine subjects and have 18 sections.

In the almost 30 years that I have been proud to be a Member of the House, I have never seen such an untidy bundle of papers. Worse still, they are undigested, in spite of the devoted efforts of the hon. Member for Newham, South (Mr. Spearing), to whom my hon. Friend the Member for Edinburgh, Pentlands (Mr. Rifkind) rightly paid tribute. The hon. Gentleman is the Chairman of the Select Committee that examines European documents. However, the Committee has not given us any detailed observations or recommendations on the papers. That is not the fault of the hon. Gentleman or of his colleagues. So far this year they have had to deal with more than 1,000 European directives.

Would it not be for the convenience of us all if budgetary matters were surveyed by a special Select Committee on a continuous basis and not only as an inquest but as a contemporary affair and perhaps even looking ahead a little? My hon. Friend the Member for Harrow, East (Mr. Dykes) asked for constructive suggestions. If we are to get together to make sense of what we are trying to do in Europe, we should look seriously at the way in which the cash is being spent. Here we are, with this untidy bundle of undigested papers. What is worse, with the single exception of the paper presented by my hon. Friend the Member for Eastbourne (Mr. Gow), which, as one would expect from him, is a model of clarity, they are all out of date. They are not even relevant to what we are supposed to be discussing.

Mr. Spearing

I am grateful to the right hon. Gentleman and to the hon. Member for Edinburgh. Pentlands (Mr. Rifkind) for their remarks, but I should explain that the Select Committee on European Legislation, of which I have the privilege to be the Chairman, has an adequate staff of Officers of the House to assist the Committee tremendously. The reports that we have submitted to the House for the debate describe the scope and impact of each of the many documents that we have recommended. They stretch back over two years for the reasons that the right hon. Gentleman mentioned, but each document is of an entirely different and separate colour and therefore our job has been to describe them. I hope that if hon. Gentlemen read the reports, they will at least get a basis from which they could understand the larger documents.

Sir Edward du Cann

The work that the hon. Gentleman and his colleagues do is deeply appreciated by us all. However, I do not think that it has the right terms of reference to handle adequately this huge volume of work, which needs much more detailed attention than the Select Committee is able to give to it, in the light of all the work that it has to do.

I would go further. I regard it as an insult to put before the House of Commons—and as we are the people's elected representatives, that means before the British people—such an ill-prepared set of proposals that we are powerless to affect. I dislike intensely, and will always criticise and object to, suggestions that we should approve on the nod the expenditure of vast sums of money without proper examination and consideration. There is a clear principle, on which we have a duty to insist, that we shall never sanction expenditure without having properly examined it in advance.

The House of Commons is asked to note these papers, which I think we would all be prepared to do. However, our amendment suggests that Her Majesty's Government should note the view of the House of Commons that the proposal is a breach of parliamentary convention. Considerable sums of money are involved—about £20 billion. Like the hon. Member for Thurrock, I do not believe the forecast figure. I do not have any faith in it, and I am sure that the outturn will be different.

It is wrong to ask the House of Commons to agree—that is, to note—these proposals for heavy open-ended expenditure of uncertain sums, for several reasons. First, it is wrong when there are cuts in our domestic budgets and so many deserving candidates for expenditure. Secondly, it is wrong when, as it seems to me as an observer of the scene, there is little obvious effort in the European Community to control waste or extravagance. There is the Court of Auditors, but its recommendations are rarely taken seriously or followed up. It is a duty for those who are elected to follow public money wherever it goes. The European Assembly should take that duty more seriously.

Thirdly, it is wrong when so much expenditure goes on items that domestic Governments can perfectly well handle themselves—for instance, regional policy. There is no more expensive industry from the taxpayers' point of view than the transfer industry. Just as we should do our utmost at home to limit it, we should do the same in Europe.

Mr. William Cash (Stafford)

As another member of the Select Committee, I was somewhat concerned when I noticed in the document given to me by Oxfam details about the costs of surpluses of grain and other things. It claims that the cost of disposing of surplus grain came to as much as £6.2 billion, and that that is as much as 40 per cent. of the entire budget. I regard this matter with some disquiet. Will my right hon. Friend have an opportunity to consider it?

Sir Edward du Cann

I shall say something on that subject in a moment.

Fourthly, it is wrong to ask the House of Commons to agree to these proposals when the system for deciding expenditure is so patently absurd. The Commission decides, Ministers horse-trade and amend, the European Assembly tinkers ill-humouredly—as my hon. Friend the Member for Pentlands rightly reminded us, that is exactly what it is doing at the moment—and so it goes on. Each one contributes his ha'pennyworth or proposes millions of extra expenditure. The three estates of the European Community should be working together rather than working in persistent, unproductive conflicts. We must end this—it cannot go on in the way that it is.

Fifthly, it is wrong, as the hon. Member for Thurrock said, to cut aid to Third world countries. Many of us will have received in the post this morning a memorandum from Barclays bank showing that commodity prices in the developing countries in the first nine months of the year have fallen by as much as 15 per cent. Any cut in aid to the Third world at this time is as immoral as it is obscene.

Sixthly it is wrong, to come to the wise point made by my hon. Friend the Member for Stafford (Mr. Cash), that the common agricultural policy takes 70 per cent. of the total budget, there is over-production, and £100 million a week is being spent on storage, destruction and dumping of food supplies—that is mismanagement on an astounding scale. It must be a matter of profound anxiety, if not anger, to us all that it continues. I represent an agricultural constituency and I am particularly bothered by the effect that this is having on British agriculture. It is giving British agriculture generally a thoroughly bad name, which is unfortunate and unfair.

Seventhly, it is wrong that so much of this heavy, open-ended expenditure goes to support this nation's enemies. I refer to the sale of food at cheap prices, which is a way of bolstering the Communist system. That should be anathema to the free world and everything for which the European Community politically should stand. One could make a longer list of objections.

Mr. Dykes

How does my right hon. Friend react to the fact that New Zealand sells far more butter to the Soviet Union than the European Community does?

Sir Edward du Cann

The two things are entirely different. I would most happily give my hon. Friend a private lecture on the subject, but I must come to a conclusion.

The purpose of this debate is to allow grievance before Supply. It is right that all hon. Members should do their utmost to say to my hon. Friend the Minister and his colleagues, "Before you come again to us with proposals of this sort—we all understand the difficulties and sympathise with them—let us see if we can make a move towards reform, because it is needed." We cannot leave the position unremarked and without proposals for improvement.

What should we seek most? The House of Lords Select Committee put it well when it warned us that many of the problems with which the Communities grappled would return again all too soon, that solutions of a sort had to be found, that considerable anxiety remained and that there must be vigorous thought about future development. That is exactly what we need.

I have a list of suggestions. First, let us postpone any grandiose ideals for political unity. The arguments about that subject are sterile and divisive. Let us concentrate on the practical things that we could and should be doing together—for example, on free trade. Let us ensure that that means entry not only into the United Kingdom, but into other countries on a reciprocal basis. Many restrictions—for example, shipping and financial restrictions—act against the United Kingdom. Let us set up a programme with objectives and make deadlines for their accomplishment.

Second, let us reinforce the capacity of EC industry to compete. From co-operation in practical ways, unity of purpose may come in future. If people get used to working together and see benefits from it, other unities will follow. But at this moment we are not travelling in that direction. To achieve practical arrangements for working together, rather than permitting and from perpetuating arguments and conflicts which are inimical to progress, it seems to me that we perhaps cannot afford a Brussels bureaucracy on its present scale, nor a peripatetic self-important European Parliament. To justify their existence, both will make more work, and will spend more money. The Government, whom I and all Conservative Members are proud to support, abolished 700 quangos and made a bonfire of controls. The whole House applauded that, and we should attempt it in Europe. Who misses the controls when they go? No one, except the practitioners of Parkinson's law.

I urge my right hon. and hon. Friends to press hard for reform of the structure of the European Community. Because of our lack of clear-mindedness and determination, the idealism of the founding fathers of the EC is being frustrated. I hope with all my heart that we shall make a success of this great adventure. That is the purpose of the amendment, and to lead in that direction should be the purpose of the House. I hope that we reaffirm that determination in the debate today.

6.43 pm

Sir Russell Johnston (Inverness, Nairn and Lochaber)

For a committed supporter of the Community the position is becoming increasingly depressing, although for reasons which differ profoundly from those which have just been enunciated by the right hon. Member for Taunton (Sir E. du Cann). There are more and more blatant contradictions between what Governments declare to be their objectives and what they do at Council meetings. The Community is drifting further and further.

The right hon. Gentleman referred to the internal market, which is presumably the basis of the budget. It certainly should be the area where the bulk of the money is generated. The Labour party may agree with me and as the right hon. Member for Taunton made clear, so also do intervention minimalists who are gathered poujadistically over the Conservative amendment.

If I may coin a phrase, they are, plus poujadiste que le Premier Ministre"— and that's going some.

Mr. Marlow

Can the hon. Gentleman translate that please?

Sir Russell Johnston

I can certainly translate that, but the phrase, plus royaliste que le roi is fairly well known.

It is argued that more wealth will be generated by competition. Private enterprise will, therefore, be content, and Britain, because she is good at things like transport and financial services, will do well. In that way the nationalists in our midst will also be happy.

I made it clear earlier that I was not sure whether the Labour party would be happy. Probably because of my age I was not brought up to think of the Labour movement as being founded on private enterprise and nationalism. However, the Labour party amendment is in line with the approach of the Leader of the Opposition—a triumph of the short term over the medium term, with no glimpse of the long term. I shall return to that shortly.

I agree with the right hon. Member for Taunton that we need to extend the internal market; but how? It can be advanced only by decisions which set aside national preferences and protections. How is that to be done? As the hon. Member for Harrow, East (Mr. Dykes) is saying, it is to be done by majority decision making. It is utter nonsense to imagine that the 300 odd changes that are required can be achieved in any other way. All that it needs to stop them is for Monsieur Papandreou to say no in Greek 300 times and that will be the end of that.

Mr. Teddy Taylor

May we take it that the Liberal party agrees with the present position shown in the budget, whereby the so-called limits on agricultural spending can be increased by any amount in any year by a majority of member states voting for it? Does the Liberal party think that that is a good and sensible way to use majority voting?

Sir Russell Johnston

I am not dodging the hon. Gentleman's question when I—

Mr. Taylor

The hon. Gentleman usually does.

Sir Russell Johnston

No, I do not. I am about to deal specifically and directly with that point. If the hon. Gentleman will be a little patient, he will have an answer and I shall mention him with great pleasure.

I was referring to the fact that the Government, in their response to Dooge and their umpteen statements, refuse to accept that we require a reform of the decision-making process. That is a classic case of willing the end and denying the means.

I turn to the veto, which brings me to the hon. Gentleman's question. The veto is marvellous. I often think that if it could be given tangible form it would assuredly be carried aloft to the Conservative and Labour party conferences in a golden casket, perhaps, in the instance of the Conservative party conference, by the hon. Member for Northampton, North (Mr. Marlow) in a suit of armour. That would be an enormously pleasing idea.

Mr. Cash

The hon. Gentleman is undoubtedly fully acquainted with the proposals of the European Parliament in relation to majority voting and an increase in its powers. Will he take his point a step further and, with regard to the revision of the treaties under article 236, agree that the European Parliament's consent should also be required? We seem to be moving down a rather dangerous path.

Sir Russell Johnston

I will come to that point, which is related to the point made by the hon. Member for Southend, East (Mr. Taylor). The Liberal and alliance view accords with that of the Dooge committee, which is essentially a cautious but clear recommendation that we move away from the veto. That is realistic.

However perhaps I may be allowed—rather like the hon. Member for Dagenham (Mr. Gould) or the Secretary of State for Energy—a personal comment on this. The more I think about this question the more it seems to me that the veto is not simply a useless shibboleth but a negative factor impeding the evolution of the Community and our capacity as a country and an economy to evolve, expand and develop within it.

Mr. Marlow

I am grateful to the hon. Gentleman for giving way. He is always very courteous in these debates, although we seldom agree. Presuming that we did away with the veto, that would mean that directives could be introduced in Brussels which would be totally contrary to what the United Kingdom Government would wish to have in place. When that happened, the Government would have to put through this House measures which it not only did not believe in, but which it profoundly disagreed with. If they were a Conservative Government they might feel that these proposals would move this country towards Socialism, and if they were a Labour Government they might feel that they would move this country towards laissez faire or whatever. Is this not a terrible situation?

Sir Russell Johnston

Yes, indeed. The House continually passes legislation of which I do not approve. I suspect that the Government introduce legislation from time to time of which many Conservative Members do not approve. Many of them seem to manage to operate within the structure, none the less.

Mr. Dykes

Is it not astonishing that the antimarketeers on both sides of the House, as far as I know—I stand corrected if I am wrong—have not raised a peep about the fact that the Comptroller and Auditor General has refused to certificate £4 billion erroneously spent by the DHSS? Why are they not concerned about this or about the £20 billion dole money for the unemployed, yet they go into severe and astonishingly fanatical scrutiny of the tiny amounts of European expenditure that are designed to create a genuine community?

Sir Russell Johnston

That is a very good point. I must confess that, when the right hon. Member for Taunton was speaking, the thought crossed my mind that we are always sanctioning expenditure of large amounts of money without adequate scrutiny. It goes on all the time.

If the budget is to be controlled and used creatively, we need not only CAP reform and budget discipline but majority voting to allow effective and mutually beneficial common activities, not only in regional and social policy but in such things as technology. Collectively, the Community spends far more on research and development than does Japan, but for all the fine phrases about potential we cannot get our act together. The United Kingdom, for example, says that it is keen on EUREKA and is hosting a meeting on EUREKA, but it refuses to see any public money given to it.

North and south have been dealt with by Front Bench spokesmen. Politicians are endlessly talking about the need, the moral imperative and "God bless Bob Geldof". But the budget Councils will not will the means. Thus we get enormous public disaffection and, as the right hon. Member for Taunton rightly points out, ignorance.

The Labour party amendment states that it deplores a cut of 6 per cent. in real terms for food aid. I agree with that, but I do not agree with the context in which it is placed in the amendment. When the Labour party was in government, it also failed to respond generously in the Council of Europe and to suggest, as is done in the Star—I do not know how many hon. Members read the Star regularly—

Mr. Foulkes

The Morning Star?

Sir Russell Johnston

No, the Daily Star—the star without any morning. It has a heading which says, "Obscene scandal", which I am sure many readers would be disappointed to discover is about the common agricultural policy.

The Daily Star implies that all that is required to solve the problems of the Third world is to ship out our surpluses, which is complete nonsense. Much more to the point, as the right hon. Member for Taunton said, we should ask why we wish to renegotiate the Lomé 2 agreement on sugar so as to reduce sugar cane imports and to make way for Community sugar beet. Most hon. Members would agree that trade is the best form of aid. If we are serious about helping ACP countries, or at least the Caribbean, the best way to do so is to take their sugar and not to grow more of our own.

The hon. Member for Thurrock mentioned the accession of Spain and Portugal. I have said many times during such debates that if we encourage the accession of Spain and Portugal, which we have—indeed, it was mentioned in almost the first line of the Gracious Speech—and we do so primarily for political reasons, it will fail, or at least cause us a great deal of trouble, if it is not matched by some economic generosity. There is no proper provision in the budget for accession. I visited Lisbon last week. Portugal imports about 60 per cent. of its agricultural needs. It is the poorest country in Europe. The new Social Democratic Government are worried that Portugal will become a net contributor to the European budget, which would be scandalous.

That is a good point at which to turn to the poujadist amendment, which deplores further increases in the public expenditure of the European Community. Indeed, so far as I can see, those who tabled it remain to be convinced that any expenditure—or at least the present amount of expenditure—by the EC is necessary. That view is unacceptable because it ignores the political factor. The political factor is that it is unacceptable to the weaker members of the Community to be exploited by its stronger members. That is also in complete contradiction to the philosophy of the founding fathers, which was mentioned by the right hon. Member for Taunton. They had in mind redistribution and wealth transfer. If we want a better internal market, as I and many hon. Members do, we must accept that if it is advantageous to us, we must pay for it by helping the poorer countries, which makes them stronger economies and better markets for us. If self-interest is the only motivating factor, it should be remembered that, in the end, Marshall aid repaid the United States many times over.

The kindest thing that can be said about the Labour party's amendment is that it is a masterpiece of casuistry. It strings together the desirable and the deceiving in a most simplistic way. First, it mentions the common agricultural policy. If the Labour party can produce a miraculous new CAP which will reduce farm spending enormously at a stroke, without complete rural chaos, increased unemployment and gravely disrupted food supplies, let us hear it. We all want to hear it. In effect, that is what the Minister was saying not very long ago.

Mr. Baldry

What is the policy of the Liberal party and, if it is different, of the Social Democratic party on reforming the common agricultural policy? Is it one of quotas, or control through prices or control through taking land out of production? We should be interested to know.

Sir Russell Johnston?

It is a combination of quota and prices, which will result in some land coming out of production. But I am sure that the hon. Gentleman does not expect me to produce art absolute solution, which would be impossible. Since there is no absolute solution, we must make the changes slowly. It is impossible to stop an express train suddenly.

Mr. Foulkes

The hon. Gentleman is eloquent in his criticism of the Government motion, the poujadiste amendment and the Labour party amendment. Representing as he does the supposed great third force in British politics, can he say why the alliance was unable to put down an amendment?

Sir Russell Johnston

We thought it appropriate to vote for the Government's statement on the Order Paper.

Mr. Marlow

Will the hon. Gentleman give way?

Sir Russell Johnston

I shall give way to the hon. Gentleman in a minute.

The Labour party must deal with a contradiction. Yesterday we had Scottish questions. Hon. Members may say, "What have Scottish questions got to do with this?" The answer is that they were questions about the need for a package of aid for farmers in Scotland. This is also a problem for farmers in England, but it was mainly Scotland that we were talking about yesterday. What were Labour Members saying? They were saying that action must be taken as soon as possible. They did not say, by the way, that our Government spend £300 million a year on agriculture in Scotland. They spend that every year, come hail, rain or shine. Opposition Members did not say, "We want to cut that, so let us cut it and not give them any extra aid at all." Although they did not say that, that is the logic of the position if they were suddenly to slash the CAP, and they ought to face up to that.

Mr. Foulkes

That is not the logic of our position. Opposition and Government Members have said that a huge amount of CAP money is spent on storing and destroying surpluses. If the hon. Member for Inverness, Nairn and Lochaber (Sir R. Johnston) had read the report of the House of Lords Select Committee, the report of the Comptroller and Auditor General, and the other reports on the CAP, he would know that they all say that the money is not going to those who really need it, farmers in the marginal areas. Those are the people that hon. Members on both sides were asking questions about and seeking assistance for during Scottish questions yesterday.

Sir Russell Johnston

I agree with the hon. Gentleman to an extent. There is a large degree of misspending on the common agricultural policy and I have not contended otherwise. The point I am making is that it is wrong to seek to convey, as I am afraid his party does, that one can sweep away much of the cost of the CAP without any pain. That is not true.

I am also weary of people continually telling us about the destruction of food. That is bad, but it did not start with the Common market. We were destroying potatoes in this country' before we ever went into the EEC. It is because of the flexibility of the harvest of certain things. If hon. Gentlemen who are always talking about this go to Tesco at the end of the week, they will see how many vegetables are thrown away, and that will be an interesting experience for them.

Mr. Marlow

In my constituency, we have a great deal of trouble trying to pin down members of the Liberal party to a particular policy. The hon. Gentleman has been very helpful, because he has told us about his policies. He has also told us that the Liberal party is four-square behind the Government's proposals. So that we may know in advance, will the hon. Gentleman tell the House how many members of the Liberal party and how many of his collaborators in the SDP will go through the Lobby this evening in support of the Government's motion?

Sir Russell Johnston

I am not the Whip for the Liberal party and I have not the faintest idea. I will return to the matter in hand.

Reform of the CAP also means institutional reform, or we will get such nonsense as the German veto on grain prices. It is not true to say that one can cut farm support painlessly. The suggestion in the amendment is that one can do that and that will enable one to spend more money on regional and social funds and to solve the problems of accession, presumably of Greece. It will not.

The 1986 budget is a prisoner of past failure to face reality and of future self-deception. It is not, as some hon. Members have said, and as the Daily Star says, because of what it describes as the faceless spendthrifts of Brussels. It is the fault of the Community Ministers and, in particular, of the Ministers of Agriculture, and that most certainly includes our Minister of Agriculture. The so-called Eurocrats, the so-called faceless men, have continually warned the Council of Ministers about this. It is the party politicians in government who have failed to respond, like our Minister of Agriculture, who told dairy farmers only months before dairy quotas were slapped on, that they should produce and produce. That is the sort of thing that has caused the present situation. It is the party politicians who have reached different conclusions in functional Councils from the budget Councils later on. Our Government share the blame and in some respects take the blame for the failure of the Community to make the advances we hoped for and still believe possible.

The Minister said—I know I quote him correctly, because I took it down—that "we have a protection not available to any other member state." The British compensation mechanism corrected injustices, but it failed to base the correction of those injustices on any general principles or concepts of fairness. That affects Portugal and has also encouraged the other countries, noticeably the Germans, to adopt the attitude of juste retour. If that persists, it will exclude the wealth transfer and redistribution of wealth which is a fundamental part of the concept of the Community and without which the Community will not work but will revert to protectionism and nationalism. If we hope to solve our political, social and economic problems, those attitudes must be changed.

7.6 pm

Mr. Robert Jackson (Wantage)

I start by welcoming my right hon. Friend the Member for Taunton (Sir E. du Cann) to the via crucis of these European debates. He certainly raised the level of the argument, but I do not propose to follow extensively what he said. It seems to me that the root fallacy in his remarks lay in his attempt to take the historic principle upon which the power of this House has been founded—the principle that "the redress of grievances should precede Supply"—and apply it to the European Community budget. The reality of the situation is otherwise: the sense in which the House can be said to vote Supply for the Community's "own resources" is essentially myth and that myth is reflected in the kind of papers of which my right hon. Friend complains and the way in which they are presented. That is the reality of the situation. Some hon. Members may regret it, and some may not. I am sure that my right hon. Friend regrets it, and so do I—in a nostalgic sort of way.

This debate is taking place on the eve of the most important event in the Community since the first enlargement when we, the Danes and the Irish joined in 1973. This is the second and probably the final enlargement of the European Community, to include Spain and Portugal. So it is an occasion on which we should take stock of what is one of the most fundamental institutions of the Community; an institution which, from the beginning, has been of crucial importance to Britain and will be of first-class importance to Spain and Portugal. That institution is the European budget.

What sort of institution is it? Where is it heading, and, if I may put it this way, what is the right philosophy for the European budget? There exist two different concepts of the European budget, and both are embodied in the texts before us. The texts contain two quite distinct and opposite tendencies, and it is around those different tendencies that the European budget will develop in future.

One concept of the European budget is that it is quite simply the financial dimension of the Common Market. The argument runs as follows—and I commend it to my right hon. Friend the Member for Taunton, because it should show him why his ideas for structural reform are essentially and fundamentally unrealistic. A common market requires a common external tariff. That tariff generates revenues which cannot simply be divided among the member states because of the entrepot effects: the fact for instance that trade goes through Rotterdam and the taxes on it are collected by the Dutch, even though the destination of the goods may be Dusseldorf in Germany.

So the revenues from the common external tariff cannot merely be divided among member states: they have to be pooled.

Furthermore, a common market requires a common agricultural policy, in order to ensure that free trade in goods and services is complemented by free trade in agricultural products. True, the nature of Europe's common agricultural policy could be different, but the form of agricultural policy that has been adopted in the Community is one that involves a uniform, transnational system of intervention, and in practical terms such a system cannot be operated separately by the member states. This is why the expenditures that support that agricultural policy have to be commonly financed.

If one adds to those considerations the fact that a common market arguably requires a harmonised basis of indirect taxation—such as we have in the Community in the form of VAT—one has identified all the key elements in the concept of the European budget as the more fiscal expression of the Common Market. It is a budget financed by common external duties—tariffs and levies—and disbursed primarily on the market intervention system of the common agricultural policy. That is, in essence, the budget that we have before us today, in which 72 per cent. of expenditure is intended for the CAP. This is a budget whose structure is fundamentally unstable.

Because of the problem of the United Kingdom contribution, we have the new mechanism for abatement, which will have to be renegotiated when we reach the end of the new tranche of own resources. That will be necessary also because of the Portuguese, whose problem is that they traditionally import most of their food from outside the European Community—imports on which they will have to pay substantial levies. After the transitional period, it is unlikely that the volume of receipts that they will get from the Community to support their own agriculture and other policies will compensate for those levies.

I turn now to the other concept of the budget, which sees it as the financial dimension, not just of the Common Market, but of an increasingly integrated European economy. On that philosophy, the European budget should not just reflect the progress of European economic integration, but should help to promote that progress. There are many different elements in this concept. From the very beginning it was recognised that the opening up of the trading opportunities that the Common Market provided would create adjustment problems for the industries of member states. That is why the European social fund was provided in the founding Treaty of Rome to help workers in various industries to adapt to changes in the market.

Beyond that limited concept, as the Common Market countries trade more and more with one another—we need only look at the trade figures to see the trade acceleration which continues to take place—and as the economic inter-penetration of the real economies of the member states deepens inevitably the purely national instruments of economic policy-making become less and less effective. In the Treasuries they pull the wires and press the old buttons, but the familiar effects do not occur, because essentially that machinery has lost control of the real economy underneath.

That is why the Community needs to develop the instruments of a joint and collective European economic policy, because that is the only route by which we can recover the lost political sovereignty over the economy which economic progress has taken away. Of course, this is largely a matter of the co-ordination of distinct national fiscal and monetary policies, but it is a question also of structural policies—of structural economic reforms—in the steel, coal and other industries. These reforms cost money and they can be and are being partially and even wholly financed from the European budget.

Moreover, in the long run the stable working of an increasingly integrated Common Market requires a stable system of internal exchange rates. An increasingly integrated economic community brings benefits to the exporting regions in the Common Market. From the political point of view, and from the point of view of equity and justice, the acceptance of constraints on the management of exchange rates requires that we should develop a system of support for those who do not benefit—those in the importing regions in the Common Market, who will no longer be able to operate a strategy of exchange rate depreciations.

The history of national economic integration displays great economic gains for the economic unit as a whole, but the tendency is for those gains to be concentrated in the most dynamic areas. That is why every national economy has developed off-setting devices, both private and public, whether by the flow of dividend income from economic growth to the less well-off parts of the country, or by way of public sector transfers in the shape of social benefits or regional policies. In this way, the increasingly integrated European economy is following exactly the same historical road as the national economies followed during the process of national economic integration in the 19th and early 20th centuries. That road is marked on one side by economic integration, and on the other by the systematic growth of resource transfers organised through the state budget.

Some colleagues may feel that the application of that piece of history to Europe is rather far-fetched, but this is in fact what is happening in the Community. The logic and the linkages which I have described are already reflected in this European budget. For example, the links between economic co-ordination, industrial restructuring, exchange rate stabilisation and resource transfers can be seen in the decision in 1974 to create the European regional development fund, at the same time as the decisions about economic convergence and about the currency "snake". They can also be seen in the resource transfer commitments which are embodied in the agreement establishing the European monetary system. In other words, the European budget embodies two different philosophies, two different concepts of European integration, and two different tendencies for its future development.

What about that future? Since 1979 the Government have focused overwhelmingly on the single problem of the inequitable consequences for Britain of the operation of the first of those two philosophies—that limited philosophy which confines the budget simply to the role of financing the Common Market. That argument has now been resolved, I hope permanently, after a great deal of painful negotiation, by the simple device of establishing a mechanism to set a limit on the size of Britain's net contribution. We should congratulate the Government on the first year of the operation of that mechanism, which is embodied in these budget documents, but there is nevertheless a flaw in our position. This is not just the question of the possible eventual renegotiation of this arrangement when we exhaust the present 1.4 per cent. ceiling. There is a more fundamental flaw: from the position of privilege which we have acquired for ourselves, there is a danger that we in Britain will look with some indifference on the much wider and more fundamental debate about the future of the European budget. We may even look with indifference on something remarkable in these documents which has not yet been pointed out—the fact that Britain has now lost her favourable net position in every European Community fund, after having had a favourable position in the European social fund, the regional fund and a variety of other funds ever since we joined. Of course, we can say, "This does not really matter because we will get it all back through the repayment abatement mechanism," but I hope that the Government will not make the mistake of falling into that indifference.

Those of us who follow the debates in the House about European affairs are well aware that there is a miasma, an atmosphere, of provisionality about so many of the Government's positions with regard to Europe. In spite of his incisiveness and all the dialectical efforts of the Minister of State, my hon. Friend the Member for Edinburgh, Pentlands (Mr. Rifkind), there is this atmosphere of provisionality.

One day my hon. Friend the Member for Pentlands, my right hon. and learned Friend the Foreign Secretary and my hon. Friend the Minister of State, Treasury come to the Dispatch Box adamant that there will never be any increase in the Community's own resources, yet on the next day, a Bill to increase those own resources is being put through Parliament. One moment they are at the Dispatch Box adamant that there will never be any amendments to the treaties, but I expect that we shall see a Bill to amend those treaties. One day they are adamant that exchange rate management is undesirable and, in any case, is impossible, but the next the Chancellor is making a speech saying that exchange rate targeting is now the centrepiece of the Government's economic strategy.

I welcome my hon. Friend the Member for Eastbourne (Mr. Gow) to his new responsibility for the European budget. There is a peculiar personal piquancy, which I know he appreciates, about his new position. I do not expect him to acknowledge this weakness in the foundations of Britain's European policy. He is a clever man, and I am sure that he can find a logical justification for every position that we have adopted at each particular moment. All that I propose is that he and his colleagues, and my right hon. Friend the Member for Taunton, should ask themselves inwardly: why is Britain's position in the debates on the future of Europe—that Europe with which we are so intimately concerned—so often built on shifting sands?

My answer is that we are always fighting yesterday's battles, and I regret to say that that was a feature of the speech of my right hon. Friend the Member for Taunton. I do not believe that we in Britain have yet thought deeply or seriously enough about what the European Community really is—an entity which is defined not just by the policy of Britain but by the policy of 10 or 12 other countries. Nor have we yet thought seriously enough about the logic of the development of the Community from its prime foundations, which were laid in our absence because of our earlier negligence. Nor yet do we really know which trends in the Community we should foster and encourage, which we should resist and oppose, and, perhaps above all, which trends are inevitable and which it would be foolish to waste time in opposing.

It is in this last category, in spite of the adverse trends that we see in the budget papers for 1985 and 1986, that I place the inexorable tendency of the European Community to develop both as a reflection, and as one of the mainsprings of, an increasingly integrated European economic policy. The second enlargement of the Community with the entry of Spain and Portugal will strain that concept more than it has been strained by our own presence, that in the long run that enlargement will make the development of the Community budget in this direction even more necessary and inevitable.

7.22 pm

Mr. Nigel Spearing (Newham, South)

The hon. Member for Wantage (Mr. Jackson) spoke of what he believes to be a necessity. He also referred to what he thought was a fact. I think he said that the control by the House over its EC funds was mythical—[Interruption.] The hon. Member for Wantage nods assent.

That was in stark contrast to the historic quotation by the right hon. Member for Taunton (Sir E. du Cann) about grievances before supply, because, unless there is an opportunity to discuss the grievances before the supply of EC cash, there is no redress for those grievances. If the hon. Member for Wantage is right, there can be no redress for our grievances.

Mr. Jackson

Perhaps other mechanisms and institutions coming into existence—derided, I am afraid to say, by my right hon. Friend the Member for Taunton (Sir E. du Cann)—will have to perform this function.

Mr. Spearing

That may be so, and I may touch on that shortly, without, I hope, being too controversial. I did say "by the House", and that was the purpose of my remarks to the hon. Member for Wantage, who said that the powers were mythical.

I agree strongly with the hon. Member for Wantage in respect of the accession of Portugal. There are similarities between Portugal and Britain over their position in the EEC. Portugal is divided on the merits of joining the EEC. In the next year or so there could be some internal dissent in that country, and there may be an attempt to re-negotiate its particular treaty.

The right hon. Member for Taunton, in a notable speech, described the hesitations that he and many others had in 1971 about the then Government's White Paper. At that time many people had constitutional question marks in their minds, but many were also convinced by the White Paper's forecast that the benefits to Britain's manufacturing industry would be great. That White Paper also said that, although those manufacturing advantages could not be quantified, they would be positive and substantial. Substantial they may have been, but, alas, they have been negative in terms of our manufacturing industry. I am sure that with that qualification the hon. Member for Harrow, East (Mr. Dykes) will agree that I am correct.

The right hon. Member for Taunton also expressed the hope that the institutions of the EEC would provide stability and give some coherence to an apparently disordered picture. In 1971, others spoke of the inherent instability of the triangular structure of the constitution. Time alone will tell—even after 10 years—which of those two views is right. Those who doubted the promises about manufacturing also had doubts about the constitution. Perhaps they will be proved right.

I wish to speak on five subjects—the surfeit of documents, the surplus of agricultural products, the Strasbourg Assembly, Spain and sugar.

Reference has already been made to the number of documents before us. That is not only the responsibility of the Government or of the Select Committee on European Legislation. It is our duty to report to the House those measures of legal and political importance that the House should consider.

We are tonight trying to do two jobs at the same time—to clear up the outstanding matters in the 1985 budget and to look ahead to 1986. That has been the choice of the Government. There has been dissent about the wisdom of taking those two issues together. The fact that before us we have a document from the EEC, a memorandum from the Government and a report from the Select Committee means that we are considering three times as many documents as we otherwise would. I suggest that the memorandum from the Government and the paragraphs in the Select Committee report give hon. Members the best clue as to what these documents are about.

There is clearly great unease about the complexity of the picture. It may be that that, together with our procedures, has led to the myth to which the hon. Member for Wantage referred in respect of our powers.

It is clear that the number of people able to claim knowledge of these matters is decreasing. It appears to me that the EEC financial structures are becoming ever more complicated year after year. One must almost grow up with how they have developed to understand them. Each piece of machinery has its own internal balances, and one must understand each part before understanding the whole. Given some of the phrases that have been bandied about today, I appreciate why lay persons might have extreme difficulty understanding the debate. That difficulty, even for Members of Parliament, may contribute to the lack of control to which the hon. Member for Wantage has already referred.

Mr. Dykes

Would the hon. Gentleman be as pleased with this process of intensive searchlight scrutiny of the EEC budget if hon. Members examined the British Budget with as much care and attention? The EEC budget totals only £20 billion, with a £1 billion contribution from the United Kingdom, whereas the United Kingdom Budget totals £140 billion.

Mr. Spearing

I am not quite sure that I follow the hon. Gentleman's point because, as he will know, we now have a series of Select Committees, each of which shadows, as it were, one of the great Departments of State. Although he may not be aware of it, the House has given terms of reference to each of those Select Committees to examine annually the Estimates of the respective Departments—indeed, not only to look at the annual Estimates, but to examine the Supplementaries, winter and spring, as well. It is therefore open to the members of those Select Committees to examine in a more intense manner the Budget and expenditure plans of our own Government than it is for us, indirectly, as it were, to examine the budget and expenditure plans of the European Community.

It is the figure of £3,000 million, our approximate annual contribution—it may be a little higher now—that we are approving tonight, and I do not think that we are able to give the intensity of scrutiny to that £3,000 million that a Select Committee can give to a similar budget of a similar Department. I put that to the hon. Gentleman for his consideration, because I note that we have the powers of scrutiny of a Select Committee in respect of the £3,000 million.

So much for the surfeit of paper. I turn now to the surpluses, because they are causing the problem in the budget. In its fifth report HC5 No. 30 of 23 October, the Scrutiny Committee spelt out the shape of the 1986 budget, and it is largely that to which I wish to refer. We are now facing annual commitments in the EEC budget of about £22,590 million. That is the figure in pounds which the Scrutiny Committee has calculated to be broadly the EEC budget. By any stretch of the imagination, that is a very large figure. We have also shown in our report that it is 23 per cent. greater than for 1985, so it is growing at a considerable speed. In our report, we say: The Commission indicate that appropriations for expenditure entered in the Preliminary Draft Budget would require a uniform VAT Own Resources rate of 1.24 per cent. That is 1.24 per cent. one year after the 1 per cent. limit has been changed. We know, of course, that it is more than half way to the 1.4 per cent. limit that we already have.

We go on in our report to say that the United Kingdom's share of the gross contributions to the 1986 budget is estimated by the Commission to be 5,382 mecu—about £3,344 million. I agree that the Minister of State, the hon. Member for Edinburgh, Pentlands (Mr. Rifkind), was lucid in his exposition, but it might be an improvement in the future if he were to give some figures in pounds or millions of pounds as well as in ecus, so that we might have some basis for comparison.

There is another aspect of the 1986 budget that I wish to mention and on which we reported to the House in our report on the EEC report, "1986 Community Budget: Key Figures". I quote from our report: For the three structural funds, the reserves would serve the purpose of paying off previous commitments which have been fixed by the budgetary authority at a proportionately higher level than the payments envisaged for the years concerned. It appears that in the 1986 budget we shall be asked to pay towards reserves which are not reserves at all but appear to be paying off commitments already made.

The report continues: The Commission points out that since 1978, approximately … £6.3 billion of commitment appropriations have accumulated, of which … some £5 billion relate to the structural funds, and proposes that the increase in commitments in that area should be kept at 5 per cent. I hope that the Minister of State, Treasury, perhaps in his winding-up remarks, will agree that that quotation from the Commission tends to suggest—indeed means—that there has been a piling up of commitments to member states for these structural funds—the regional fund, the social fund and possibly the agricultural guidance fund—which are to be paid but for which, as yet, no resources are available. Perhaps he can tell us whether or not national Governments have paid out any of that money and are awaiting these balances from the EEC. If so—I am glad that he should correct me if I am wrong—when we are looking at the 1986 budget, which is a bit of revenue, we ought also to bear in mind that there may be some capital debt overriding the whole which has still to be paid off.

Mr. Gow

Perhaps I can help the hon. Gentleman. When the Budget Council came to consider the draft budget, there were indeed large sums for the cost of the past. In respect of some of those items, the Budget Council asked for further information. It will be a matter for consideration in the time between now and the date when the budget for 1986 is actually finalised as to the extent to which, in the coming year, the cost of the past actually has to be met in 1986.

Mr. Spearing

I am grateful to the Minister for his intervention. It adds to the effect of the scrutiny which we all think necessary. My interpretation of what he said is that I may well be correct, and that all that remains now is for the Commission to find ways of getting round the problem. If that is so, it is indeed serious, because it means that, even by levying a 1.24 per cent. rate, there is still quite a lot of backlog money to be funded. The Minister nods assent. That means that the problem is as serious as I feared. We ought perhaps to be kept up to date on it. We are certainly grateful to the Commission for bringing this to our attention and also to the Minister for confirming it.

I now turn to a document which is on the Order Paper but which has not so far been referred to, except in passing by the Minister—document 8479/85 on food aid. The Scrutiny Committee recommended this for debate because it is a matter not only of food aid, but of transfer within headings of the budget. The Scrutiny Committee, in its 31st report, 1984–85 Session, said: In their Explanatory Memorandum, the Government explain that at present, the proportion of food aid expenditure corresponding to Community export refunds (representing the difference between the Community price and world price) is charged to the Guarantee Section of the EAGGF, while the remaining expenditure (representing the equivalent of the cost of the products on the world market) is charged to Title 9"— the co-operation and development part—

of the Budget. The proposed amendment would bring both elements of the expenditure together under Title 9. In other words, this proposal from the Commission is that, in respect of food aid, which is now very much a hot topic, instead of the moneys coming partly from the CAP—which is, of course, responsible for the production of the surpluses—all the subsidy required for food aid shall come from the aid side of the budget and none from the agricultural. That is why, earlier in the debate, I interrupted the Minister. He said that this would be dealt with again by his hon. Friend the Minister of State Treasury. The Ministerial memo supplied to us, which is a public document dated 22 October and signed by the Minister of State Treasury, goes through this, but gives no indication of the Government's attitude. That is why I very much welcome what both Ministers are saying—that the Government are against this proposal, because, although the net expenditure within the EEC may be the same, it would seem quite wrong that the aid budget, as distinct from the agricultural budget, should bar all the burden of what is clearly an agricultural problem, and not just one of aid. The status quo is not perfect, but it is better than what the EEC proposes.

Perhaps the hon. Member for Harrow, East had Strasbourg in mind in his intervention. The long motion on the Order Paper is important constitutionally, and it is certainly novel. It contains the following words: the council's decisions on the European Parliament's amendments and proposed modifications to the New Draft Budget of the European Communities for 1985". One of the many documents takes account of Strasbourg's requirements, so a motion is presented involving a change in expenditure proposed in Strasbourg which is to be decided by this House. That represents a new and important element in determining EEC expenditure. Strasbourg has powers, and it is part of the EEC constitution, so that element might grow.

This House has no part in the EEC's constitution, whereas the Strasbourg Assembly has. In the Scrutiny Committee's report that is spelt out. It states: The Letter of Amendment No. 3 to the Preliminary Draft Budget for 1985 is due to be considered by the Budget Council on 23 April. The Treasury comment, in their Explanatory Memorandum, that to the extent that the financing requirements as formally agreed exceed the Community's Own Resources, they will be provided for by an Inter-Governmental Agreement, United Kingdom payments requiring authorisation by Parliament. The intergovernmental agreement in respect of that money, required not by Parliament but elsewhere, was dealt with by the House recently.

The amendment mentions the accession of Spain to the Community. Spain hopes to become a net beneficiary by 1986. I am not sure whether it will, because the money might not be available. I understand that in Spain representatives are worried that they might not receive all that they were told they would receive before they signed the treaty of accession. That would be serious for the Community financially and constitutionally.

Spain was anxious to join the Community. The Cortes was unanimous in its wish to apply for membership. There was not a single vote of either dissent or abstention. Spain will have a rude awakening if the money does not stretch as far as expected.

Another aspect of Spain's accession is that, when VAT is applied in Spain, it will replace many regional, local and national taxes.

To our delight the King of Spain is to visit Britain. That was mentioned in the Queen's Speech. Spain is a democratic country and it has a constitutional monarchy. We welcome Spain back to that small group of nations with a combination of the old and the new. However, Spain is a relatively young democracy. Inside are strong centrifugal and strong centralising forces. A balance between the two is essential for democracy.

If what I have said is correct, and if the money-raising powers of Spain's regions are reduced as a result of accession, of having to pay centralised funds and of being subject to centralised VAT assessment, that could have an effect upon the internal balances of power and democracy in that country. I hope that it will not, but some of the EEC's financial requirements, which might appear logical, particularly to some Conservative Members, might have effects which are the reverse of our expectations. This might be the last debate on the subject before Spain's accession. It is therefore right to make that point, just as I referred to Portugal earlier.

We have talked about billions of pounds today. We have talked about surpluses, including sugar surpluses. I am sure that my hon. Friend the Member for Greenock and Port Glasgow (Dr. Godman) will enlarge on that. I understand that there is a dispute between the EEC and the countries supplying cane sugar to the Community about next year's price.

We decided to maintain cane sugar imports into Britain because we had an obligation to our Commonwealth friends. That 1.4 million tonnes of cane sugar was agreed by resolution under a Labour Government—and it was not negotiated by the Conservative Government—but there was nothing in the agreement about price. It would be ironic and wrong if, while we were piling up enormous surpluses of beet sugar, that 1.4 million tonnes were to be reduced because of an unsatisfactory price. I hope that the Government intend to ensure that the ships delivering 25,000 tonnes each to Plaistow refinery will not be imperilled. I hope that the work and production of people in east London and of our friends in the Commonwealth will not be prejudiced by some niggardly attempts in Brussels to try to save the relatively small sum that our friends in the Commonwealth obtain for their labours. I declare an interest because the refinery at Silvertown in my constituency refines 1 million tonnes of cane sugar a year.

That last aspect of the Community budget illustrates not only the complexities but the enormous power wielded by the Council and the Commission in Brussels. Other powers might be taken in Strasbourg. It is up to the House to maintain the scrutiny through our Ministers in Brussels to ensure that we retain power over the enormous amounts which our taxpayers contribute to the EEC budget.

7.49 pm

Sir Anthony Meyer (Clwyd, North-West)

The hon. Member for Newham, South (Mr. Spearing) is a declared critic of the European Community but on this subject, as on others, his contributions require to be heard with the greatest respect and attention. The House is grateful to him for the work that he does as Chairman of the Select Committee on European Legislation.

I am in a difficulty tonight. Like most hon. Members of sound mind, I know that Britain has no choice but to remain a member of the European Community. We have an inextricably linked double interest in making the Community and Britain as strong as possible.

The fact that I am an enthusiastic supporter of the European Community and of full British participation in it may arouse some of the Community's heated adversaries on both sides of the House. However, I propose to utter some sharp criticisms of the way in which the Community is working—in so far as that can be gleaned from the bulky documents before us.

I am a known supporter of the Community, so if I make even the most guarded criticism, it will be pounced on, distorted and quoted out of context by the anti-Europeans who monopolised the debate on Community finance on 22 October. Most of the rest of us were busy with our constituents who came on the mighty lobby to demand that the Government and the Community do more to prevent a recurrence of famine and want in the Third world.

It is understandable that some hon. Members should seek to give the press and the world a distorted impression of the views of the House, rather like the electors of Brecon and Radnor who amused themselves by giving deliberately misleading answers to the opinion pollsters. It is easy to mislead the press, which is always eager to berate hon. Members for non-attendance but whose presence in the Press Gallery today is, as usual, inconspicuous. Even if the press reporters were here to write a report, the editors would not print it. I wish that my hon. Friends the Members for Southend, East (Mr. Taylor) and for Northampton, North (Mr. Marlow) and the other hon. Members who want to stop the world and get off would stop pulling the communication cord, because it makes the rest of us feel rather sick.

It is conventional wisdom to denounce the common agricultural policy. It is absurd to continue subsidising farmers to produce commodities already in huge surplus and to subsidise their export which disrupts agricultural production in the Third world, provides cheap food for our enemies, or provides tardy, grudging and meagre shortterm famine relief. Any effective reform of the CAP will hurt British farmers, many of whom are already hard-pressed.

It is easy for hon. Members who represent non-farming constituencies to advocate throwing British and continental farmers to the wolves. It is easy for those who want to get Britain out of the Community, at whatever cost, to argue that British farmers would be better supported through deficiency payments from the Exchequer even though evidence shows that that would be as costly as support through CAP.

Mr. Teddy Taylor

Utter nonsense.

Sir Anthony Meyer

The figures show it. Those who cannot indulge in soft dreams of life outside the Community but who want to maintain a prosperous agriculture and who find the CAP increasingly difficult to justify have a more difficult task. Those who think as I do cannot brush aside the warning of my right hon. Friend the Member for Worthing (Mr. Higgins). He said that by agreeing to an increase to 1.4 per cent. of VAT we had surrendered a weapon that could have been used to force our Community partners to accept changes in the CAP. That argument is valid, but not conclusive.

To refuse the increase to 1.4 per cent., especially with the entrance of Spain and Portugal—their accession underpins parliamentary democracy in Europe and, therefore, far outweighs the economic cost of their entry—would have been akin to using the nuclear armoury that is credible as a deterrent but not as a weapon.

By spending so much of our stock of good will in securing a final settlement of our budget problem, we are left with a sadly diminished stock of credit to negotiate changes in the common agricultural policy or any other necessary changes. Never mind, we must do what we can. Far more vital British interests are at stake than even a permanent reduction in our budgetary contribution. Those are the bitter fruits of macho diplomacy, but it does not lie in the mouths of those who are pressing for ever more aggressive tactics to complain of the result.

I fear that the CAP will eventually perish under its own weight as one Government after another come to realise how much it is costing their other taxpayers to maintain their farmers in that way. We must realise that if the CAP collapses, without an acceptable replacement, not just British farmers and the countless other enterprises which depend upon them but our whole rural environment will be at risk.

The second argument of conventional wisdom is to say that the Community should spend more money on regional development. It worries me for a second time to earn some approval from the anti-Europeans, but I must confess to a growing uneasiness about the whole business of European regional development. It is not that I am against regional development—far from it. I believe strongly that Governments should use selective incentives and disincentives to steer jobs to areas of high unemployment, but I have three worries about European regional development.

The first is that the money provided by the Community is never, whatever Governments may say, a true net addition to the total development aid received by any region. In one way or another, Governments make correcting deductions from the money that they would otherwise have provided. Secondly, the provision of European money to finance local cherished schemes is, in some subtle way, politically corrupt. It is somehow less open to exposure than development aid given by national Governments, even when that aid is given for the most blatant electoral reasons.

My third objection to an increased regional aid programme is the most important. It brings me to the heart of what I want to say. The whole economic purpose of the Community is to enable its members, by virtue of their membership, to achieve more for the Community and themselves than they could achieve separately; that the whole should be greater and more effective than the sum of its parts. To use part of the Community budget to finance regional schemes which would otherwise have to be financed out of national budgets does not take us one inch further towards our objective of a Community that is greater than the sum of its parts.

There was spectacular progress towards that objective in the first 14 years of the Community's life. There has been no progress in the 14 years since Britain became a member. Post hoc or propter hoc? One of the biggest obstacles to the achievement of that objective is the failure to complete the Common Market because of the obstinate survival of non-tariff barriers to trade, especially non-visible trade. My right hon. Friend the Member for Taunton (Sir E. du Cann) spoke of that eloquently but, I think, misleadingly.

Her Majesty's Government say that the completion of the Common Market is their No. 1 priority in the Community. They sent Lord Cockfield as Commissioner to Brussels with a remit to get that moving. Lord Cockfield turned out to be ten times as good as I thought he would be. I readily withdraw the adverse remarks that I made about him on his appointment.

At whom does Lord Cockfield point the accusing finger for his inability to make much headway in the job that he was sent to Brussels to do? Her Majesty's Government. It is not good enough for Ministers, especially my right hon. Friend the Prime Minister, to say that we want to press on towards a single market so that we can meet the Japanese and American challenge, but that we cannot possibly drop any of our customs or immigration procedures, or the collection of VAT at the frontier. I know about rabies and drug smuggling. If we were in earnest about getting a single market, we would be desperately seeking other ways of protecting ourselves against mad dogs and dope smugglers without seizing up the passage of goods across the Channel.

The completion of the Common Market, far distant though that now seems, is still not the real economic objective of the Community. Externally, as I should perhaps have said before, the Community has had notable success in enabling its members to exert far more influence in international organisations than they could possibly have exerted separately.

What corresponding achievements could there be internally? Surely what we should be finding in the budget documents are ever larger items for launch aid or the creation of suitable conditions for wealth-creating schemes which are too large, too complex and too slow in yielding cash returns to be undertaken by any one member state—major aerospace projects, satellites and launchers, new generation nuclear plants, way-out research projects, expensive battlefield weapons, indeed battlefield communications systems. Was it not preposterous for the Prime Minister to have to invoke our special relationship in a vain, humiliating attempt to get the United States to pay 50 per cent. more to buy Ptarmigan, when there is here so obvious a project for a joint European venture?

It is by making such ventures possible, not necessarily by direct Community financing but more by the creation of a European economic environment favourable to them, that the European Community can contribute far more than the separate efforts of its member states towards providing the people of Europe with jobs and prosperity. Of course, there are such projects already. There is the airbus family of civil aircraft, ESPRIT and joint defence projects, but they are ludicrously inadequate in number and scope.

I cannot claim that the budgets we are considering today will take us a measurable step in the direction which I am urging, but at least they ought to bury the silly interminable argument about the cost of belonging to the organisation on which our very life depends. If we go on snarling and whining over them, we will eventually succeed in convincing the rest of Europe that we want to sink the ship in which we have chosen to travel.

8.2 pm

Dr. Norman A. Godman (Greenock and Port Glasgow)

I wish to offer my apologies to the Minister of State, Foreign Office, for my failure to be here when he spoke. I was at a meeting with the Prime Minister on a very important constituency matter. I am not sure that it was a satisfactory meeting for my constituents or myself.

I share the anxiety expressed by my hon. Friend the Member for Newham, South (Mr. Spearing) on the dispute about next year's price of cane sugar imports from the African, Caribbean and Pacific countries. It is essential that the EEC and those countries should settle their differences as soon as possible in the interests of natural justice for the people of those sectors of the Third world. This is largely a constituency matter. My concern is about the quota levels for sugar production and the danger that we might have to spend more on the production of beet sugar. It is most important, because I believe that the European Council of agricultural Ministers is to meet next week to discuss the common organisation of the Market in the sugar sector.

There is growing concern, particularly in my constituency, about the intense and vigorous lobbying being mounted by the beet sugar industry for an utterly unnecessary increase in the sugar beet quota for the United Kingdom. That demand is based largely on a so-called need for sugar as a feed stock for the chemical industry. There have been some eccentric demand forecasts for the use of sugar as a feed stock in the chemical industry. The working party of the Ministry of Agriculture assumes that at a price of approximately £100 per tonne the whole of Europe could generate a demand of about 500,000 tonnes by 1990. In the United Kingdom, the demand, on the most optimistic forecast, will not exceed 100,000 tonnes. Others estimate that a figure of 50,000 tonnes is grossly excessive and that the most realistic figure is about 10,000 tonnes in 1990.

If there is an increase in the United Kingdom beet sugar quota and if, as seems likely, the demand for the chemical industry is illusory, the increased quota will have to find a market somewhere. I am sure that the EEC Commission would not agree to an increase in the United Kingdom quota if the increased production was to be exported. That would worsen the serious surplus of sugar produced in the EEC and would clash directly with the current direction of the common agricultural policy.

Given the illusory demand for sugar as a feedstock for the chemical industry, the only market for the additional sugar production would be in the United Kingdom itself. That might replace sugar which is at present produced at the Tate and Lyle refineries in London and Greenock; hence my constituency interest. In that eventuality, formidable problems would be generated for the Westburn sugar refinery in Greenock where 400 jobs are at risk. May I point out to the House that male unemployment in my constituency is about 25 per cent., a disastrously high level? Many other jobs are at risk in Scotland since the sugar refinery in my constituency is an essential element in the Scottish food and drinks industry which employs 15,000 to 20,000 people.

The reverse side of the coin is that it is in the interests of the African, Caribbean and Pacific cane sugar producing countries that the European Commission proposal be supported by British Ministers next week. That proposal is that the EEC should retain the existing quota levels for sugar production. If the Commonwealth is to survive an prosper, faith must be maintained in the arrangements made with honour at the time of our accession to the EEC.

8.7 pm

Mr. Teddy Taylor (Southend, East)

The tiny attendance at the debate shows how pointless the whole business is. The plain fact is that we are discussing a budget which provides extra cash without solving any of the problems whose existence is accepted by even the most fanatical supporters of the Common Market. There is nothing more to it than putting more cash into an organisation which is not solving any of its problems.

The second reason that makes the debate almost completely pointless is that we are discussing a draft budget, which has still to go through much haggling, and which will probably end up at a great deal more than the figures in front of us. It is probably not surprising that only a handful of Members are here, because they regard the whole business as a pathetic, pointless exercise.

Sir Anthony Meyer

My hon. Friend is complaining that we are debating a draft budget. If we were debating a completed budget, his complaint would be that it was too late to do anything about it. As we are debating a draft budget, we have the opportunity of putting our views to Ministers. Surely that is what my hon. Friend wants.

Mr. Taylor

Yes, I am grateful for that, but surely my hon. Friend, whose opinions I respect because he has been consistent and believes what he says, knows from his long experience that the budgets are decided, not by the Parliaments of member states, but by the representatives of member states sitting round the table haggling about different issues. Sadly, the views of a democratic Parliament are not important.

I was glad that what would otherwise have been a sterile debate was elevated by the brilliant speech of my right hon. Friend the Member for Taunton (Sir E. du Cann), whose meaningful suggestions for the reform of the EC compared splendidly with the sloganising fanaticism of the tiny group of individuals now led by my hon. Friend the Member for Harrow, East (Mr. Dykes). I hope that, if the debate achieves nothing else, Ministers will think carefully about the important points made by my right hon. Friend the Member for Taunton and that they will bear them greatly in mind in the discussions that are to take place.

Perhaps the Common Market would be a better organisation if there were no budget. I am suggesting, not that we should have 10 per cent. more or less expenditure, but that the Common Market would perform in a better way if it had no budget. We should not have central institutions spending money on the Common Market, particularly when about 70 per cent. of all the cash goes on the squalid CAP.

What is the advantage of money going to Brussels and then being allocated, for example, for the regional or social fund, and then only for items which the Government in Whitehall have selected? It seems nonsense to have such a transfer of money, with every pound that is spent on so-called Europrojects costing the British taxpayer about £2. Instead of all the squabbles that we are having about how the money should he spent and what we should do about agriculture, the EC would be an infinitely better organisation if there were no budget.

I may be told that that would be impracticable, and I agree that it is difficult to argue the case, because in the present situation a great deal of money is being spent and the Government can bargain only so far. I am convinced, however, that if the Government adopted a policy of saying, "It would be a better Common Market if there were no spending," we should have something at which to aim, and if by any chance that aim were achieved, we should have harmony in the EC, with discussions about the real issues that matter and not about the nonsense of how we transfer cash from one country to another.

As we are debating the EC budget, can we hope that the Government will, as they do with all other forms of home consumption, consider how we could save some of the money that is spent pointlessly in the EC? The Government have been imposing severe restraints at home, as my hon. Friend the Minister will be aware from his previous job. Those restraints are applied to housing and the NHS, among other things. I find it ridiculous that the Southend health authority, for example, should have been forced to close two wards because of cash restraints, yet we see money being spent in a ridiculous way in the EC.

The documents show that spending on the so-called European Parliament is to go up by 26.7 per cent. this year. Could not the EEC operate more effectively without a European Assembly? Because of the need for cooperation between member states, we must ask what is achieved by having this silly, powerless monstrousity which takes up the time of sensible, educated people, who talk, but who have no powers to do anything effective. They have two blunderbuss powers which are not, and probably never will be, used.

The problems of the Common Market are not being solved. I was appalled to receive a parliamentary answer recently showing that the enormous exports of food to the Soviet Union at knock-down prices had risen by 50 per cent. in the first six months of this year, following a substantial increase last year.

While looking through some of the astonishing Euro documents which flood into the Vote Office, I was astonished by a remarkable paper entitled "Regulation 2670/85" under which we are giving special extra subsidies for the export of beef to Third world countries. The effect is that beef is available for sale to the Soviet Union as from now at 15p per pound. How can we justify the spending in which the EEC is indulging, followed by the dumping of top qualify beef in Russia at that price, when the people of Britain are finding it difficult to pay the £3 per pound which they are charged in the shops?

What I have described is not a tiny, niggling figure. The Common Market now spends £100 million every week on the storage and destruction of food surpluses. This is a huge problem, and what is particularly worrying is that it is getting worse all the time, and there is nothing in the budget designed to tackle it.

The Government suggest, tongue in cheek, that something is being done, in that we have an agreement to limit agricultural spending. As we know, however, that agreement is full of holes. The figures can be overturned by any amount in any year if a majority of member states claim that there have been special circumstances in that year. In other words, nothing is being done about the scandal of dumping, with top quality beef being sold for 15p, flour for 6p and wine for 5½p a litre, with floods of the food going to the Soviet Union and east Europe. Something must be done about that. Nothing in the budget will achieve a change in the situation.

Mr. Baldry

It is easy for my hon. Friend, representing an urban constituency, to criticise the CAP. How would he advise the Government to go about reforming the CAP in a way that would not do severe damage to our agriculture, which has been successful? Would he advocate the introduction of quotas, taking land out of production, or leaving it simply to the price mechanism of the market place?

Mr. Taylor

I was coming to that very point. It is appalling for hon. Members to attack those such as I who say that because such spending is wrong, we are anti-British agriculture. My hon. Friend should care, not just about farming, but about, for example, the Third world, the countries which should be buying our manufactured goods and paying off their debts. Think of the devastation, misery, hardship and even death that is caused by this policy of dumping, which is forcing down world food prices to an appalling extent.

If European countries decide, for reasons best known to themselves, to provide subsidies for agriculture at any level, that is a matter for them, but they are not entitled to cripple world food markets by a scandalous policy of dumping, which is achieving nothing for ourselves and is undermining the Third world.

My hon. Friend the Member for Banbury (Mr. Baldry) says that it is easy for me, representing Southend, to make such complaints. I assure him that I have regular meetings with the farmers of Essex, members of the local NFU and other organisations. I met them only last week and made the point to them that while, with the support of hon. Members such as my hon. Friend the Member for Banbury, they had in some cases done extremely well out of the CAP, they were now heading for disaster. I believe that most of them accepted what I said.

If we allow the budget to go ahead without reform, British agriculture—I agree that it is efficient and that we want it to prosper—will be heading for total disaster. A crisis is coming because of accelerating food surpluses and an enormous increase in production potential. That will cause an explosion in agriculture. When that time comes, drastic steps will have to be taken. Those steps will hit British agriculture particularly hard, although the origin of the problem will not have been ours. British agriculture's main asset is that it is not a great over-producer of food. We over-produce to the tune of only 102 per cent., partly in cereals. We do not, however, have an overall surplus of food. It worries me immensely that before long very nasty things will happen to British agriculture because of a problem that is not of our making.

What should we do about it? My strong view is that there is no possibility of British agriculture enjoying longterm prosperity or of being able to engage in long-term planning so long as it is linked to the common agricultural policy. If British agriculture is to survive and prosper, it must disengage itself from the Community. If it can be disengaged from the CAP, British agriculture should be based on national deficiency payments and standard quantities of production, determined by the need of the British people for food. This policy would provide British agriculture with a good future. If the present policies are continued, British agriculture will do reasonably well this year, and it might do reasonably well next year, but after that it will face disaster because of the terrible crisis of over-production.

In particular, there is over-production of beef. The beef mountains are getting out of control. They are so much out of control that Europe has run out of refrigerated storage space. The Community is having to look elsewhere for refrigerated storage space. It would not be so bad if this were a temporary problem that might be offset by a bad harvest next year, but on good land we are achieving yields of about 3 tonnes per acre. This yield is expected to rise to 6 tonnes per acre because of the various technical developments that are taking place. We are doing damage to consumers. They are paying £7 a week more for their food than they need to pay. We are also doing damage to the Third world by the iniquitous dumping policy. Furthermore, we shall be digging the grave of British agriculture if we do not take action very quickly indeed.

I am very worried that we shall not stay within the limits and that the member states will agree to exceed them. When that time comes, I am afraid that we shall have to use various devices. We shall have to use the strange accountancy adopted by the city of Liverpool to get round the crisis. Can my hon. Friend the Minister say whether the effect of transferring a large part of food aid to chapter nine will have the effect of taking it out of the agricultural budget? If it has that effect, I think we must accept that it is a very clever device to try to reduce the agricultural spending that is shown in the budget and prove that it is less than it is. It will be just a device to get round the so-called limits. Will the chapter nine expenditure be included in the agricultural budget? Will it be contained within the limit that we are told is to be the new ceiling?

This budget will cost Britain a great deal of money. When net payments amounted to about £500 million a year, hon. Members were concerned about its effect upon this country. According to the public expenditure White Paper, we shall be nearing a £1 billion net contribution by about 1987. This is only part of the cost. About £350 million a year represents not British receipts but money that is paid to British traders to export cheap food to the Soviet Union, Bulgaria and East Germany. The cost is therefore very considerable.

I am also concerned about its effect on trade. Our trade with the Community is disastrous. For every £3 of manufactured goods that we import, we send back only £2 of manufactured goods. When our oil revenues fade away, when asset sales dry up, and when we have to struggle on our own, our country will be in an appalling situation. The imbalance in our trade with the Community will create unfairness, and therefore unemployment. There will be an inevitable move towards the centre of the Community. We are on its periphery.

I can find no joy in this budget. It means that more money will be spent on the Community, without any of its problems being solved. It is time for the House of Commons to look at the future of British agriculture. It is easy to say that British agriculture is doing well and that we shall fight for it and ensure that no massive changes take place. However, the Government must know that because of the enormous acceleration in structural surpluses there will soon be an explosion. When that happens, British agriculture will be in great danger.

I hope that my hon. Friend the Minister will not adopt the minority point of view that if the CAP is attacked British agriculture is also attacked. If we disengage our country from the CAP, we might save British agriculture. If we do not disengage ourselves from the CAP, the outlook for British agriculture is very bleak.

8.25 pm

Mr. Nicholas Soames (Crawley)

I do not intend to echo the arguments of my hon. Friend the Member for Southend, East (Mr. Taylor). The contempt that he heaps upon the heads of those who favour and admire the European institutions is returned in equal measure. They reject the "little England" view that he and his followers try time after time to force down the throat of this House. We do not believe that he is the guardian of the nation's interests. I do not think he realises the great damage that he does to this country far outside this Chamber.

However unsatisfactory it may be, the common agricultural policy is a cornerstone of the European Community. It is one of its major achievements. At the same time it is one of its major and most serious problems. Article 39 of the treaty of Rome laid down its objectives. They are well known to all hon. Members. In its way, the Community has proved to be outstandingly successful. However, it is abysmally administered. To that extent I agree with my hon. Friend the Member for Southend, East. But in this as in all other matters the House is obliged to try to take a balanced view of its successes as well as of its considerable problems and difficulties.

Paragraphs 65 and 66 of the House of Lords Select Committee on the European Communities report on the reform of the common agricultural policy read:

Farming has always been the economic backbone of the Community's rural areas. The number of those engaged directly in farming as their full time activity has fallen and in many rural areas they are now a relatively small proportion of the population. The number of those dependent on agriculture is much greater. It includes hired workers, suppliers of services and requisities and those engaged in local marketing and processing of agricultural products. It also includes part time workers in a wide range of activities, sometimes seasonal like tourism, who use the farm as a home and a stable source of part of their income. Outside the rural areas substantial sectors of the machinery, chemical and other industries and the employment they create in urban areas are also dependent on agriculture. The collapse of established agricultural patterns could consequently be disastrous for rural areas dependent on farming. The viability of the whole social structure of such areas could be undermined. It is nevertheless important to underline that for many years farming has not been static. Change goes on all the time. Holdings are amalgamated and, in not a few cases, split up again. Land may be separated from farm houses, the former often helping to create more efficient management units, the latter bringing in new people with different occupations. Rural electrification and water supplies, improved country roads and widespread ownership of motor cars have had at least as great an effect on the economy and environment of country districts as the changes in agricultural productivity and management practices. Change will continue. To attempt to arrest it generally would be damaging. Farmers, let alone their sons and daughters, cannot be relegated to the rural slums of the inter-war period. When discussing the reform of the CAP, we must consider the balance between its successes and its obvious limitations. We are obliged also to consider, with the greatest care and caution, proposals for its reform. But reform must and will come, and this Government have already done a great deal to prescribe a proper route.

The conclusion of the House of Lords report stated:

The CAP is at a crossroads. Left unreformed it could break down and put the EEC in jeopardy … The Committee believe that the principal tool for reform must be an increased use of the price mechanism … The objectives of reform must be to diminish excessive stocks, to ease the cost of the CAP to the Community budget, to minimise international frictions resulting from disposal on world markets, to bring CAP spending within the strict budgetary controls agreed at Fontainebleau and to alter the present imbalance of the Community's economic resources. It is useful to remind ourselves of the measure that passed through this House on 22 October, the European Communities (Finance) Bill, with a majority of 117. The Bill permits the new own resources decision to come into force with the automatic correction of our budgetary contribution from 1 January 1986, thereby reducing Britain's contribution to the budget by more than 2.6 billion ecu. A key element in the new system of own resources, to which the Bill gives effect, is the arrangement whereby United Kingdom contributions to the Community are abated automatically to compensate us for any overpayment in the preceding year.

We will be entitled to recover 66 per cent. of the gap between our VAT share of the Community's allocated budget and our share of the receipts from the budget. Unlike earlier budget rebates, that entitlement is embodied in Community legislation that cannot be altered by the European Parliament. It is beyond my wit to understand why my hon. Friend the Member for Southend, East is so churlish about that impeccable result.

We will no longer have to fight each year to secure a refund, as has happened since the end of the transitional arrangements. Those refunds were becoming harder and harder to obtain. With effect from 1 January 1986, our VAT abatements will be automatic and geared to the amount of our net contribution. Our net contribution to new Community expenditure will be a maximum of 7 per cent. France will contribute up to 27 per cent. and Germany up to 31 per cent. As a result of the Fontainbleau agreement, France is likely to overtake Britain as a net contributor to the Community budget over the next two years, while the German net contribution is likely to be substantially higher than our corrected contribution.

Despite the increase in the Community VAT ceiling to 1.4 per cent., the United Kingdom VAT rate will remain below 1 per cent. The 1986 draft budget takes account of technical changes recently proposed, and implies a United Kingdom VAT rate next year of about 0.56 per cent. The other member states will pay about 1.2 per cent. By anyone's standards, that is a remarkably good deal for Britain.

The new system can be changed only by the unanimous decision of all member states, ratified by their sovereign Parliaments, including the United Kingdom Parliament. That will apply to any proposal to increase the VAT rate above 1.4 per cent. As a result of the Fontainebleau agreement, the Government have secured the payment in full of our 1983 refund of £434 million. In addition, to cover the year ended 31 December 1984, a fixed abatement of approximately £600 million has been agreed, and will be paid as soon as the new financial system has been ratified.

The Bill gives legislative effect to the automatic correction of our budgetary contribution, a purpose that successive British Governments have sought to achieve since we joined the Community in 1973. I and many other Conservative Back Benchers congratulate my right hon. and hon. Friends on their remarkable achievement. If the House agrees tonight to the Government's motion and takes note of these documents, it will do so because it will have acknowledged that the Government are specifically and emphatically pursuing vital British national interests.

That is why I cannot understand the attitude of my hon. Friend the Member for Southend, East and his colleagues. Indeed, the House will be making an important contribution to that fine adjustment that we have to undertake towards a far more positive participation in the affairs of Europe.

With the great tradition of realism in Tory foreign policy and with the knowledge of and feel for history and the hard-learned lessons over many years, I have never understood why the message of Europe has never really seized the United Kingdom.

When I look out over the vast panorama of Europe, at all the opportunities that exist there for our industry, services, institutions and people, I think that the concept should have a warmer glow to it.

The documents before us are an important manifestation of progress and change in Community affairs. The motion covers documents recommended for debate by the Scrutiny Committee of which I was a member. They cover the 1985 and 1986 budgets. The 1986 budget is now under discussion by the European Parliament which is considering the draft budget established by the Council of Ministers. There are a number of real achievements represented in these documents, for ourselves and, just as importantly, for Europe.

First, the Government have secured a lasting and automatic system known as the Fontainebleau system. This will reduce the excessive burden of the United Kingdom's net contribution. There are those who argue that it would have been better to allow the Community to run out of money in order to contain the costs of agricultural spending while we continued to pay at the full VAT rate. They overlook the cost that would have been incurred by the British taxpayer. We will no longer have to fight every year to secure a refund, as has happened since the end of the transitional arrangements, and, at last, Europe can begin to take a step forward.

Secondly, the Government are to be congratulated on further securing an effective mechanism for budgetary discipline and the control of agricultural spending. That is far better than anything the Community had before and—[Interruption.] It is not yet satisfactory, but we should not under-estimate the real progress that has been made.

Mr. Teddy Taylor

rose—

Mr. Soames

It is evident of the broad feeling throughout the Community, led by our Government, that reform can no longer be delayed.

I have to agree with critics of the Community who say that the CAP is abysmally run, but they must concede that the British Government have pushed ahead a programme with great skill and vigour that will lead to further reforms of an even more substantive nature. Indeed, the progress that has been made is there for all to see in the draft budget for 1986. The budget differs from previous budgets in several respects. First, there is provision for full implementation of the Fontainebleau agreement in respect of the abatement of the UK's VAT contribution; secondly, the 1986 budget is the first to be governed by the guidelines for budgetary discipline; thirdly, the 1986 budget is the first since our resources were increased to 1.4 per cent. of the VAT base; and fourthly, 1986 is the first year of the Community of 12, and I am delighted that Spain and Portugal are to accede to the Community.

It is significant also that, for the first time in recent years, the debate on the budget was not dominated by disputes over the rebate that we believe was payable to us. We must press on to arrive at a harmonious, realistic and honourable solution.

When I reflect on what being in Europe means to Britain, I always find myself recalling George Bernard Shaw's definition of a marriage—that it is an arrangement which appears to combine the maximum of temptation with the maximum of opportunity.

We have succumbed in our time to too many temptations in our dealings with Europe and we must start now to grasp the real opportunities that the Common Market has opened up for us. Like my hon. Friend the Member for Clwyd, North-West, (Sir A. Meyer), I wish to pay a warm tribute to the work of Lord Cockfield in respect of the development of the internal market. I pay tribute to the Kangaroo group for the admirable work which it has done. That is an example of it being right to say that one man who has a mind and knows it can always beat 10 men who have not and do not.

The Government must resolve in their mind what Britain seeks to get out of the Common Market and what it believes it will be able to contribute to the Common weal. Of particular interest, as my hon. Friend the Member for Clwyd, North-West said, is the successful application, with Europe's money, of modern technological techniques on an increasingly continental and not national basis. I hope that my hon. Friend the Minister of State, Treasury, when he replies, will say something about that, and about what is being done to plan investment, research and production strategies to match these great opportunities.

If the Government were to give a positive lead in that direction, British businesses which have hitherto preferred to cultivate their own domestic back garden might consider getting into their own European hack garden, which now stretches from the Mediterranean to the Arctic circle and from eastern Europe to the western approaches. These are the dimensions of the British home market and the dimensions in which the British Government must think.

Mr. Foulkes

The hon. Gentleman is probably an expert on geography, but will he tell us exactly where the European Community touches the Arctic circle? Since the withdrawal of Greenland, it is not too easy to visualise where that happens.

Mr. Soames

I used some geographic licence. I am grateful that that is the only issue on which the hon. Gentleman seeks to shoot down my peroration. I am grateful to him for ruining my speech.

The Government must gear themselves to realising that it is now their duty—they lay claim to vigorous and imaginative leadership—to pursue every opportunity that remains open to us in the broader European concept. Britain still has a great deal to do in exploiting a vast homogeneous market. I hope that the Community will continue to be an outward-looking organisation that is dedicated to the promotion of free and fair trade and responsive to the needs of developing countries.

In 1985, only 10 per cent. of the Community's food aid budget was used for famine relief. That is an obscenely low figure, and I urge the Government, with all my heart, to ensure that the Community does a great deal better in the years ahead. I hope that my hon. Friend the Minister of State, Treasury will seek to persuade it to re-order its priorities in that respect and to respond to the deeply held concerns of all Europeans by being far more generous in future.

Experience has shown that Europe cannot and will never flourish, let alone attain its full vigour and potentially great influence, in the stony and infertile soil of national interest. We must consolidate through the reform of existing policies and further enlargement. Those who reflect on these things know what has to be done. What we need is the will to do it.

8.44 pm

Mr. Tony Baldry (Banbury)

I endorse and support the excellent speech of my hon. Friend the Member for Crawley (Mr. Soames). It is perhaps indicative of the Opposition's attitude that the only argument that they could advance during the course of it was a nitpicking criticism of my hon. Friend's geography.

My hon. Friend the Member for Southend, East (Mr. Taylor) leaves the House in no doubt about his attitude towards the European Community. Perhaps I can serve on him and others in the House notice that there are growing numbers of people who are tired of having debates on Europe used simply as opportunities for knocking copy on the European Community. My hon. Friend the Member for Southend, East leaves the House in no doubt as to his attitudes. In a recent article in a magazine called the Crusader, he alleged that the arguments about the numbers of jobs directly related to membership of the European Community come largely from the taxpayer-paid Common Market propaganda machine". They are bogus, untrue or totally misleading.

Mrs. Kellett-Bowman

There is no question of a propaganda machine. I circulated all the employers in my constituency and they all agreed that unemployment would soar dramatically if we left the Common Market.

Mr. Baldry

My hon. Friend is right. There is no doubt that the European Community gives British manufacturers and industry access to a secure home market that would otherwise be beyond our dreams.

My hon. Friend the Member for Southend, East went on in the same article to portray the European Community as "a Socialist organisation". Given this continuous tirade against the European Community by some hon. Members, it is time to remind ourselves of a few basic facts about Britain's membership of the Community. The straightforward reality is that it is in Britain's best interests to make a success of the European Community. Who wants to withdraw from Europe? The extreme Left does and that can hardly be because it sees Europe as a Socialist organisation. Quite the opposite, the Left knows full well that the European Community offers the best chance to provide the greatest possible economic growth in the member countries. That economic growth can pay for the doctors, teachers, nurses, schools and hospitals that we all want in a caring society, and can destroy the wild illusions of the Left, which actually wants economic failure for its own perverse reasons.

Mr. Teddy Taylor

My hon. Friend has been kincl enough to do some astonishing research on the excellent articles that I have written on this subject. I suggest that he does an equal amount of research on the recent statements, speeches and articles in the extreme Left newspapers such as Marxism Today. He will find that the extreme Left is beginning to realise what it should have realised years ago—that it is nonsense for the Labour party to talk about leaving Europe when it is a way in which Socialists can achieve the objectives that they will never achieve through a British Parliament, such as worker-controlled industry.

Mr. Baldry

My hon. Friend makes his own point, which is that it would be in the interests of the extreme Left to see Britain lead Europe because it wishes to see us fail. When Conservative Members have to pray in aid nothing less than Marxism Today, we have reached a sad state.

The House should never forget that Britain, by geography, history and self-interest, has a central and vital role to play in shaping the political and economic future of the European Community. Because of the insistence of the Conservative Government, Europe has tackled the difficult tasks of reform of the common agricultural policy, and control of Community spending and the budget problem, none of which would have been resolved under a Labour Government. All these reforms would not have been achieved without the drive and tenacity of Britainest under a Conservative Government and of a Europe with Britain in the Community.

Every member country is now determined to achieve a truly free market in goods and services by 1992. Let it never be forgotten that Europe already takes almost half of our exports, which means that hundreds and thousands of jobs in Britain depend on our selling to and with our European partners.

There are still many barriers to raise to make it easier and cheaper for people to trade and travel in Europe. As a start, we could resolve to make it as cheap for people to travel by air across Europe as to fly across the United States of America. We must never forget that Europe is about more than the Common Market, free trade and economic success. It is about 12 sovereign nations together exercising influence and power to challenge protectionism, strengthen democracy and promote economic change in Europe and the world. That is what we want to achieve.

Conservative Members are determined that Britain shall be in the forefront of the Western industrialist world politically and economically. The Prime Minister has ensured that in recent years Britain has been in the forefront of decision making in the Western world. The framework of the EC has greatly assisted Britain in ensuring that our voice is heard, and Britain can best achieve her potential as a nation in a common endeavour with our partners in the EC.

The joint economic and political strength of the EC is enormous. It is well able to compete with Japan and the United States, and to balance the super-power politics of power blocs, such as the Warsaw pact. Conservatives are determined to build an EC which will better enable us all to meet the challenges of the 21st century, and which will ensure that Europe is at the forefront of modern industrial and technological development.

Obviously, much work needs to be done. It will best be done in a spirit of positive co-operation and of wanting to succeed. We want to have the best possible barrier-free market, to introduce a single administrative document for the passage of goods across internal frontiers within the Community, to let people move more freely, and to ensure that every business in Britain gains the maximum benefit from being part of the largest home market in the world.

Alas, a quarter of a century after the signing of the Treaty of Rome, Europe still bristles with customs posts. Red tape clogs the channels of trade. It is estimated that the total cost to industry of passing through Community frontiers is $10 billion a year, all of which adds an estimated 5 to 10 per cent. to the cost of goods, and makes European goods less competitive. Urgent action is needed to ensure that we have a barrier-free Community as soon as possible—a European Community in which goods, services, capital and people can move across internal frontiers as freely as within each member country.

The potential is enormous. It is to create the world's biggest and wealthiest home market with unlimited opportunities for enterprising industry and commerce, and thus to re-establish Europe as a leading world economic power. Things must change, and that is why the EC is and must be committed to the removal of all existing barriers and the creation of a unified market by 1992. The need for Europe to act is urgent, if the continent is not to fall behind the rest of the world.

Of every 10 personal computers sold in the EC in 1983, eight were manufactured in the United States. Of every 10 video recorders sold in the EC in 1983, nine were made in Japan. Between 1980 and 1983, production of electronic goods in Britain grew by 44 per cent., whereas imports of electronic goods grew by 110 per cent. Separately and alone, European nations have little chance of competing with the high technology of Japan and the United States.

Conservatives have a clear vision of the Europe that we want. It is a strong enterprising Community, realising its full economic potential and helping to provide jobs and wealth to British people. The House should never forget that the British Government have secured a lasting automatic system—the Fontainebleau abatement mechanism, which will reduce the excessive burden of the United Kingdom's contribution to the EC budget. The hon. Member for Carrick, Cumnock and Doon Valley (Mr. Foulkes) may well smirk, in reality—

Mr. Soames

Does not my hon. Friend find it difficult to understand why the Opposition find the Fontainebleau abatement so distasteful?

Mr. Baldry

I never cease to be amazed at why the Opposition scorn any British success, particularly success which leads to greater prosperity and more jobs. It is a source of constant amazement, and I can only presume that it is because in their hearts the Opposition want to see Britain fail.

Under the system which the British Government have achieved, Britain will pay the Community half of what we would have paid had there been no correction of our contribution. Britain has also secured an effective mechanism of budgetary discipline and control of agricultural spending. This is far better than anything which the Community had before. The rate of growth of agricultural guarantees spending has been reduced dramatically from 16 per cent. in 1984 to 9 per cent. in .1985 and 5.3 per cent. in 1986.

We have to do much more as a matter of urgency to reform the common agricultural policy. However, for the first time, the common agricultural policy has assured that Britain and Europe have secure supplies of food. For the first time since the reform of the Corn Laws we are exporting grain, and for the first time in a number of centuries we are almost self-sufficient in the supplies of foodstuffs. Sensible reforms need to be made, but let us not knock or forget the achievements of the common agricultural policy and their effects on the British farmer and the British consumer.

Mr. Cash

I applaud what my hon. Friend has said about the need for sensible reforms. Many reforms are needed in relation to the common agricultural policy and I hope that, as he continues his speech, he will press for those reforms.

Mr. Baldry

No hon. Member is unaware of the need to reform the common agricultural policy. No British farmer is blind to the fact that it needs urgent reform. However, in seeking that reform, let us not knock what has been achieved. The Member of the European Parliament for the Cotswolds, Sir Henry Plumb, and I met many farmers who are our mutual constituents. They are well aware of the need for urgent reform, but how are we to achieve this? Do we simply do it by quotas? We all recognise the problems presented by the introduction of milk quotas. Do we simply do it by prices and let the market take over? This would mean that British farming, which is efficient, would be penalised disproportionately. Do we find some way of taking land out of production and making it fallow?

There are no easy options, but those of us who wish Europe to succeed are determined to explore the options diligently and conscientiously. We shall do so from the basis of wanting the European Community to succeed. That is what distinguishes us from the Opposition. We want to work together to make Europe work together for jobs and prosperity. We want to strive together to make Europe succeed.

8.57 pm

Mr. Michael Knowles (Nottingham, East)

I am sorry that my hon. Friend the Member for Southend, East (Mr. Taylor) is not present—

Mr. Baldry

I am not.

Mr. Knowles

I share my hon. Friend's sentiments.

My hon. Friend the Member for Southend, East thinks he is speaking for the people of this country. In reality, he is not. He is fighting the same old battle which was fought in Parliament and in the country in the 1960s—

Mrs. Kellett-Bowman

And lost.

Mr. Knowles

And lost, from his point of view. Britain is a member of the European Community and there it will remain. My hon. Friend the Member for Southend, East speaks about having no budget and no expenditure, but that is utter nonsense and should be denounced as such. He and those who agree with him want to have it both ways. All of us would like to have it both ways, but this is not realistic. One cannot have a national veto and sensible Community decisions. The two have proved to be incompatible.

I am glad to see the hon. Member for Inverness, Nairn and Lochaber (Sir R. Johnston) in his place, because I wish to follow some of his arguments. Those who oppose the development of the Community on nationalist grounds believe that they can recreate an idyllic age, with an independent United Kingdom; but such an age never existed and such a world cannot be recreated. If we went down that path, we would not have an independent United Kingdom; we would ensure that Britain and all the countries of western Europe would become colonies of the United States and of Japan. One of the fathers of the American constitution, Benjamin Franklin, said: We must indeed hang together, or, most assuredly, we shall all hang separately. We have no choice in Europe; we must hang together. The further we progress with unification, the better it will be for all of us. Those who oppose further steps towards unification do not propose national independence; they propose turning their countries into colonies of the superpowers. The reality of today's world is that power matters. It might be a pleasanter world if it did not, but that is the cold, hard reality that we must face and we had better get on with it.

How can we make the Community work better than it does? We should take two steps. First, the meetings of the Council of Europe should be opened to public view. The Council is the legislature of the Community; it is the only legislature that meets in complete secrecy. It should be opened so that the people of the Community can see what decisions are being made in their names and why. Secondly, the power that is shared between the Council and the Commission must be extended to the European Parliament.

As my right hon. Friend the Member for Taunton (Sir E. du Cann) said, 'cash is king—he who controls the budget is in charge.' The difficulty in the Community is that settling the budget, especially the agricultural budget, is rather like a group of people going to a restaurant, each of whom has agreed to share the bill equally. Everyone orders the most expensive dishes on the menu and the last person in the queue must decide whether, if he orders the cheapest meal, he will get the best deal. The answer is no. He must change the system. There is no point in being abstemious if one is going to lose badly.

Hon. Members have mentioned a deadline for a common market. The Cockfield report mentioned a deadline of 1992. We could do it, but not if 12 national Governments try to pick up the bits they want and leave the rest. We want a unit, not a skeleton picked clean, with the Cockfield report joining all the other reports that litter the shelves of Europe.

We have the chance to build a common market, but there is a political price to pay. We cannot build a common market that will give us opportunities in manufacturing and service industries without strengthening our common institutions. Some people want the Community to develop into a sort of super EFTA. We tried to float the idea of a free trade area 20 years ago, but it will not work. If we want the benefits of a common market, we need common political institutions. The two are inextricably linked and there is no divorcing them. I would be more than willing to go down that path—the sooner the better.

To return to the matter that we are supposed to be debating, I foresee many problems with the 1986 budget. One of the difficulties about the Community's budget is that it must balance every year. One can imagine the problems for any Chancellor of the Exchequer who had to balance his budget every year. It is the only institution I can think of that has to do that. It cannot raise loans. If there is a big impact, a big cost in one year, although realistically it should be spread over a longer period, it has to be met in that year.

Mr. Foulkes

Will the hon. Gentleman tell us the difference between a loan and a non-reimbursable advance, which is what this Parliament was asked to give to the European Community on two occasions in the past year?

Mr. Knowles

That is exactly right. We all recognise that was a difficulty and we all laughed over the wording. I would prefer to face the reality of the situation and treat the Community as a proper organ of Government, rather than go through the kind of nonsense we have gone through.

I will go back to a point that I made earlier—that when the Community gets a long-term cost, it has to be met in one year. This year there is the cost due to the entry of Spain and Portugal. Those countries are coming in in January next year and the cost has to be met out of the current budget. That cannot be spread, as perhaps it should, over three or four years; it has to be met in one year. That is one of the problems in the 1986 budget.

The council has happily accepted a political commitment—the admission of Spain and Portugal. It has also built up the burdens of the past three or four years, when it accepted commitments in all areas but would not provide the money to pay for those burdens. It has been shuffling money around and robbing Peter to pay Paul for the past few years. The Community can only do that for so long. Now it has to meet the burdens of the past.

The Council has deleted two large items from the budget. That is irresponsible, because sooner or later those costs will have to be met. What is the Council thinking about? Is it expecting the Community to run out of money and producing an interim budget half way through next year? Those costs will have to be met, certainly in respect of Spain and Portugal. Is it going to try to shuffle the pack again in order to remove the burdens of the past and put back the pay day to some future date? I am not at all sure.

Of course, it is not just the Council which has to deal with the budget. Here we come to the crunch. The Council has to go to the European Parliament. As we heard earlier from the Minister, substantial restructuring of the budget has taken place. The European Parliament has restructured that budget. That demonstrates that the European Parliament is responsible and, indeed, the political locomotive behind the European Community. The Council, which represents the national states, fudged and dodged that issue.

Mr. Cash

Perhaps I may take my hon. Friend's argument a little further. Does he agree that the current proposals of the Commission about the increase in the powers of the European Parliament should be carried to the point at which the consent of the European Parliament, in conjunction with the Commission and the Council of Ministers, is in line with the recent document placed before the Council of Ministers? If so, in a variety of ways the Parliament at Westminster would effectively be bypassed.

Mr. Knowles

The reality of the matter—and here we kid ourselves—is that we are effectively bypassed. At what point in the process does this Chamber have power over what the Government do? There may be a theoretical power, but the reality is that it does not and cannot exist. The House of Commons tried the constitutional experiment of ruling through Committees, and it failed. Admittedly, that was 300 years ago under the Commonwealth, but it was tried and it failed.

Governments must have a free hand in negotiations with other nation states. The European Parliament is the only other representative body that can have a say. It represents the whole of the Community. If the House wants a veto, the Chambers of nine other nation states—soon there will be 11 others—will also want that power. That would create a locked system. It is bad enough now, but it would become totally impossible. We must face reality. We shall have to give power to the popularly elected assembly.

Sir Russell Johnston

Is not the veto an advantage to someone who wants to maintain the status quo? We do not want to do that. The people with an interest in the veto are those who made the original compact and want to maintain the status quo.

Mr. Knowles

If we wish to develop the Community—it is in our interest to do so—a national veto will not serve our long-term interests. In the long term, it will not serve the interests of any member state. Of course. a short-term gain can be grabbed, but, in our long-term interests, the veto must go. I am prepared to face the reality that the European Parliament must be given real power. If the British Parliament cannot exercise sovereignty, however notional it may be, I would rather shed that sovereignty to another popularly elected body than see it in the hands of a Council dealing with national Governments or of a Commission appointed by those national Governments.

The European Parliament has substantially reconstructed this year's budget. I apologise to my hon. Friend the Minister of State, Treasury, but this is one of the few times when the House can ask the Government in advance what they will do in the Council. What will be the Council's position when the budget goes back to it? Will it accept the changes to take on board the cost of Spain and Portugal and the burdens of the past, or will it take out those measures? We could be heading for an interesting constitutional crisis. The European Parliament might put those items back into the budget on Second Reading. The President of the Parliament might sign that budget. The only way in which one could then stop the budget from being administered by the Commission would be by the Council or a national Government taking the European Parliament to court. I suspect that a solution will be found before we reach that point. We have headed down these paths before, but it is an interesting problem.

The European Parliament has been described in this and previous debates as totally powerless, but that is not so. My right hon. Friend the Member for Taunton put his finger on a truth about all parliamentary democracies—that control of Supply is the important issue. Hon. Members seem to have grasped that point today. It will raise interesting problems for the other institutions in the Community and for all the national Parliaments, including the British Parliament.

9.13 pm

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

Recently, I have sat through a few debates in which hon. Members have begun by saying, "I shall not follow the points made by the hon. Member who preceded me," but usually they have done so because they have had prepared speeches and did not wish to be diverted. I do not believe that that is in keeping with the spirit of our debates. I shall follow the points of the hon. Member for Nottingham, East (Mr. Knowles). I shall pick up also the points made by other hon. Members. I apologise for this apparent eccentricity.

The Lord Privy Seal and Leader of the House of Commons (Mr. John Biffen)

Do not do it too often.

Mr. Foulkes

I shall not, but it is an occasional blessing to do so.

This has not been the occasion for a wide-ranging debate on the future of the Community, although we have had contributions from the hon. Member for Nottingham, East, and the hon. Member for Wantage (Mr. Jackson), who made a thoughtful and excellent speech. By saying that, I hope that I do not do him any harm. We also had a contribution from the hon. Member for Inverness, Nairn and Lochaber (Sir R. Johnston), who has the same problem as I have, in that people have difficulty in remembering the full title of his constituency.

Those hon. Members all gave us a clear explanation of their view of the Community. They want Britain to become increasingly integrated into a unified Community. There is no doubt about that, because everything that they said about the veto, and about the whole concept of the Community, is clear. Other Members have shown that. There are other tendencies in the Conservative party, but there seems to be a growing tendency in that direction. The implication of that, as the Leader of the House knows better than anyone, is that the sovereignty of this parliament and the United Kingdom is under threat. That is increasingly shown in the speeches of Conservative Members.

The hon. Member for Nottingham, East spoke eloquently about the lack of control that the House has over the Executive. I agree with him, and I would like to see greater control. I hope that we can look at our procedure and provide greater control and scrutiny. That is a separate argument from giving up our total responsibility to a supranational institution, or increasing the amounts of our responsibility. The two arguments must not be confused or interlinked in the way that the hon. Member for Nottingham, East has done.

There is no secret about the Opposition's concept of Europe, and I am surprised that Conservative Members still think that there is. We want to see the Community move towards a looser and wider federation with, for example, more political co-operation. The hon. Member for Clwyd, North-West (Sir A. Meyer) touched on that. I do not know how many hon. Members realise how much political co-operation there is at the United Nations and in other multinational bodies. My hon. Friends and I welcome that co-operation and we would like to see greater political co-operation on issues such as South Africa, central America and so on. There is no secret about our desire for a looser, wider federation, and we welcome the accession of Spain and Portugal as a move in that direction.

Mrs. Kellett-Bowman

May we now take that to be official Labour party policy?

Mr. Foulkes

There is no secret about our policy. It is not defined in one booklet. It was included in our manifesto for the European elections and it has been outlined by the Leader of the Opposition on a number of occasions. The direction in which we want to see the Community move is not in doubt.

The hon. Member for Nottingham, East, after talking about his vision for the Community, engagingly said that he would like to speak on the subject of the debate, and I should now like to do that.

I was pleased to hear the right hon. Member for Taunton (Sir E. du Cann) participate in the debate, though he did not live up to the billing given by his agent, the hon. Member for Southend, East (Mr. Taylor). I found his speech somewhat confusing and confused, and I think that other Conservative Members thought the same, judging by their reactions and interruptions.

There is one important point that should be followed up, particularly with the Leader of the House present. The right hon. Member for Taunton referred to the accountability of Ministers in relation to the Community.

The Opposition feel—and there have been informal discussions about this—that there ought to be greater ministerial accountability to the House of what Ministers do on behalf of this Parliament. For example, there has recently been a depressing trend of Ministers taking part in important meetings of the Council of Ministers, but not giving oral reports to the House. This is a discourtesy to the House, and I hope that the Leader of the House will do something to ensure that oral statements are made by the appropriate Minister following major meetings of the Commission.

There are so many pieces of European legislation coming before the House that it takes up a great deal of our time. There may be other ways of dealing with this. The right hon. Member for Taunton and others referred to the possibility of a special Committee. It has even been suggested that there might be a European Grand Committee which could go more fully into the details of European legislation, which affects us all in so many ways. The Opposition would co-operate in such discussions and would not inhibit them in any way.

The debates that we have—this is another of them—concern money, the budget and the nitty-gritty of the European Community. Inevitably, the Community is always asking for more. These debates are like regular performances of "Oliver Twist". Already this year there have been three debates—on the supplementary budget, in January, followed by the discussions on the intergovernmental agreement, and as recently as 22 October there was a passage of the Bill to increase the Community's own resources. We are now discussing a huge increase in the Community's budget, which goes ever upwards.

There has been much—perhaps deliberate—obfuscation by Conservative Members about the real contributions being made by Britain to the European Community, but the budget prepared by the Commission tells the terrible truth about the EEC. It tells of the kind of runaway expenditure which my hon. Friends the Members for Thurrock (Dr. McDonald) and for Hamilton (Mr. Robertson) predicted, and that runaway expenditure exposes the myth and mirage of budgetary discipline.

In his usual eloquent and Churchillian way, the hon. Member for Crawley (Mr. Soames) praised the supposed budgetary discipline, but in reality it is a mirage and myth. I accept that the budget contains three new factors. From 1 January the Community will be enlarged to 12, there is the new VAT ceiling of 1.4 per cent., and there are the supposed budgetary discipline arrangements. But the Commission's budget, which takes account of the reality of spending in the Community, now amounts to 34.9 billion ecu. Already, that is 1.35 per cent. of VAT, and that less than a month after the House approved an increase to 1.4 per cent. which was to last into the foreseeable future—

Mr. Marlow

No.

Mr. Foulkes

I shall give way to the hon. Gentleman.

Mr. Marlow

My hon. Friend the Minister of State, Treasury, will no doubt say, if he is asked, that the Government have given no commitment to go beyond 1.4 per cent. and that they will not agree to another IGA in any circumstances that my hon. Friend can visualise. My hon. Friend can visualise the dollar going mad and massive European surpluses, but the Government have said that we will not go beyond 1.4 per cent. That remains the case.

Mr. Foulkes

If the hon. Gentleman really believes those Government assurances, he is more naive than I had given him credit for. We are already at 1.35 per cent. and are beginning to nudge the ceiling that was supposed to last for so long. We are only 900 million ecu below that ceiling—a 12 per cent. increase, three quarters of which is due to past commitments. As we know, a huge amount of that is due to agricultural spending, an increase in agricultural guarantees and an increase in agricultural guidance.

Conservative Members have been talking about the farmers. I am a strange being on the Opposition Benches—I am a Labour Member who represents an agricultural constituency. I am as concerned about the farmers as is the hon. Member for Crawley. My concern for them is just as great as that of the right hon. Member for Shropshire, North (Mr. Biffen). What is really important, however, is to ensure that the money that we spend on agriculture actually goes to the farmers who need it and not on the storage and destruction of surplus products. If it were to go to the farmers, we would certainly welcome that.

Mr. Baldry

I am grateful to the hon. Member for giving way, because I cannot let him escape quite so easily. He indicated during the speech of the hon. Member for Thurrock (Dr. McDonald) that he would tell the House how the Labour party intended to reform the agricultural policy. We know that it intends to rate agricultural land. Perhaps he can now tell us how his party intends to reform the CAP.

Mr. Foulkes

If the hon. Member is patient and does not interrupt, I shall come to that.

The Commission budget, for the first time in the history of the Common Market, proposes a smaller increase in the social and regional funds—smaller than the maximum permissible. Instead of the over 7 per cent. which could be included, we have only 5 per cent., and there are also cuts proposed in research and development, innovation and co-operation. As the hon. Member for Nottingham, East rightly said, the Council cut the draft budget. The Commission budget was based on reality, the frightening reality of the runaway budget, but the Council cut it. Even with that cut, to 32 billion ecu, it is still above the self-imposed limit—this budgetary restraint that we hear about—which the Council set itself.

In cutting the budget, the Council acted irresponsibly. It has postponed decisions on past commitments. It leaves out any provision for Spain and Portugal, and both those countries will have to be taken into account at some time. So, it is only putting off the evil day when these matters have to be taken into account. Worst of all—and this is the one issue on which I agree with the hon. Member for Crawley, the one area where he was probably expressing the views not just of the House but of the whole country—is the despicable decision to reduce the money available for food aid.

I ask the Minister of State to explain this when he replies to the debate, because he has a particular responsibility for it. He attended the meeting at which the decision was taken. In fact, he advocated reducing the amount of money available for food aid. He said, "Reports of rain in Africa mean that the extra allocation is unnecessary." Has anyone ever heard such rubbish in all his life? Will a few showers in Africa relieve the poverty of years? Will this rain provide the people with the kind of food that they need to relieve the present desperate hardship?

Mr. Cash

If the hon. Gentleman has read the report of the Court of Auditors for last year, does he agree that many of the difficulties were caused by the Commission, the European Parliament, and their administrative delays, as set out clearly in that document?

Mr. Foulkes

Of course, there is bureaucracy and red tape, as I have said from this Dispatch Box before, but the miserly decision of the Council of Ministers is another part of it and the Government must take the prime responsibility for that. The Council has certainly not solved the budgetary problem. It has postponed decisions.

There are two choices for the future facing the decision-makers in the Community. They can renege on past commitments, which would have a disastrous effect on the constituencies of Conservative Members, because the regional fund which the hon. Member for Clwyd, North-West was criticising so roundly is actually financing road and infrastructure projects in Britain at the moment. If the commitments are not fulfilled, expenditure will have to stop or we shall need a further whipround, which we cannot expect, as the hon. Member for Northampton, North (Mr. Marlow) said.

Mr. Jackson

I thought the hon. Gentleman said that he was in a favour of a looser type of Community, which I assume would not have a regional or social fund.

Mr. Foulkes

My argument is that while we have such funds, we should take advantage of them. If we had a looser framework, we should be keeping our money instead of getting it back from the Community.

The European Parliament has now taken its part in the merry-go-round of decision-making in the Community. It has reinstated 3 billion ecu to the budget. What will be the response of our representative on the Council of Ministers to the reinstatement by the Parliament of 3 billion ecu? A former parliamentary colleague, Mrs. Barbara Castle, proposed major reductions in agricultural spending, but only members of the British Labour Group in the European Parliament supported her. Why did Conservative Members support not her proposal for major reductions in agricultural expenditure if that is Government policy?

We have had some misinformation about the British contribution. I have been asked to explain my party's attitude to the Fontainebleau abatement mechanism. Those who ask that question must either be deaf or wish not to have heard what the Opposition have said on a number of occasions. We supported the Government in asking for that rebate, and we welcomed it. However, we want the truth to be told about its effect. The figures are clear. They mean not a reduction in Britain's net contribution to the European Community, but a constantly increasing contribution. If the Minister thinks that I am wrong, he can refute the figures.

The figures in the autumn statement reveal an escalating contribution by Britain to the European Community. It is the only area of expenditure which seems to be openended without cash limits or control. All that money is going to agriculture, surpluses and the destruction of surpluses, rather than to the social and regional funds which could help Britain.

Farm spending is increasing out of control. Three separate reports deal with the huge escalating commitments to the CAP—the Green Paper produced by the Commission, the House of Lords Select Committee report and a report by the Comptroller and Auditor General.

The Commission's Green Paper says clearly that whereas in the 1970s there was a reasonable balance in supply and demand, in the 1980s vast surpluses of products for which there was no demand developed. The Green Paper takes account of the obligations to agriculture and says that there can be no alternative to a price policy based on the realities of demand and supply.

The hon. Member for Banbury (Mr. Baldry) was wrong when he referred to a price policy. As I understand it, efficient farmers will not be harmed by such a price policy. I do not understand the basis of the Minister's argument when he says that they would be harmed.

The House of Lords Select Committee has been quoted on many occasions, and I shall not burden the House with repetition. The Committee predicted that the cost of the CAP would rise to £20 billion and that cereal stocks would increase to 89 million tonnes. The Committee clearly stated that the CAP had not resulted in aid for the poorer farmers but had helped to make rich farmers richer. That should not be the Community's policy. The Committee recommends that the European Community should move towards a policy of restrictive pricing—although it would need courage to enforce it—and realistic thresholds, combined with direct economic support to help poor farmers in difficulties.

The report of the Comptroller and Auditor General lists the disadvantages to Britain of the CAP—the costs of storage and destruction amounting to £7 billion in 1980 and the damage to relations with developing countries.

My hon. Friend the Member for Greenock and Port Glasgow (Dr. Godman) and others have mentioned the difficulty of our relations with developing countries and the social problems arising from the CAP. The Comptroller and Auditor General's report recommends that we separate farmers' economic needs from social needs, and that prices should he used to benefit consumers and the developing countries.

From different points of view, three reports have considered the CAP with expertise and intelligence and come to the same conclusions. The Labour party supports analysis and reform of the CAP along the lines of the reports' recommendations to ensure that money is not wasted, but is used effectively.

It annoys the Opposition that while money goes into the CAP, the social fund, which needs money for training and retraining the unemployed, is being cut. It has been cut by 25 per cent. because of the actions of the Council of Ministers and our representative on that Council. The demand for the social fund has increased from 752 applications in 1982, to almost 5,000 in 1985. The Government's response has not been to provide more money for training the unemployed, but to reduce the areas eligible for assistance, from the Western Isles to Devon, including Powys and many others. At a time when unemployment is at its highest ever, 8 million Europeans no longer benefit from the social fund. The regional fund has been cut also, while the agricultural fund has mushroomed.

Our approach to the European Community is different from that of the Government. The Government's approach is to support the status quo and minimise our net contribution to the European Community. They have done nothing to encourage fundamental reform of the CAP. At the same time, the British Government representative on the Council of Ministers is trying to stop any possible benefits. Progressive social directives on employee consultation and information, on part-time workers, on parental leave and workers' participation are being vetoed by our representative on the Council of Ministers.

The organs of the European Community have a supposedly great phrase. They talk of something called "the people's Europe". They do not mean the ordinary people who would benefit from the kind of progressive legislation that might come out of Europe, from the social fund and the regional fund and from measures to reduce unemployment. They do not mean the people who would benefit from co-ordinating the reflation that is necessary to provide the jobs that are needed, not just in Britain, but throughout the European Community. They mean only the rich farmers. They are the only people who have benefited substantially from the common agricultural policy, which represents the main area of the Community's expenditure. Until the Community addresses itself to Europe's real problems—unemployment and poverty—it will become increasingly irrelevant to the vast majority of the people of Europe.

9.40 pm

The Minister of State, Treasury (Mr. Ian Gow)

I start with the agreeable task of thanking the hon. Member for Newham, South (Mr. Spearing) and the Scrutiny Committee for the work that he and the Committee do. The House would wish to join me when I say that the hon. Gentleman is most vigilant in ensuring that the House's interests in Community matters are protected.

My second happy task is to congratulate my right hon. Friend the Member for Taunton (Sir E. du Cann)—I know that the House will want to join me—on his appointment as president of the Conservative European Reform Group. I congratulate him not just on that august appointment but on his maiden speech as president.

Towards the end of his speech, my hon. Friend the Minister of State, Foreign and Commonwealth Office referred to a pamphlet written by the hon. Member for Dagenham (Mr. Gould), whom we welcome rather belatedly to our proceedings. When my hon. Friend referred to that pamphlet there was some disquiet upon the Opposition Front Bench. The House will be aware that I am a keen student of manifestos and election addresses written by those who arrive in the House. Although, of course, the debate is about the papers which are before us and the Government's policy, the Labour party's policy in these matters is not without interest.

I wish to remind the House and especially the hon. Member for Carrick, Cumnock and Doon Valley (Mr. Foulkes), that champion of the Falkland Islanders, of what the Labour manifesto said that the Labour party would have done if elected. That at least was clear; whether, if elected, the Labour party would have done what it said it would do is immaterial. I wish to pay tribute to its clarity. It said:

British withdrawal from the Community is the right policy for Britain—to be completed well within the lifetime of the parliament. That is our commitment. I wish to talk about the hon. Gentleman's election address, of which, for greater accuracy, I have a copy. He said that Labout will take Britain out of the EEC. [Interruption.] Oh yes. But what do I find when I turn to page 389 of Dod's Parliamentary Companion. You are a keen student of these matters, Mr. Speaker, and you will be familiar with the words which appear under the hon. Gentleman's name on that page which states Scottish Organiser European Movement. Naturally, I shall give way to the hon. Gentleman, because he will wish to explain to you, first, Mr. Speaker, then to the House and then to his constituents, who voted for him on the basis of that manifesto, when he gave up that appointment as organiser of the European movement. I shall give way to the hon. Gentleman.

Mr. Foulkes

The date on which I gave up that appointment is in Dod's. If the hon. Gentleman would continue reading, he would find it.

Mr. Gow

No, the hon. Gentleman is wrong. It is an error to believe that Her Majesty's Ministers are incapable of reading. It says, Scottish Organiser European Movement. I will hand the book to the hon. Gentleman and perhaps he will tell the House what the date was.

I turn from the hon. Gentleman to the hon. Member for Thurrock (Dr. McDonald), who opened the debate for the Opposition. She is well known as a valiant and courageous Member of the House. What did she have to say about Europe in her election address? I have scanned the address and rescanned it. The hon. Member for Carrick, Cumnock and Doon Valley thinks that I am not good at reading, but I have read the hon. Lady's election address assiduously. The courageous hon. Lady said nothing at all about Europe in her election address.

Mr. Foulkes

She was more clever than I was, was she not?

Mr. Gow

So we have from the hon. Gentleman who wound up for the Opposition a very clear commitment to get out of Europe and we have from the hon. Lady who opened for the Opposition total silence on the subject. Mercifully, we are able to turn for guidance about the policy of the Labour party on Europe to a publication, Marxism Today, with which you, Mr. Speaker, are as familiar as I am. In last month's edition the following words appear in an interview granted by the deputy leader of the Opposition:

I am unashamedly and unreservedly for British membership of the EEC. The House is entitled to know the view of the Opposition. We have heard the hon. Member for Carrick, Cumnock and Doon Valley, a foreign affairs spokesman for the Labour party. Seated at his right hand is the hon. Member for Thurrock, a senior and distinguished economic spokesman for the Labour party. I have read out to the House the view of the deputy leader of the Labour party. Now I shall give way to the hon. Gentleman so that he may explain to the House whether it is the policy of the Labour party to stick to the manifesto on which it fought and lost the election on 9 June 1983 or whether that is now repudiated.

Mr. Foulkes

I explained at the beginning of my reply to the debate exactly what our position on Europe is. I then went on for 20 minutes to deal with the subject before us tonight. I wish the Minister would start doing that.

Mr. Gow

The hon. Gentleman ought not to generate more indignation than he can conveniently contain.

I wish to refer briefly to some of the points raised during the debate. Then I shall come to the amendment moved by the hon. Lady. She asked whether we had paid our £250 million under the inter governmental agreement of 25 April 1985. No, we have not yet paid that instalment of £250 million, but we expect to so so shortly. I was also asked which other countries had paid their contributions under the IGA of 25 April 1985. Only one country, Greece, has paid, and only a small contribution. The hon. Lady asked when we expect to receive our abatement of £590 million in respect of 1984. We expect to receive that early in the new year.

The Opposition amendment is misleading at best or, to use the words which fell from the lips of the hon. Member for Carrick, Cumnock, and Doon Valley, an example of deliberate obfuscation.

The assertion that Community farm spending shows a continued and uncontrolled increase is, mercifully, untrue, as the figures show. Agricultural market support grew by 27.6 per cent. in 1983, by 16.1 per cent. in 1984 and by 8.9 per cent. in 1985. For 1986, for the Community of 10, the draft budget provides for an increase of only 2.5 per cent. That is in fact a cut in real terms and it follows on from the last two annual price-fixing agreements, which have already cut price levels by 7 per cent. in real terms.

After including Spain and Portugal—I shall deal shortly with the subject of enlargement—spending on price support in the 1986 draft budget will increase by 5 per cent. in cash terms. That deceleration has not happened by accident. It stems directly from the Council's decision to impose budget discipline as agreed in December last year; 1986 is the first year in which that discipline applies and in which agricultural support spending for the Community of 10 is constrained to grow more slowly than the own resources base. This new constraint on agricultural spending is the result of a negotiation undertaken and persevered in by the Prime Minister.

Mr. Teddy Taylor

Will the Minister agree that those commendable new restraints and limits can be exceeded by any amount in any year if the majority of member states decide that there have been exceptional or aberrant circumstances in the year in question?

Mr. Gow

Yes, it would be possible to make a change, but the Council of Ministers is now committed in the clearest and most unmistakeable terms to budget discipline, and it is the overriding purpose of Her Majesty's Government to ensure that that new strict budget discipline is enforced for 1986 and in the years following 1986.

The hon. Members for Thurrock, for Carrick, Cumnock and Doon Valley and for Newham, South (Mr. Spearing) all raised the question of food aid and famine relief, and the hon. Member for Thurrock asked me to reply at length. I shall do as she asked because the Labour party, possibly not through accident, has chosen to misunderstand what has occurred.

The United Kingdom Government support wholeheartedly the provision of emergency food aid to combat famine. We want to ensure that that aid reaches those in need as rapidly as possible. We believe that famine relief must have priority within the Community's food aid programme. That is why the United Kingdom supported the Dublin Council's commitment in December of last year to make available emergency food aid of 1.2 million tonnes.

In June of this year, the Prime Minister joined other Heads of Government at the Milan European Council in recognising that new requirements for emergency food aid could arise during 1986 if the rains in Africa again proved insufficient. I have been charged, on 22 October and again this evening, with using the words "if the rains proved insufficient." They were not my words but the words of the European Council, from the Milan conclusions, and I shall read them to the House and notably to those who occupy the Opposition Front Bench: It felt, however, that new food aid requirements could arise if the rains, which had just started, on the Continent of Africa were again to be insufficient. Those were the words of the Milan Council. On that basis, the European Council welcomed the Commission's proposals for a special reserve allocation which would make it possible to mobilise 500,000 tonnes of cereals equivalent in 1986 over and above the normal food aid programme. The Heads of Government invited development Ministers to examine the proposal.

In its preliminary draft budget for 1986 the Commission proposed a special reserve of 168 million ecu for this purpose in a chapter of the budget that was separate from the food aid chapter. The first Budget Council which met on 17 and 18 September had a preliminary discussion on the Commission's proposal. The Council decided not to include the proposed reserve in the draft budget at that stage but to defer a decision, pending discussion by the development Ministers and more up-to-date information about harvest prospects. The Budget Council resolved to review the matter at its next meeting. I was present at the council meeting on 18 September and supported this outcome, as did most of the other member states. The United Kingdom's position was shared by Germany, the Netherlands, Belgium, Denmark, Luxembourg and by that other Socialist state, dear to the hearts of the Opposition, France.

Since that first Budget Council nearly two months ago the harvest prospects in the worst affected countries have become much clearer. The special report issued by the Food and Agriculture Organisation earlier this month included the encouraging estimate that the total food aid needs of the countries concerned would be less than half of their 1984–85 level and that a considerable part of those needs could be covered from existing allocations which have not yet been delivered or distributed. The report emphasised that a number of countries would continue to need emergency food assistance during 1986.

The Community's Development Ministers met 10 days ago. My right hon. Friend the Minister for Overseas Development represented the United Kingdom at that meeting where it was decided, without prejudging the precise budgetary treatment, that a reserve for emergency food aid during 1986 was necessary. My right hon. Friend agreed with that decision. The Budget Council will be considering the matter again on Tuesday week, in the light of the conclusions reached by the Development Ministers and by the European Assembly in its deliberations this week.

I was asked by the Opposition about the Government's policy at that Council. The United Kingdom will argue at the Council, as did my right hon. Friend the Minister for Overseas Development at the Development Council, that provision for emergency aid for famine relief should form part of the Community's total food aid programme and should be given priority within it.

In recent years the Community has increased substantially its provision for food aid generally. The provision for commitments in the 1984 budget was 502 million ecu, about £300 million. The provision for commitments in the 1985 budget reached an all-time high of 636 million ecu, about £375 million.

This is one of a series of debates about the Government's policy towards the European Community. The motion before the House supports our continued commitment to securing greater restraint in spending and greater equity in the Community's budgetary arrangements. I believe that there is a growing recognition both within and without the House that the Government's policy is achieving consistent success.

We have achieved two objectives which have eluded previous Governments. First, we have secured a lasting and automatic system for abatement of our excessive net contribution. Second, we have secured a commitment by the Council to budgetary discipline which, though not perfect, is an enormous improvement on what has gone before.

The Opposition's amendment is a smokescreen that is designed to camouflage their own past failure to secure the improvements which this Government have secured. I ask the House to reject the amendment and to vote for the motion.

Amendment negatived.

Main Question put and agreed to.

Resolved, That this House takes note of European Community Documents Nos. 5874/85, Letter of amendment No. 3 to the Preliminary Draft Budget of the European Communities for 1985, 6378/85 and 6379/85, New Draft General Budget of the European Communities for 1985, 6882/85, the European Parliament's amendments and modifications to the New Draft Budget of the European Communities for 1985, 6907/85 to 6914/85, the Council's decisions on the European Parliament's amendments and proposed modifications to the New Draft Budget of the European Communities for 1985, 7882/85 and COM(85)325, Communication from the Commission concerning key figures for the 1986 Budget, COM(85)175, Preliminary Draft General Budget of the European Communities for 1986, COM(85)550, Letter of amendment to the Preliminary Draft Budget of the European Communities for 1986, 9336/85, Draft General Budget of the European Communities for 1986, and 8479/85, Proposal for a Council regulation on Community financing of expenditure incurred in respect of the supply of agricultural products as food aid; and supports the Government's continuing policy of seeking greater equity and restraint in the Community's budgetary arrangements.