HC Deb 03 February 1986 vol 91 cc39-45

[Relevant documents: The Draft General Budget of the European Communities for the Financial Year 1986, with amendments and proposed modifications (Documents Nos. 10773/85 to 10778/85), together with the Treasury's Explanatory Memorandum thereon; and the Seventh Report of the Select Committee on European Legislation, House of Commons Paper (1985–86) No. 21-vii, paragraph 9.

Minutes of Evidence taken before the Treasury and Civil Service Committee on 30 January 1986, House of Commons Paper No. 203-i.]

4.26 pm
The Minister of State, Treasury (Mr. Peter Brooke)

I beg to move, That a supplementary sum, not exceeding £135,917,000, be granted to Her Majesty out of the Consolidated Fund to defray the charges which will come in course of payment during the year ending on 31 March 1986 for expenditure by the Treasury in connection with payments to the Budget of the European Communities not covered by direct charges on the Consolidated Fund under section 2(3) of the European Communities Act 1972, as set out in House of Commons Paper No. 177.

The special Supplementary Estimate which is before the House today relates to our contributions to the 1985 and 1986 budgets of the European Communities. There are two relevant documents, apart from the Estimate, of which Members will wish to be aware — a memorandum submitted by the Treasury to the Treasury and Civil Service Select Committee on 24 January, and a transcript of oral evidence taken by the Committee on 30 January.

I hope that it will be helpful to hon. Members if I first remind the House of the purpose and content of the Special Supplentary Estimate. I propose then to discuss the Government's policy on the disputed 1986 Community budget and our contributions towards it, and finally to say something about the statutory basis for our contribution to the disputed budget and the procedures for obtaining parliamentary approval.

The Estimate contains two elements. The larger concerns the provision of some £118 million towards meeting a Commission request to member states to bring forward a payment of traditional own resources —agricultural levies and customs duties—from December to November 1985. I should stress that this sum does not represent an increase in Community spending. It is purely a question of the timing of the payment of own resources collected during October 1985. They would normally have been paid to the Commission in December, but instead they were paid on 20 November. Our December payment was reduced by a corresponding amount and there was therefore no effect on the public expenditure planning totals.

The need for the November advance arose because one element in the financing of the 1985 budget —supplementary contributions under the 1985 intergovernmental agreement—was not received before the very end of 1985. We had taken provision of £820 million in Main Estimates and Summer Supplementaries to cover these advances during 1985, but had not expected them to continue to be required as late as November. Consequently, when the Commission asked member states to bring forward the £134 million December contribution into November, only £16.1 million could be covered by the amount remaining in the Vote. The balance of £118 million was paid by means of a drawing on the Contingencies Fund. Parliament was duly informed of the advance payment on 21 November. The Supplementary Estimate now proposed is needed to reimburse the Contingencies Fund before the end of the current financial year. The Commission's cash flow difficulties caused by late payment of the 1985 IGA have now been resolved. There should therefore be no need for further advance payments of traditional own resources in the immediate future.

The second part of the Estimate relates to the disputed 1986 budget. It seeks provision of £18 million in respect of our contributions during the first quarter of the year towards that part of the budget added by the European Parliament in excess of its powers under the treaties.

As hon. Members will recall, the European Parliament adopted in December a budget for 1986 which made provision for some 629 million ecu—about £400 million —of spending above that agreed by the Council. The Government have decided to join the Council and several other member states in asking the European Court to annul the disputed elements in the budget. In the meantime, the Government propose, in common with all other member states, to pay in full to the budget on a without prejudice basis. Since, however, we do not accept any legal obligation to contribute towards the disputed elements, this element in our contribution cannot be charged direct to the Consolidated Fund under the European Communities Act 1972 and we need instead to seek Parliament's authority through the Estimates procedure.

Mr. Tony Marlow (Northampton, North)

Can my hon. Friend say how much money Denmark is having to pay and when it is arranging to pay it? Can he also tell the House how it is that the Commission is applying this illegal budget at this stage?

Mr. Brooke

Denmark is necessarily paying a smaller amount than we are, but it has decided to pay in full. In a moment I shall discuss the Commission's action in bringing forward the budget and asking for payment.

Mr. Eric Deakins (Walthamstow)

What provision exists under EEC legislation, laws and treaties for those amounts to be repaid if we win our court case?

Mr. Brooke

The circumstances that will obtain when the court gives judgment on the case are a matter which I shall discuss later. It is perfectly proper that the hon. Gentleman should raise it.

I shall discuss now the Government's policy on the disputed budget for 1986. The Government take an extremely serious view of what has happened during the 1986 budget process. The two main issues are budget discipline and treaty violation.

Mr. Eric S. Heffer (Liverpool, Walton)

The hon. Gentleman must be aware of the fact that today in London 48 Liverpool Labour councillors are facing the courts because of a so-called illegal budget. If the decision goes against them—

Mr. Deputy Speaker (Sir Paul Dean)

Order. I believe that the hon. Member is referring to a matter that is sub judice. Can he assure me that it is not sub judice?

Mr. Heifer

I am making an analogy, Mr. Deputy Speaker. If they are found guilty—I am not arguing for or against them — they will be surcharged and disqualified. If the Government win the case, will they not only ask for the money back, but suggest that the MEPs who have raised the budget should be surcharged and disqualified from holding office?

Mr. Deputy Speaker

It would not be appropriate for the Minister to pursue that matter. In the House, it is not in order to refer to a case that is sub judice. I am informed that the case is sub judice.

Mr. Heffer

On a point of order, Mr. Deputy Speaker. I am not referring to the case. I am merely pointing out that the councillors are now before the courts. I am not saying whether they are right or wrong. I am not arguing their case.

Mr. Deputy Speaker

Order. I said that it was not in order to refer to a case that was sub judice. This case is sub judice and must not be referred to.

Several hon. Members


Mr. Heffer

Further to the point of order, Mr. Deputy Speaker. If it is wrong for me to refer to the Liverpool case, is it not wrong for the Government to argue about something that is also sub judice, because it is before the courts?

Mr. Deputy Speaker

The hon. Member is confusing two matters.

Mr. Heifer

I am not confusing anything—

Mr. Deputy Speaker

Order. The House will like to know that the sub judice rule applies to United Kingdom courts, not to European courts.

Mr. Dennis Skinner (Bolsover)

Further to the point of order, Mr. Deputy Speaker. You have said that the case is before the European courts and cannot be subjected to the same sub judice rule as applies to a British court. When we went into the Common Market—dragged in without a vote, and some of us have been protesting ever since —we were told, without reservation, that in those areas where United Kingdom laws conflicted with European laws, the Common Market laws would supersede our laws. The Minister is telling us that the case is before the courts, which means that it is sub judice. We know that we cannot talk about Liverpool and Lambeth because you, Mr. Deputy Speaker, have said that those cases are sub judice. On that count, it seems to me that the whole debate and the application for a Supplementary Estimate must be abandoned, because we are not allowed to talk about it.

Mr. Deputy Speaker

The hon. Member is raising a point that can legitimately be raised during the debate. I am explaining the sub judice rule which applies in this place. It applies to United Kingdom courts, not to European courts. If the House wishes to change the rule, it knows how to attempt to change it. I am stating only the present position. It is my job in the Chair to ensure that our rules are upheld.

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

Further to the point of order, Mr. Deputy Speaker. The House is being asked to pass an illegal Act. The Government—thank God—with the other Governments, are to fight it through the Euro-court. If the Euro-court finds against us we can be forced to pay money. and the European Parliament will thus override the sovereignty of the House. How can that not be sub judice? How can we pay money—

Mr. Deputy Speaker

Order. The hon. Member is raising points which it would be perfectly legitimate to raise in the debate. I remind the House that the debate must finish at 7 o'clock. There are many hon. Members who wish to speak.

Mr. Nicholas Budgen (Wolverhampton, South-West)

Further to the point of order, Mr. Deputy Speaker. I wonder whether you would explain the sub judice rule further to the House, because there is a distinction between drawing attention to the fact that proceedings are taking place and commenting upon the substance of those proceedings. The hon. Member for Liverpool, Walton (Mr. Heffer) was merely pointing out that proceedings were under way. He was not offering an opinion on whether they were justified, but was simply saying that proceedings are taking place. The purpose of the sub judice rule is to prevent legal proceedings from being affected by what might be said in the House. The hon. Gentleman was not offering a comment on the legal proceedings. He was drawing an analogy, and to draw the analogy he pointed out their existence.

Mr. Deputy Speaker

One of the reasons for the sub judice rule is to ensure that cases are not prejudiced by anything that is said in the House. Drawing them into an argument could easily prejudice a case. That is why the House, in its wisdom, has had the rule for a great many years.

Mr. Hugh Dykes (Harrow, East)

On a point of order, Mr. Deputy Speaker. I apologise for coming in—[HON. MEMBERS: "No."]—on the point of order. I apologise also to my hon. Friend the Minister. Surely, Mr. Deputy Speaker, your ruling is bound to be right, because the case to which the hon. Member for Liverpool, Walton (Mr. Heffer) referred is a domestic case involving individuals. By implication, in raising that matter the hon. Gentleman is perhaps a little sympathetic towards those individuals. My hon. Friend the Minister is referring to an international case, where the debate technically revolves around the payment of a supplementary additional amount, rather than around the underlying arguments, although they will form part of the debate.

Mr. Deputy Speaker

I am grateful to the hon. Member for his comments. I hope that we can now continue with the debate.

Mr. Brooke

The two main issues are budget discipline and treaty violation.

On budget discipline, the Government first expressed their concern at the Council's "Second Reading" discussion on 26 and 27 November. On that occasion the Council voted by qualified majority to increase non-obligatory expenditure by some 1.2 billion ecu on payment appropriations. In the Government's view, it would have been compatible with the spirit of the budget discipline agreement to increase non-obligatory expenditure by some 1 billion ecu, comprising 440 million ecu permitted under the statutory maximum rate of increase for this expenditure plus some 550 million to 600 million ecu earmarked for Spain and Portugal in the first year of the enlarged Community. The 1.2 billion ecu voted by the Council somewhat exceeded this figure. The United Kingdom therefore voted against the Council's "Second Reading" budget as representing a threat to budget discipline. We did not, however, regard it as a flagrant violation. The non-obligatory expenditure totals exceeded budget discipline levels, strictly interpreted, but the excess was more than offset by the new own resources — net of refunds—which Spain and Portugal will be bringing to the budget.

Mr. David Heathcoat-Amory (Wells)

When we agreed to increase the level of our VAT contribution to the Community, it was pledged in return that we would get budget discipline. Is my hon. Friend saying that even if we win the case against the European Assembly the Council's "Second Reading" budget will still be in breach of those undertakings?

Mr. Brooke

I repeat that the non-obligatory expenditure totals exceeded budget discipline levels, strictly interpreted, but the excess was more than offset by the new own resources—net of refunds—which Spain and Portugal will be bringing to the budget.

At the December Budget Council the Council decided, with the United Kingdom again voting against, to offer a further 242 million ecu of non-obligatory expenditure in an attempt to reach agreement with the Parliament. The Parliament rejected the offer, which the President of the Council then withdrew, and took instead the regrettable step of voting and then adopting a budget providing for non-obligatory expenditure at a level 629 million ecu above the Council's "Second Reading".

The budget as adopted by the Parliament is clearly incompatible with the Council's budget discipline conclusions on non-obligatory expenditure. It does not follow that budget discipline as a whole lies in ruins. The single most important element in the budget discipline agreement is the guideline for expenditure on agricultural market support, and the budget as proposed by the Council and adopted by the Parliament respects that guideline. There is headroom of some 170 million ecu within it. The problem area is non-obligatory expenditure. That is where the Parliament's action, and to a lesser extent the Council's December offer, were manifestly incompatible with the budget discipline agreement.

The breach of budget discipline is a serious matter. To be fair, however, the Parliament has never subscribed to the Council's conclusions on budget discipline and is not legally bound by them. What is even more serious, therefore, is that the Parliament exceeded its powers by adopting a budget for 1986 with levels of non-obligatory expenditure going well beyond what was available under the treaty. The treaty provides that, if the statutory maximum rate of increase in non-obligatory expenditure is to be exceeded by more than the Parliament's statutory margin of manoeuvre, the Council and the Parliament must agree on a new maximum rate. In the event, the Parliament unilaterally adopted a budget which included a level of non-obligatory expenditure for which the Council's agreement had been neither sought nor obtained.

In the Government's view, the Parliament cannot be allowed to get away with this. If it were, there would, as my right hon. Friend the Member for Worthing (Mr. Higgins) has put it, be a substantial shift of real power in the Community. The balance of budgetary power between the Council and the Parliament would shift markedly in the Parliament's favour. The Parliament would be able to add substantial sums with impunity each year to the Council's proposals. These implications for future control of the Community's expenditure are even more serious than the amount of some 629 million ecu which is immediately at issue in the current year.

The Government have acted swiftly in response to the Parliament's action. We have taken three steps. First, we urged the Council to bring a case against the Parliament before the European Court under article 173 of the EEC treaty. This the Council agreed to do, by a seven to three majority, on 20 December — a bare day after confirmation of the decision by the President of the Parliament to adopt the budget. The Council's legal services are expected to deposit pleadings with the European Court in the middle of this month.

Secondly, we have ourselves initiated a case against the Parliament before the European Court, alongside the Council's case. Our application to the court was completed on 28 January and deposited on 29 January. The pleadings cannot be published, but have been made available to the Select Committee on the Treasury and Civil Service. Copies have also been placed in the Library of the House for Members' use.

The Government's decision to bring separate national proceedings alongside the council's case was influenced by three main considerations: first, the need to insure againt the slight risk that the Council's case might be found inadmissible because of the wording of the relevant treaty provisions; secondly, the need to insure against the risk that the majority in the Council in favour of the court action might at some stage be lost; and, thirdly, our ability to deploy in our own case legal arguments which we believe to be most compelling. Four other member states are likewise bringing national cases—France, Germany, Luxembourg and the Netherlands.

The substance of our case is that the Parliament acted unlawfully by adopting payment and commitment appropriations which failed to respect the maximum rate provisions of the treaty, and also by including unauthorised appropriations for certain items of obligatory expenditure over which the Council has the last word. We are asking the court accordingly to annul the 1986 budget as adopted in so far as it exceeds the Council's own "Second Reading" budget of 26 and 27 November.

Mr. Teddy Taylor (Southend, East)

My point concerns the action taken by the British Government, quite apart from the actions initiated by the Council and by other member states on the use of this money. Is there not a danger that the Commission will have spent the £18 million in this Supplementary Estimate before our interim measure comes before the court? Would not the best way of preventing the Commission from spending the money be for us not to pay the money? How will the Commission pay the money back if it has already spent it?

Mr. Brooke

My hon. Friend has put his finger on the point. We have announced that we will take that interim measure before the court. We are bringing the interim measure before the court for a number of reasons which are not simply associated with the immediate payments. We are concerned to place the application before the European Court. This is a novel action in the Community's history. We are concerned that the case should be considered at the earliest possibility. As I said to the Select Committee on the Treasury and Civil Service, if the Commission has spent the money when the court makes its decision on the final case, by definition, the money has been spent. However, a most important battle will have been won in terms of establishing the distribution of power between the Parliament and the Council. If, on any future occasion, Parliament sought to do the same thing, an interim application would immediately become admissible and be decided on the precedent of the previous case.

Mr. Marlow

Can my hon. Friend estimate how long the legal proceedings will take? How much money above the legal budget which my hon. Friend would support is likely to be spent in that time? If it is within the same financial year, why on earth can we not have the money back from the Commission?

Mr. Brooke

On the timing of the main court action, it is unlikely that we will obtain a judgment much before the end of the year, and it could be some time well into the next calendar year. On my hon. Friend's specific question, by definition the sum involved will be £72 million, contingent upon the relative exchange rate at the time.