HC Deb 11 July 1986 vol 101 cc613-21 11.32 am
The Minister of State, Treasury (Mr. Peter Brooke)

I am glad to have the opportunity to report to the House on this week's negotiations in Brussels and Strasbourg, which culminated in the adoption yesterday afternoon of a Community budget for 1986.

The Budget Council met in Brussels on 8 and 9 July and in Strasbourg on 10 and 11 July. I served as Chairman of the Council and my hon. Friend the Economic Secretary to the Treasury represented the United Kingdom at the 8 and 9 July meeting. The Council reached agreement with representatives of the European Parliament at 3 am yesterday, and the Parliament voted on the budget yesterday afternoon. With permission, Mr. Speaker, I shall arrange for the main figures to be published in the Official Report.

The starting point for this week's negotiations was the European Court's judgment on the 1986 budget delivered on 3 July; copies are being placed in the Library. This found that the Parliament exceeded its legal powers in seeking to adopt the budget last December, in the absence of agreement with the Council, and declared the 1986 budget process to be incomplete.

The Commission responded by putting forward an amending letter which consolidated the budget voted by the Parliament last December and the Commission's own preliminary draft supplementary and amending budget presented in May. Compared with the Council's second reading budget of last autumn, the proposals in the amending letter provided for an extra 915.3 mecu, or £569 million of agricultural guarantee expenditure, an extra 492 mecu, £306 million, for commitment appropriations and an extra 1,326 mecu, £824 million, payment appropriations for the structural funds and non-obligatory expenditure, together with an increase of 500 mecu, £312 million for the United Kingdom's abatement.

The outcome finally agreed between the Council and the Parliament provided for a further addition of 184.7 mecu, £115 million, agricultural guarantee expenditure, and a reduction of 399 mecu, £236 million, in commitment appropriations for the structural funds and other non-obligatory expenditure, including a special reserve for negative commitment appropriations, and a reduction of about 135 mecu, £85 million, in payment appropriations for the structural funds and other non-obligatory expenditure. On the revenue side, it incorporated a surplus of 49.2 mecu, £31 million, available from the 1985 budget.

I have to tell the House that the new budget uses up all the available revenue within the £1.4 per cent. ceiling, together with the surplus carried forward from 1985. Compared with the 1985 budget, the increase in agriculture guarantee expenditure is 10.8 per cent. and in non-obligatory expenditure is 14.54 per cent. for commitment appropriations and 39.18 per cent. for payment appropriations.

Throughout the week's discussions in the Budget Council the United Kingdom's representatives made clear their profound and continuing concern about levels of expenditure in the new budget, and the implications for budget discipline. They underlined the United Kingdom's strong preference for retaining a significant margin of unused resources within the 1.4 per cent. ceiling. At the same time, they accepted that the increase of 1,100 mecu, £683 million in agricultural guarantee expenditure, which involves exceeding the budgetary discipline guideline limit by some 925 mecu, £575 million, could be justified by the exceptional circumstance of the abnormally rapid depreciation of the dollar since the original 1986 budget figures were prepared.

In spite of all our concerns, the new budget has many positive features from the United Kingdom's point of view. First, the United Kingdom's VAT rate, which would have been 0.69 per cent. on the Council's November budget and 0.73 per cent. on the Parliament's December budget, has been reduced to under 0.68 per cent. Secondly, we expect to receive a substantial share of the extra provision for the structural funds—well in excess of our VAT share.

Thirdly, in consequence of these changes, we expect the United Kingdom's net contribution to the 1986 budget to be significantly lower than was implied by the Council's or the Parliament's budgets of last autumn. Fourthly, the Council has succeeded in cutting the growth of commitment appropriations proposed by the Parliament, thus improving markedly the ratio between commitment and payment appropriations.

Dr. Oonah McDonald (Thurrock)

First, may I thank you, Mr. Speaker, for allowing us extra time in which to study the statement which I received at 11.1 am. I received an amendment to the statement at 11.20 am.

Having examined the statement, I wish to thank the Minister for his clear statement that, during the negotiations this week, the Government caved in completely. They protested, and then agreed to the complete breaking of budgetary discipline. Why are the main figures not present in the statement? After all, the Minister was involved in the negotiations for hour after hour. He was allegedly the mediator who brought the whole matter to a conclusion. Does he not know what figures he agreed? Why can he not report all those figures properly to the House instead of this absurdity?

The statement says that the 1.4 per cent. limit will be completely used up by the budget, plus a surplus carried forward from 1985. What is that surplus? What will the Minister do, since the harvest has not yet occurred and we do not know what dollar fluctuations will take place during the rest of the year—[Interruption.] Of course, we cannot know that. What will he do if the budget overruns the 1.4 per cent. limit? Will he and the Government return to the House later this year and ask for yet more money?

Why have the Government agreed to this massive increase in agricultural spending, quadrupling the breach of the budget discipline? Is it not incorrect to say that all this is simply due to fluctuations in the dollar? Is it not also due to the fact that the Agricultural Ministers refused to reduce farm prices sufficiently?

The Minister said nothing about overseas aid, yet press reports suggest that this was cut by at least £40 million. Does he not think that he should come clean about the

The statement refers to an increase of almost 40 per cent. in payment appropriations. What exactly are these for? Are they payments from the regional and social funds? Is this an effort to deal with the burdens of the past which the President of the Court of Auditors said totalled £9 billion by the end of 1984? Who will benefit from that? Will Britain or other countries benefit from it? Perhaps the Minister will tell us a great deal more about that.

Will the Minister not tell us exactly what is meant by the negative reserve that is already being described by European parliamentarians as a black hole into which, presumably, more and more of our own money will vanish? Does not the Minister's whole performance show that, far from being a mediator, he is being taken for a ride by those in Europe who are much more sophisticated in dealing with EC jiggery-pokery than he is?

This budget is short-lived. It cannot possibly last out the rest of 1986. It will lead to another financial crisis in 1987. Was the Minister not aware of the bitter resentment of the member states towards our rebate and will he not confirm that that rebate is tied to the 1.4 per cent. limit? If the 1.4 per cent. limit is breached so long before 1988, our abatement will also have to be renegotiated. Is he not aware of the fact that hon. Members on both sides of the House bitterly resent the fact that more and more money is going into the EC budget, primarily to be spent on featherbedding the farmers and on creating yet more obscene and wasteful food mountains, instead of being spent here on important public spending on schools and hospitals, a matter about which the hon. Member for Southend. East (Mr. Taylor) complained in our debate yesterday evening?

Finally, is the Minister not aware that his behaviour at Brussels during the last week means that next year the incoming Labour Government will have to sort out the whole EC budgetary mess and make sure that we have a decent deal with Europe?

Mr. Brooke

The hon. Member for Thurrock (Dr. McDonald) made one comment and asked me 10 questions. Her comment was about the nature of the settlement that had been reached. The concern of everybody involved in this process during the past week has been to reach an agreement. Otherwise the Community would have been plunged into the regime of provisional twelfths, made worse by the fact that the base year upon which it would have been founded did not include Spain and Portugal. The only people to vote against the budget yesterday afternoon, and thus effectively in favour of the chaos that I have described, were the British Labour party and the Rainbow group.

To answer the hon. Lady's first question, I said that the main figures will be placed in the Official Report. There is a limit to how much data hon. Members can absorb in an oral statement. Secondly, the hon. Lady said that the 1.4 per cent. ceiling had been used up, together with the 1985 surplus, and she asked me about that surplus. The surplus is the audited and calculated surplus for the year 1984–85. That figure became available in June. Thus, it is possible for the Commission to make a statement about it at a meeting in early July.

As to the hon. Lady's question about the movement of agricultural expenditure and the pattern of the harvest, one of the reasons why the Budget Council, endorsed by the Parliament, increased agricultural expenditure by 185 mecu beyond the figure which the Commission had proposed was that in its figures the Commission had suggested that there was likely to be a required extra expenditure of 400 mecu which, in other circumstances, would have to be carried forward to a subsequent year. The Budget Council and the Parliament agreed that it was prudent to make an additional provision for the current year.

The hon. Lady asked me about budget discipline, in particular as it relates to agriculture. She implied that the behaviour of the dollar—I am surprised that she has not remarked upon the behaviour of the dollar in terms of the financial markets and its effect on agricultural prices—meant that this was yet another easy settlement for farmers. I do not know how many farmers the hon. Lady has in her Thurrock constituency but the farming community regard it, on the whole, as a tough settlement.

As to overseas aid, it is perfectly true that at an earlier stage in the proceedings this week the overseas aid figures were reduced by the Budget Council and that the Labour MEPs at Strasbourg referred to that. That figure has been restored in the final settlement. I am mildly surprised that the hon. Lady's Strasbourg colleagues had not let her know.

The hon. Lady's next question related to the increase in payment appropriations of nearly 40 per cent. She asked whether they were in the structural funds, to which the answer is yes. Other non-obligatory expenditure that is outside the structural funds is also included. The hon. Lady asked whether that expenditure related to past costs and who would benefit from it. The reason for the large increase in the payment appropriations is substantially because of the enlargement of the Community by the arrival of Spain and Portugal. I acknowledge that in these figures there is an element of past costs. The Commission has recommended that it is sensible to reduce the heavy overhang of commitments that is brought forward each year. As to who benefits, I said in my statement that the United Kingdom is likely to be a substantial beneficiary from that element in the change.

The hon. Lady also asked me about the negative reserve. I acknowledge that the negative reserve is an innovative device. The negative reserve entered the negotiations at around midnight on Wednesday night because the Parliament insisted that there should not be yet a further increase in commitment appropriations which did not have payments attached to them —exactly the issue that has given rise to the problem of past costs. However, the Budget Council said that it was impossible at that stage of the night, if it was to vote on the business the following day, for it to be able to determine what non-compulsory expenditure it should shift among that which lay within its competence so to do. This device was arranged so that it would have a slightly longer period in which to effect that switch.

The hon. Lady suggested that I had not served as a mediator. I do not know whether mediator is a term of abuse. All I know is that we secured an agreement between the Budget Council and the Parliament and that as a consequence the Community has not been plunged into the chaos of provisional twelfths.

The hon. Lady referred to bitter resentment in the House—this was the first of her "finallys"—and asked about the relationship of the 1.4 per cent. to the abatement. She has misunderstood the process. The relationship in the Fontainebleau agreement between the abatement and the 1.4 per cent. ceiling is favourable to the United Kingdom, in that the 1.4 per cent. ceiling cannot be negotiated without our agreement, in particular our agreement on any other abatement arrangements.

The hon. Lady's second "finally" related to featherbedding farmers, but I hope that I have already responded to that point. The hon. Lady's third "finally" referred to what, in the unlikely contingency of a Labour Government being returned to office, they would do. In all the years that a Labour Government had responsibility for these affairs they never negotiated a sure instrument such as the abatement that we now enjoy.

Several Hon. Members

rose—

Mr. Speaker

Order. I understand the concern about this matter, but I have to take into account the point of order of the hon. Member for Newham, North-West (Mr. Banks). I shall allow questions to continue until five past twelve, and then we must move on.

Sir Edward du Cann (Taunton)

To put matters into plain English, which we do not always use when talking about EC affairs, while congratulating my hon. Friend upon what is reported as his outstanding chairmanship, now that he is back in the United Kingdom will he take time to read yesterday's debates in which he will see that deep and sincere anxiety was expressed in all quarters of the House about the apparently careless and prompt way in which solemn assurances given to British Members of Parliament have been breached?

There is no budgetary discipline. Agriculture expenditure is out of control and the additional funds voted, which were supposed to last for many years, have run out in less than a year of the new budgetary discipline. Is my hon. Friend aware that if he had made that appalling statement yesterday, before our debate, it is likely that the budget proposals would not have been carried by the House, as they should not have been?

Finally, to use that word once, and once only, will my hon. Friend give us his word, which I would trust, that we shall have no further proposals for increased contributions to the European Community until such time as the promises already solemnly made to us are adhered to?

Mr. Brooke

I have already had the considerable pleasure of reading the account in Hansard of yesterday's debate, and it appears to have been a thoroughly vigorous occasion. My right hon. Friend said a number of things. The business of the House is no business of mine, but that of my right hon. Friend the Leader of the House and, were we to have a debate, I should look forward to it, because we would be able to go into these matters in rather more detail.

Technically, the business of the House yesterday related to Estimates rather than the budget, but I am sure that my right hon. Friend understands that position.

As to his final question, I have long been conscious of the hazards of absolutely definitive negatives. I remember somebody who once used the word "never" at the Dispatch Box. I respond to my right hon. Friend in the spirit of his question.

Sir Russell Johnston (Inverness, Nairn and Lochaber)

The Minister deserves congratulations on piloting through the adoption of the budget. Is not the attempt to portray every negotiation as a triumph for Britain unreal and counter-productive? Should not the concept of general Community interest, in which we share, be developed? In this connection, is he aware that it is strange that all the so-called positive features that he listed at the end of his statement seemed to be about the reduction of expenditure in job-creating areas? Is he aware that there is a need for a significant increase in expenditure in cost-productive sectors such as the structural funds, regional and social, research and development and overseas aid? Is he able to give us the figures, plus or minus, in regard to these funds?

Mr. Brooke

I am grateful to the hon. Member for his congratulations. Inevitably, one was asked elsewhere to comment in the margins of the meeting about the negotiations. I sought to convey that it has been a satisfactory conclusion in the sense that we have saved the Community from the chaos of a regime of provisional twelfths that would have been imposed for the next two or three months.

The hon. Member asked me about expenditure, not only in the structural funds but in other non-obligatory expenditure. I make it clear that any references to reduction of the non-obligatory expenditure that may have occurred earlier in the week were premature, as I said in my answer to the hon. Member for Thurrock (Dr. McDonald).

There were significant achievements in this budget. One was that other member states joined the United Kingdom in its belief that it was hazardous to push up commitment appropriations if we were not similarly providing resources with which to execute them. Another was that, as a result of conciliation, the Parliament also withdrew its request for further commitment appropriations in the structural funds.

Mr. Hugh Dykes (Harrow, East)

My hon. Friend deserves full congratulations on the striking achievement of the new budget agreement for 1986 within 10 days of the commencement of the British presidency. He chaired his meetings with success, combining proper control over the budget with the need to develop the Community budget in the future, not only in 1986. Should he not ignore the semi-hysteria and the whingeing and whining of the Official Opposition and some of our hon. Friends? Does it not result from their dislike of the foreigners involved in the Community budget process, their unwillingness to be full members of the Community and their failure to recognise that the Community budget is much more modest for most of the member states, whose total financial budget deficits are five or six times the size of the Community budget?

Mr. Brooke

I am grateful to my hon. Friend for his kind words.

Mr. Nigel Spearing (Newham, South)

The Minister referred to the sure instrument of the rebate, but does he not agree that now that it is hitting 1.4 per cent., under the Fontainebleau agreement, the Commission is obliged to review matters and Her Majesty's Government are committed to negotiations that could raise it to 1.6 per cent.? The Minister mentioned the breach of discipline. Of the figures that he gave, it appears that the breach is now by a multiple of four. If that is not correct, what are the figures? He said that the VAT take is reduced, but does he not agree that the actual amount of our VAT take that the Chancellor of the Exchequer has to send to Brussels is much higher? Is it not around 12 to 15 per cent. before the rebate? Will he give the figure that it is before the rebate for 1986?

When does he expect to lay in the Vote Office a full memorandum on all these matters? When he does so, will he make sure that it includes figures comparable to those of the sixth report of the Scrutiny Committee HC 78-vi of 1983–84?

Mr. Brooke

The hon. Gentleman asked me about the 1.4 per cent. ceiling and the negotiation of the rebate. I expressed confidence on behalf of the Government that 1.4 per cent. will be sufficient to maintain the needs and expenditure of the Community, but it is the case that the Commission has a responsibility to bring forward an exnovo review. It has said that it is likely to do that before the end of this year. That will be a matter for debate during 1987. I repeat that we cannot move from a 1.4 per cent. ceiling without the renegotiation of the United Kingdom abatement.

As to the hon. Gentleman's question about the VAT take, to use his phrase, I acknowledge that the amount that passes over before the abatement is higher. As to the question of comparable figures, we shall not manage to give them in the figures that go in the Official Report with the statement, but I shall do my best to make sure that they are made available.

Mr. Teddy Taylor (Southend, East)

Does my hon. Friend's statement not confirm the fears expressed last year that the budgetary restraint agreement is just a sick joke? Would not directors of a public company who used the money entrusted to them in such a profligate fashion be put in prison? Is it the policy of Her Majesty's Government that this year's extraordinary overspend should be clawed back next year, as provided for specifically in the so-called binding agreement of December 1984? How on earth do my hon. Friend and his colleagues expect to avoid a major crisis in the 1987 budget?

Mr. Brooke

I appreciate that there may be disagreement between the Government and some of my hon. Friends on the precise significance of the exceptional fall in the dollar on agricultural prices, but it is a common cause among the members states involved in these matters in Brussels and Strasbourg that it is an exceptional issue.

My hon. Friend correctly referred to the Fontainebleau agreement. The United Kingdom abatement and the sureness of that instrument are as important an element in that agreement as is the reference to budget discipline. That instrument has remained wholly firm.

While every pressure is exercised on my colleagues in the Council of Agriculture Ministers to reduce their expenditure to compensate for rises elsewhere in the budget, it would be unreasonable to expect that in 1987 we shall be able to claw back the considerable extra expenditure that has flowed out as a result of the performance of the dollar.

Mr. J. Enoch Powell (South Down)

Does the Minister of State recollect that at every stage in the process by which this House obtained control over taxation and thus over the government of the country it acted in excess of its then legal and constitutional powers? Is it not clear that, as was predictable and predicted, a directly elected assembly armed with the power to reject the budget and acting in collusion with the Commission will always be able to impose its will upon Her Majesty's Government and upon this House?

Mr. Brooke

The central issue in the court case that the Council of Ministers brought against the European Parliament for its actions last December was to establish beyond peradventure the principle that the Parliament could not exceed the powers available to it. I am delighted to say that in its judgment on July 3 the European Court of Justice entirely endorsed that view.

Mr. Nigel Forman (Carshalton and Wallington)

I congratulate my hon. Friend on his efforts overnight. Could he put an exact figure on the net contribution now compared to the budgets last autumn? Secondly, can he say why the situation is allowed to persist where there is a large discrepancy between the commitments made in the Community budget and the payments? Surely the time is long overdue to bring those two elements firmly into line?

Mr. Brooke

In answer to my hon. Friend's first question, I have to tell him that the reduction in the United Kingdom's net contribution between the budgets of last autumn and the budget approved by the European Parliament yesterday is of the order of £250 million. My hon. Friend asked about commitments and payments. As I think I said in answer to an earlier question, significant progress has been made this year in getting away from what I shall call the easy cosmetics of either Parliament or Ministers voting for increases in commitment appropriations without providing any of the resources to discharge them. As a consequence of that, we have unused commitments overhanging the budget from year to year. If hon. Members look at the figure presented this year, they will see that there has been a most satisfactory redressing of that balance.

Mr. Ron Leighton (Newham, North-East)

Will the Minister note that we are sick to death of this continual and increasing overspending in the EC? There is a lot of talk about financial discipline, but does he not realise that there is no financial discipline? There never was and any such formula as he had has completely collapsed. We have noted his weasel words in refusing to answer the question about whether he will come back for further money for the EC. He has also spoken about his so-called successes. We need successes like that like we need a hole in the head.

Mr. Brooke

I have to assume from the hon. Gentleman's last remark that he sides with the Members of the British Labour party who yesterday voted against that budget because they wished to see chaos in the affairs of the Community over the next three months.

Mr. Leighton

What have we got now?

Mr. Brooke

The hon. Gentleman's constituents may not be beneficiaries of some of the funds that flow from Brussels, but other hon. Members in the House would have seen that transfer of resources into their constituencies reduced if the Community had been put on a regime of provisional twelfths. I take the hon. Gentleman's point about overspending and draw to his attention the fact that my hon. Friend the Economic Secretary vividly made clear the Government's view that it would be much more desirable to have a margin in this budget below the 1.4 per cent. ceiling.

Mr. Richard Shepherd (Aldridge-Brownhills)

Is it not the principle of the Government that supply and demand should determine prices? How can we constantly accommodate increases in agricultural expenditure without reference to world circumstances and costs, especially bearing in mind that the common agricultural policy now puts a burden of £8 to £9 a week on every family in Britain? That is regressive taxation of the worst sort. Will the Government now refer the CAP to the European Court as being in breach of the original treaty of Rome in that it does not serve the interests of the consumer?

Mr. Brooke

That seems in the first instance to be more precisely a question for my right hon. Friend the Minister of Agriculture, Fisheries and Food.

Mr. Nicholas Budgen (Wolverhampton, South-West)

Is it true that the representatives of the other nation states are expressing increasing resentment at the prospect of the continuance of our abatement? Can my hon. Friend reassure the House that our abatement will continue for at least as long as the system of budgetary control?

Mr. Brooke

I can assure my hon. Friend that during the fairly prolonged deliberations in which I participated in Brussels and Strasbourg, except at the level of what I shall describe as marginal joviality, there was no suggestion by any of the member states, or indeed by the European Parliament, that our abatement should be interfered with.

Following are the figures:

1986 Community budget as adopted on 10 July: Main figures
Commitment appropriations Payment appropriations
mecu £ million mecu £ million
Expenditure
Agricultural guarantee 22,112 13,738 22,112 13,738
Agricultural guidance 884 549 785 488
Regional development fund 3,098 1,925 2,373 1,474
Social fund 2,290 1,423 2,533 1,574
Other non-obligatory 3,716 2,309 3,354 2,084
Other obligatory 2,146 1,333 2,211 1,374
Restitutions to Spain and Portugal 1,806 1,122 1,806 1,122
Total 36,052 22,398 35,174 21,853
Non-obligatory expenditure
Total non-obligatory expenditure 9,500 5,902 8,536 5,303
Rates of increase on 1985 (maximum rate) 14.54 per cent. 39.18 per cent.
Mecu £ million
Revenue and United Kingdom abatement
Headroom within 1.4 per cent. VAT ceiling 0.63 0.39
United Kingdom's Fontainebleau abatement 1,900 1,180
VAT rates (per cent.):
Member states other than Germany and United Kingdom 1.39996
Germany 1.33697
United Kingdom 0.67663
Uniform 1.2505

Notes:

1. £ figures have been calculated by converting ecu figures at the 1986 budget exchange rate of 1.6096 ecu to the £.

2. Because of rounding, component lines do not necessarily sum to totals.