HC Deb 25 July 1986 vol 102 cc871-6 11.25 am
Mr. Nicholas Baker (Dorset, North)

I am glad to have this opportunity to conduct this important debate, and am pleased that so many of my colleagues want to stay to hear it. Indeed, if the hon. Member for Newham, South (Mr. Spearing) leaves as well, there will be no Labour Member present to hear it. No, I am mistaken, there are two Labour Members present, and I am grateful to them for that. This subject is important. The previous Adjournment debate was raised by the hon. Member for Linlithgow (Mr. Dalyell)—an extreme pessimist who looks very much at the past. I am an optimist and I prefer to look to the future, and particularly to the EEC's agriculture policy. However, I must say that I see there the same sort of Scotch mist and gloom as the hon. Member for Linlithgow saw elsewhere. Trying to reorganise the EEC's agriculture policy is like working in a shadowy dream world, where our limbs are ineffective.

Our debates in the House need to be directed not just at our own Ministers but, rather, at the Ministers of our Common Market partners. The CAP system was not designed for Britain. The circumstances that it was arranged for have changed. French agriculture has been dramatically modernised. German agriculture and its social needs have been protected. Europe is now producing large surpluses, and reform of the system is urgently needed. However, I do not see the necessary European political will to change that system. Perhaps that is why I seem to share in the sort of gloom spread by the hon. Member for Linlithgow.

My right hon. Friend the Minister of Agriculture, Fisheries and Food has received a grossly unfair share of personal criticism during the past year or two. I do not believe that the institutions involved with agriculture fully understand the need to work together and to direct our shots at the EEC. The co-responsibility levy for cereals increases my pessimism. That levy will not reduce overproduction or improve the efficiency of our agriculture. It may raise revenue for the EEC Commission, but it should not have been accepted, and I very much regret its introduction. Its introduction came about in an unfortunate way. I am told that the Commission had the documents and plans ready for this scheme in January and that, as our Ministers have told us, our Government resisted such a levy until the last possible moment. It was introduced by a statutory instrument that was laid on 15 July, no fewer than 15 days after the levy came into effect. For that reason our industry has not been able to prepare and there has been no advance warning to the trades related to agriculture.

I represent one of the largest concentrations of dairy farmers in Britain and I recollect with some sorrow the introduction of milk quotas. In most cases the quotas have settled down remarkably well, but the way in which they were introduced made it difficult to get a system that was fair, fully understood and capable of working in an equitable way. I am sorry to say that I see the same pattern in the introduction of this levy.

Surely the Ministers who run the Common Market must want to run it and to affect the businesses in their countries better than this. What is the purpose of this levy? We were told originally by the Commission and the Government that it would be a way to tax surplus cereal production and to reduce prices for the benefit of cereal consumers. A levy of £3.30 per tonne will not do that. Tax will be raised by the processor and in the end it will probably be paid by the consumer. I shall come back to that in a moment. I do not think that there will be a reduction of cereal prices that will benefit cereal consumers.

If it will not achieve that, perhaps it is designed to reduce cereal production. As I have said, that is a proper objective but I do not think that it will happen as a result of this levy. It may even encourage an increase in cereal production. It will be a petty annoyance and be too small to have any great effect upon production. If that was the aim, it would have to be achieved through the price reduction mechanism and by a really savage act. Cereal growers would have to be influenced when they made their plans before planting their corn, that is to say in the long-term rather than at the last minute. The levy would provide some revenue for the Commission but I am not persuaded that for that reason alone it is a good idea.

Let us look at the effect upon farming. We are told that this levy should cut prices for farmers who produce grain but it will not necessarily do that. More likely, it will be passed on as a price increase to the consumer, especially the livestock farmer, who will have to bear the brunt of this tax. I looked at the price of grain the other day and noted that it had already increased, taking into account the tax that has now been introduced.

The levy will have a detrimental effect upon the small and medium-sized family farm producing pigs and poultry. Such farms will be hit quite hard and, if they can, they will turn to cereal substitutes. The burden of cereal surpluses will again be shifted, but will not be dealt with on an EEC basis. Either way, I do not envisage any cut in production arising from the levy. It discriminates against those who are able to process cereals and those who buy in feed for livestock. Farmers who have to do that will suffer serious discrimination.

I shall turn now to look at the effect upon the grain trade. Integrated grain users who produce, process and use grain on their own farms will be exempt from the levy, provided that their farms are within a radius of 15 miles. Outside that radius all grain processed will be subject to the levy. That discriminates against the compound feed industry, as the people who work in that industry will lose turnover as more milling takes place on farms. I see no result other than an increase in the amount of grain used by producers themselves and this will create great distortions in the grain trade.

If there were other justifications for this levy it might be necessary for an industry to have to adjust to distortions, but to have it imposed in this sudden, arbitrary way is unfair. Perhaps when she is replying to the debate my hon. Friend the Parliamentary Secretary to the Ministry of Agriculture, Fisheries and Food will tell us her expectations about the effect of the levy and about the revenue that it is likely to produce for the Commission. I and many people affected by this levy fear that the amount it will produce will be much lower than expected, and that next year that will result in an application for an increase in the levy.

Grain merchants do not wish to become tax collectors and are rightly concerned about the administrative burden they will have to bear. For them, this is yet another tax. I know that my hon. Friend and her Ministry are conducting discussions with the grain trade. Perhaps she can tell us the latest state of those discussions and how far her Ministry will be able to reduce the administrative burden that merchants will have to bear.

The exemption of mobile mill and mix companies which travel around mixing grain for farmers is considerable. Some of these companies are very big and this large exemption will considerably distort the trade. I hope that my hon. Friend will bear that in mind. I also fear that the small processor will come under yet another pressure because this exemption will encourage the growth of giant companies which may grow even more, eat up the smaller processors, and regain an increasingly dominant position in the market.

As I have said, the statutory instrument laid last week covers the introduction of this levy. It contains extremely tough powers relating to the production of documents and wide powers concerning entry into premises. I am sure that my hon. Friend will say that it is necessary to have such powers to police the levy to ensure that it is fairly and properly extracted. The powers are similar to those given to VAT inspectors, and I regret that it should be necessary to take further powers of this kind. There are still considerable opportunities for fraud and for ways around the rules that have been introduced. It is extremely hard to assess what a pile of grain lying in a farmer's yard or grain bin represents. What will it cost to police this system? Does my hon. Friend have in her Ministry sufficient experts to do the job?

I see nothing responsible about this levy. It will not attack the basic problem of overproduction of grain within the EEC and I know that my right hon. Friend the Minister is concerned about the prospect of about 80 million tonnes of grain in intervention stores by 1991. That prospect still faces us and is not diminished by the introduction of this levy. It is a tax mainly upon the livestock producers, and it will hit the small family farms rather than the large ones. It has been introduced at the request of the Commission. I regret that we did not have the opportunity to discuss it and prepare the industry for it.

I conclude as I began—I do not believe that the levy is necessary. I hope that my hon. Friend will reconsider the matter and do what she can to reduce the impact. I hope that she will answer some of the points that I have put to her today.

11.40 am
The Parliamentary Secretary to the Ministry of Agriculture, Fisheries and Food (Mrs. Peggy Fenner)

I am grateful to my hon. Friend the Member for Dorset, North (Mr. Baker) for giving us the opportunity for a further discussion about the cereals co-responsibility levy this morning. No one would deny that the levy is a major new factor affecting the operation of the cereals market, and it deserves our most careful consideration.

The levy will require changes in trading practices and, inevitably, there will be a period of uncertainty before it fits into the trading routine. I pay tribute to the good will and co-operation that we have received from trade organisations in dealing with this subject. We have striven to keep them informed of the twists and turns in the negotiations, while they have made sure that we understand the practicalities of the levy implementation so that we can operate a feasible system.

I emphasise that none of us in this House favoured the introduction of a levy on cereals. Although it has a similar effect to a price cut on the producer, it does not have the same advantage to consumers as a price cut across the board. But in the negotiations in the Council of Ministers, my right hon. Friend had to recognise the importance attached by so many other member states to the levy. It would clearly form part of the price-fixing package which, in other respects, was consistent with our aim of bringing the market into better balance. In those circumstances, our best course was not to remain inflexibly opposed to the concept, but rather to try to change the proposal so that it was less discriminatory against the United Kingdom. That we did. The exemption from levy for sales up to 25 tonnes, which would have discriminated against the United Kingdom, was dropped and the application of the levy to all sales into intervention meant that it had much more the effect of a direct price cut, which would have been our preferred method. Instead of the United Kingdom having to contribute a greater proportion of levy revenue than other member states—as would have been the case under the original proposal—we now estimate we will pay levy on about three-quarters of our production, which is the same proportion that the Commission expects for the Community as a whole.

Some may, of course, doubt whether other member states will enforce levy collection and contribute as they are meant to do. But as a significant proportion of the levy will be collected on sales into intervention and on export, which are already subject to official controls, and as any member state not collecting the levy will be subject to disallowance, I do not think that is a point that should be over-emphasised. We will make sure through the Commission that we receive data on levy collection in other member states. We are confident that we will be able to ensure that it is collected in the United Kingdom.

There have been many complaints — and my right hon. Friend raised it today—about the confusion caused to the trade by the delay in reaching agreement on the implementing regulations. We regret these delays very much, but to some extent they are unavoidable when 12 member states have to agree. We did press hard for early finalisation of the rules and only when the Commission rules were finalised at the end of June were we able to draft our own statutory instrument, which we then did as quickly as possible in order to lay it before the House well before the end of the Session. Throughout the period of uncertainty we kept in close contact with the trade organisations involved.

I cannot pretend that all the delays and uncertainties are now over. Clearly a scheme like this will, I am afraid, throw up problems for some time to come. Only yesterday in Brussels a series of changes was adopted to the regulations that were agreed so arduously at the end of June. These measures will not require any change in the way in which the levy is to be applied in the United Kingdom. In fact, they bring the Community rules closely into line with the guidance that we issued last week to clarify uncertainties surrounding who would be exempt from the levy. I, my colleagues, and officials in the Department and in the intervention board will continue to work to solve any remaining problems, to the benefit of those affected, just as quickly as we can.

I appreciate that, whatever guidelines are drawn up, there will inevitably continue to be complaints about distortion. It would be impossible to avoid some degree of discrimination unless the levy were applied to all production or to all cereals acreage. That was clearly not negotiable. In its present form the levy is bound to discriminate between those able to process cereals on their farms and those who rely on bought-in feeds. It is also bound to discriminate against the compound feed industry because it encourages more milling on farms. But our aim has been to minimise this discrimination and the arrangements now adopted mean that all grain processed for sale will be treated in exactly the same way and that the exemption of on-farm use is on a logical and reasonably clear basis.

I am not surprised that the practicalities of the current scheme have been questioned on the issue of passing on the levy to the producer, while collecting it from the processor. This is certainly a thorny problem, because, particularly when feed grain is sold off the farm, it will not be known whether its use will ultimately be subject to levy. It is a problem that we have talked through at length with the trade and with farmers. Clearly there are a number of ways in which the requirement that the levy should be passed back to the producer could be fulfilled, but that is largely a matter of presentation rather than economics. The key to the economic impact of the levy is that it is collected on all sales into intervention. As the market for grain is supported by the intervention price, this means that the market price of all feed grain will fall, regardless of its use. There is no reason why one processor should be prepared to pay more for his grain than another just because he is exempt from the levy. The benefit of exemption from the levy therefore accrues to the use of the grain, and the only way of passing that benefit back to the cereal producer would be by making the user pay more. As well as posing enormous administrative problems, that seems wrong in principle and inconsistent with the intention of the Council when it agreed to impose the levy.

While I do not want to minimise the traders' worries, I must stress that this is a matter of how the documents relating to transactions in grain are presented, rather than a real economic problem. It seems to me that such a problem is best handled by farmers and traders themselves, and that this is something with which the Government should not become involved.

My hon. Friend made a particular point about the small farmer. The United Kingdom receives more than 5 million ecus out of the 120 million ecus that the EEC gives to small farmers—and that is basically with a national flexibility as to the definition.

My hon. Friend also asked what would be the estimated income levy. The EC estimates that it will be about 650 million ecu or about £400 million in a full year. That is in the EC, but the yield in the United Kingdom depends on the harvest. My hon. Friend expressed concern about administrative costs. Like any other provision which affects trade in CAP commodities, administrative costs will have to be absorbed in trading costs. My hon. Friend also asked about mobile mill and mix units. Those will be exempt so long as the equipment is rented by the farmer using them. If they were not exempt there would be discrimination between those farmers big enough to operate their own equipment and those who cannot afford to operate their own equipment.

I assure my hon. Friend that we shall continue to monitor the operation of the levy closely from all points of view. We shall do our best to ensure that any new problems are sorted out as quickly as possible and we shall go on when the House is no longer sitting and I hope that when the House returns it will find that the grain market has adjusted fully to this levy placed upon it.