European Community Budgets

HC Deb 24 November 1986 vol 106 cc69-112

7.3 pm

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

I beg to move, That this House takes note of European Community Documents Nos. 5484/86, key figures for the 1987 Budget; 7113/86, Preliminary Draft Supplementary and Amending Budget No. 1 for 1986; 7068/86, updated key figures for the 1987 Budget; 7927/86, Preliminary Draft Budget for 1987; 9192/86, Draft Budget of the European Communities for 1987; 8877/86, Letter of Amendment No. 1 to the Preliminary Draft Budget of the European Communities for 1987; COM (86)360, Letter of Amendment to the 1986 Budget; 8876/86, Preliminary Draft Amending Budget No. 1 for 1986; 8883/86 and Addendum 1, Commission Communication on recent developments affecting the 1986 Budget and 1987 Preliminary Draft Budget; and supports the Government's efforts to achieve tighter restraint and better balance in the Community's Budget.

Mr. Deputy Speaker (Mr. Ernest Armstrong)

I have to announce that Mr. Speaker has selected the amendment standing in the name of the Leader of the Opposition.

Mr. Brooke

The motion before the House list nine sets of documents relating to the European Community budget procedure which the Scrutiny Committee has recommended for debate. These documents relate to the annual budget procedures for 1986 and 1987. For the convenience of the House I propose to summarise the budget procedure over the past nine months, placing each of these documents in context, before commenting briefly on the current position in the 1987 budget procedure.

I should like to begin by offering warm thanks to the Scrutiny Committee, under the chairmanship of the hon. Member for Newham, South (Mr. Spearing), for its sterling work on these and very many other documents. The Government are conscious of the need to safeguard the interests of the House in these matters, and supports the Scrutiny Committee in its vital watchdog role. I had myself the pleasure of giving evidence to the Scrutiny Committee on the Community budget procedure recently, as background to this evening's debate.

The House will recall that the 1986 budget procedure was interrupted by the European Parliament's adoption of a disputed budget in December of last year. Following this, the Council of Ministers decided to commence legal proceedings against the European Parliament before the European Court of Justice. Simultaneously, the United Kingdom brought an action for interim measures suspending implementation by the Commission of the disputed elements in the 1986 budget until the court had given substantive judgment. On 17 March, the court accepted the United Kingdom application for such measures and ordered the Commission to implement the budget on the basis of the draft established by the Council on 27 November. The court also ordered the Commission to refund the £18 million which the United Kingdom had already contributed on a "without prejudice" basis towards the disputed part of the budget.

In the autumn of last year, the Council had asked the Commission to consider further the question of commitments outstanding which had yet to be paid—the so-called "cost of the past" problem. In April of this year, the Commission produced a report relating to the level of outstanding commitments in the structural funds—notably the regional and the social funds. On the basis of this report, and of the need for additional agricultural expenditure due to the sharp and sudden fall in the value of the dollar against the European currencies, the Commission brought forward on 20 May a draft supplementary and amending 1986 budget—that is, EM 7113/86—which proposed additional increases of 1,811 mecu in payment appropriations, and 1,146 mecu in commitment appropriations.

In line with an agreement reached at the October 1985 ECOFIN Council, the draft budget also included an increase of some 500 mecu in the United Kingdom abatement for 1986. Although the 1986 budget dispute was not yet resolved, the 1987 budget procedure began in parallel.

Mr. Teddy Taylor (Southend, East)

Do the Government believe that the fall in the value of the dollar necessarily involved a staggering increase in EEC expenditure? If so, why did the price of some of the foodstuffs not covered by the CAP, such as coffee, bananas and pepper, rise despite the collapse in the value of the dollar? Does my hon. Friend the Minister have any evidence to show that the fall in the value of the dollar was directly responsible for the sharp increase in Common Market spending?

Mr. Brooke

The Government accepted that there was an exceptional circumstance as a result of the fall in the dollar, and had to apply their attention to the overall impact of that fall in the value of the dollar. The products that my hon. Friend mentioned are not natural exports for the Community. The Community could not really be said to be part of a banana regime, and coffee and pepper cannot be regarded as sensitivities.

In April, the Commission produced a document giving key figures for the 1987 budget—EM 5484/86—and its subsequent revision—EM 7068/86. These gave the broad lines of the Commission's spending plans for 1987. They were superseded in June by publication of the preliminary draft budget for 1987—EM 7927/86. These showed that the Commission proposed a 1987 budget just within the 1.4 per cent. VAT ceiling, in which the agricultural guideline was respected but non-obligatory expenditure rose by more than the maximum rate of increase of 8.1 per cent.

The start of the United Kingdom presidency in July of this year saw the Community still without a 1986 budget at the beginning of the 1987 budget procedure. The European Court gave its substantive judgment in the 1986 budget dispute on 3 July. It found that the European Parliament had exceeded its powers in adopting a budget for 1986 with provision for non-obligatory expenditure and a new maximum rate at the level which the Council had not agreed. The court ruled that the 1986 budget procedure remained incomplete and should therefore be completed in accordance with the treaty.

As president, the United Kingdom called a Budget Council for 7 and 8 July to agree a new Community budget for 1986. On 10 July, following three clays of intensive negotiations, the Council and Parliament reached agreement on a new budget for 1986. Although this is not technically a depositable document, full details of the 1986 budget are contained in the White Paper statement on the 1986 Community budget, Cmnd 9907, published on 3 October.

The 1986 budget, as adopted in July, was some 7.6 per cent. larger overall than the Council's second reading budget of November last year. This involved an excess over the original 1986 agricultural guideline of 926 mecu. The United Kingdom Government regretted that increase, but took the view that it could be justified given the exceptional size and speed of the depreciation of the dollar over the period. That covers the point raised by my hon. Friend the Member for Southend, East (Mr. Taylor).

Mr. Tony Marlow (Northampton, North)

The budgets and budget discipline seem to have been accident-prone over the past year or so. Will my hon. Friend give a commitment to the House that in the 1987 budget the Government will not agree, in realistic terms, to a budget which without—or even with—creative accounting would go above the 1.4 per cent. VAT limit? Will he further give a commitment that this Government will never agree to an increase in the 1.4 per cent. VAT ceiling?

Mr. Brooke

The 1.4 per cent. ceiling is recognised by all parties to the budget process. My hon. Friend was tempting me with questions that might relate to the movement of future exchange rates. I remind him of the definition given in legal dictionaries of an act of God as being an act which no reasonable man would expect God to commit. We will clearly have to wait and see what happens.

Non-obligatory spending was increased by a further 16 per cent. compared with the November totals. The purpose of this increase was to cover the so-called "cost of the past"—commitments entered into in the structural funds but yet to be paid off—while monitoring the flow of new payments to the Ten as well as Spain and Portugal. We continue to believe that this problem could have been dealt with in less costly ways.

The Council met again on 22 July to consider the Commission's proposals for 1987. It proved unable to reach agreement by the necessary majority on that occasion, and reconvened on 8 September in Brussels.

During the intervening period, the Commission produced a communication on recent developments affecting the 1986 budget and preliminary draft 1987 budget—EM 8883/86. This document stated that the Community's revenue estimates from customs duties and agricultural levies for 1986 seemed likely to be over-optimistic and that there could be a revenue deficit of some 776 mecu, which the Commission proposed to offset by changes in agricultural and non-obligatory expenditure. Shortly, before the 8 September Council, the Commission produced formal proposals along those lines in its preliminary draft amending budget No. 1 for 1986—EM 8876/86. It also produced a letter of amendment to the peliminary draft budget for 1987—EM 8877/86—which incorporated certain small changes to the 1987 preliminary draft budget. These had been suggested informally by the Commission in July and their overall effect was slightly to reduce expenditure.

At the Budget Council on 8 September, the United Kingdom argued in favour of amending the 1986 budget to take account of the prospective revenue shortfall. But the Council decided against that. Part of the problem was that the Commission had not circulated its latest estimates until shortly before the Council meeting. The Council urged the Commission instead to take all possible measures to ensure that expenditure was reduced in an equitable way in order to maintain a balanced budget while taking account of the Community's obligations and avoiding the slippage of expenditure into 1987. The Council also noted that the Commission would provide more precise data on revenue and expenditure later in 1986.

On 1987, as well as establishing a draft budget EM 9192/86 the Council noted that the United Kingdom abatement would have to be increased by some 350 mecu owing to revenue adjustments and undertook that, to the extent that it was not possible to provide fully for this additional abatement in the 1987 budget, provisions would be made for it in the 1988 draft budget, due to be considered by the Council next summer. The Council is thus committed to providing this additional abatement somewhat earlier than is strictly required under the agreed procedures.

The draft 1987 budget, as established by the Council on 8–9 September, was fully in accordance with budget discipline. The 1987 agricultural guideline was respected, and non-obligatory expenditure was increased by half the maximum rate of 8.1 per cent. for payment appropriations and by rather less than that for commitment appropriations.

However, the Commission has warned of the risk of a substantial overrun in agricultural guarantee expenditure next year if the necessary preventive action is not taken. At the instigation of the United Kingdom, the October ECOFIN meeting discussed Community spending on agriculture. There was general agreement in the Council on the urgency and seriousness of the situation. The presidency conclusions, which received general though not universal support, stressed the need for policy decisions which allowed support prices to reflect more closely market conditions, returned the intervention system to its intended role as a safety net for times of particular pressure and not as a standard alternative marketing outlet, and ensured that price support policies were more flexibly operated so that commercial risks are not entirely borne by public finance. We intend to maintain the pressure for reform over the coming months.

Mr. Eric Deakins (Walthamstow)

In relation to the Minister's points about ECOFIN, he will recall his written answer recently to my question about the reservations expressed by the Greek, Danish and German delegations. Those reservations cannot be brushed aside, because they are quite serious. The delegations maintained that agricultural policy had to take account of political and social aspects. I believe that the Greek delegation hoped that the money would be found almost regardless of the budget circumstances. Does the Minister agree that that is serious?

Mr. Brooke

I said that the presidential conclusions of ECOFIN enjoyed widespread support within the Council. That is an accurate statement. I would have been inaccurate had I not included a reference to certain reservations among individual countries. Those reservations were just as the hon. Gentleman reported.

The European Parliament has now proposed amendments and draft modifications to the 1987 draft budget in accordance with its role in the Community budget procedure. These were voted by the Parliament's plenary session in Strasbourg on Thursday of the week before last. When the Parliament's formal proposals are received, they will of course be deposited in the House in the usual way. It may, however, be helpful if in the meantime I summarise them for the House.

The Parliament has proposed an increase in non-obligatory payment appropriations, compared with the Council's draft budget proposals, of some 520 mecu, some 170 mecu above the half maximum rate limit laid down by the treaty. The Parliament has also proposed a much larger increase, again compared with the Council's draft budget proposals, in non-obligatory commitment appropriations of some 1,020 mecu. On agriculture, too, the Parliament has proposed some substantial modifications including a reduction in dairy quotas, an increase in stock depreciation and a special fund to pay for the disposal of stocks. The Parliament's proposals will be considered by the Council at its meeting on 26 November, which I will chair, and where the United Kingdom will be represented by my hon. Friend the Economic Secretary to the Treasury.

We are only halfway through the budget procedure for 1987. The Budget Council meets again on 26–27 November and the European Parliament has its second reading debate during the second week of December. We have considerable problems on the 1986 budget, due to the prospective revenue shortfall, and on the 1987 budget, in particular the substantial overrun of CAP expenditure. The negotiations that lie ahead are likely to be time-consuming and difficult, but a good start has been made and I have pleasure in commending the motion to the House.

7.19 pm

Dr. Oonagh McDonald (Thurrock)

I beg to move, to leave out from first "Budget" to the end of the Question and to add instead thereof: 'and views with concern the increase of 39 per cent. in payment appropriations, the 10.8 per cent. increase in agricultural spending, and the increased shortfall in 1986; notes that the 1986 Budget exhausted the Communities' own resources income from the 1.4 per cent. value-added tax base, and that there is only 665 million ecu headroom in the 1987 Budget; and consequently calls on Her Majesty's Government to restrict the expenditure of the Community in 1987 to sources of income already approved by this House.'. I am not surprised, I must say, at the—

Mr. Brooke

If the hon. Lady looks at the Order Paper, she will see that, perhaps by a typographical error, some crucial words have been omitted. Since I should not want the Opposition to mislead the House, it may be desirable to put them in by manuscript amendment.

Dr. McDonald

I have read the amendment that was submitted, and it is the same wording.

Mr. Brooke

I shall explain what I meant by my earlier intervention. The 39 per cent. in payment appropriations, to which the hon. Lady referred, is in non-obligatory expenditure. It will help the House if that is clearly identified.

Dr. McDonald

I should have thought that the reference to payment appropriations is clear enough. I am sorry if that is the Minister's objection.

I am not surprised that the Minister stopped his comments when he did. Of course, he knows full well that there are enormous problems ahead with the 1987 budget. I shall begin with the 1986 budget. I am glad that the Minister has reminded the House of what, at times, became the farce of the progress of the 1986 budget through Parliament, the Council, the EC Commission and, finally, the European Court. When the budget finally emerged on 11 July 1986, the Minister said: the new budget uses up all the available revenue within the 1.4 per cent. ceiling, together with the surplus carried forward from 1985. He went on to spell out the various alterations that were made and commented: 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."—[Official Report, 11 July 1986; Vol. 101, c. 613.] At that stage in 1986, the Minister was already concerned about the nature of the 1986 budget. Since then, we have a revenue shortfall of 776 million ecu—approximately £450 million to £500 million—which the Commission document of 25 August states could have serious implications for the resources available in 1987. Already, the 1986 budget is running into difficulties, and they will carry over into 1987. In his opening remarks, the Minister referred to the ECOFIN meeting of 13 October and to the British document, which he declared received widespread support. That document suggested that Community support prices will more closely reflect supply and demand and market conditions. But the intervention system will be regarded as a safety net rather than an alternative market. Price support policies will involve commercial risks rather than be borne entirely by public finance.

When the Minister referred to the main items in the British document, he no doubt noticed that some mirth was expressed by hon. Members. I am not surprised that the document commanded widespread support. If he had announced that he was in favour of motherhood and apple pie, the document would have received widespread support. It was just a lot of pious waffle. There is no likelihood whatsoever of any item being adopted by the Community in the near future. We all agree with the sentiment that support prices should reflect market conditions, because otherwise the intervention system will be regarded as a safety net rather than an alternative market, but the chances of that happening in the present state of the EC are remote.

The Minister went on to refer to the 1987 budget, which we can at best describe as a stop-gap budget. Of course, the Minister has received much praise in the press for the way in which the negotiations have been conducted, but some of that praise was properly qualified. For example, an article in the 10 September edition of The Times, praised the Minister for his tactical success, but it went on to comment on the Minister securing majority agreement on a draft Budget for 1987 and managing to have the crisis on this year's budget put on one side. That crisis will certainly not be put on one side for long, for in those discussions, many of the warnings that had already been given by Commissioners had been ignored. For example, the Commission President, Jaques Delors, warned EC Finance Ministers on 17 October, as reported by Agra Europe, that the 12 were facing a shortfall of 3 billion ecu in 1987. They talked about the rising cost of agricultural spending as the main reason for the expected shortfall. For example, another of the Commissioners, Andriessen, produced figures to show that, on cereals alone, expenditure would have to rise by 1.5 billion ecu above the originally planned level because of the fall in value of the United States dollar. He also warned that continuing requests from member states for green currency devaluations were contributing further to the increase in expenditure.

Commissioner Christopherson told the Ministers that if the USSR were to ask to buy 1 million tonnes of butter from the Community, the EC could not afford to sell it to them—not 1 million tonnes, perhaps, but we have managed to afford to sell some of it to Russia—once again, quite rightly, incurring the wrath of all hon. Members and also, no doubt, upsetting many citizens throughout the Community, who cannot understand why they have to pay through the nose for butter when Russians get it on the cheap.

That is only part, of course, of the crisis faced by the European Community. Here is another part of the crisis which, it appears, the Government are belatedly recognising. We have 1.5 million tonnes of surplus butter, over 1 million tonnes of surplus milk powder and 16.5 million tonnes of surplus cereals. The costs of storage continue to rocket. Total surplus food is valued, in the EC's books, at £7.5 billion to £8 billion, but of course there is no possibility of it ever being sold on world markets at its true price. At the moment, the Commission estimates its value at about half its book value. That is about £4 billion.

Already, there are great losses in that surplus stock, together with the continuing obscenity of those surpluses remaining in storage. Food is continuing to waste while poor people throughout the Community find it difficult to pay for some of this stock, and while many in the Third world continue to starve. It is an obscenity. It continues and it will create a crisis in the Community. Yet, as The Times today comments, not on the front page but on an inside page: near the end of a six months' tenure of the presidency of the EEC Agricultural Council we have little to show for this opportunity to carry out any sort of reform.

It is not surprising that that is the assessment. The shortfall in 1986 is likely to be carried over into 1987, thus throwing the 1987 budget out of line. We said that specifically in our references in the amendment to the shortfall in the 1986 budget and the small headroom in the 1987 budget, to show that, no matter what else happens, for that reason alone the 1987 budget is likely to overrun.

Mr. Nigel Spearing (Newham, South)

Did my hon. Friend notice that, when the Minister, in a rather brief introduction, mentioned the November meetings, he referred to the carry-over of the 1986 shortfall into 1987, which the Council may take up instead of blaming the Commission, but did not tell us whether, if that shortfall is added to the 1987 budget together with the amount the Assembly added, we shall still be within the 1.4 per cent. ceiling? It might be useful if the Minister were to make that point. Perhaps it will not be within the ceiling.

Dr. McDonald

I thank my hon. Friend. We have clearly said that the 1987 budget looks likely to overrun.

The Minister referred briefly to another feature of the 1987 budget—the possibility of further changes in the dollar-ecu rate. He mentioned that such changes could be regarded as an act of God. I thought that the Chancellor regarded such changes as examples of the wisdom of the operation of the free market. Be that as it may, the Minister chose to regard this as an act of God, and I did not get the impression that he thought it was particularly reasonable. The Minister was not exactly helping the House in its consideration. As he made perfectly clear to the Select Committee in its recent deliberations, the 1987 budget is based on a dollar-ecu rate of 1.10. The current rate is already 0.96. Each 10 per cent. decline costs between 750 million ecu and 1 billion ecu.

So the "act of God" is not a future event to be feared. It appears that it is already happening. The Minister said: you will see that from that there is a potential further shortfall. The Minister has already made it plain that he expects budgetary discipline and the 1987 budget to be thrown out of line by changes in the dollar-ecu rate. I think that he was misleading the House in his somewhat witty references. The Minister should tell us more about the consequences for the further deliberations on the 1987 budget which, he tells us, will be forthcoming in the European Parliament and the Council meetings during the rest of this week.

All this underlines what has been said many times by Opposition and Government Members. In June 1986, the Prime Minister told us over and over again on her return from Fontainebleau that she had secured budgetary discipline. Opposition and Government Members told her that budgetary discipline could not work without reform of the agricultural policy. We have been proved right in 1986 and will be proved right again in 1987. She said that a first step had been taken on reducing the amount of surpluses in the Community. She told us that two and a half years ago but today, on the front page of The Times, we are told of the Thatcher bid to slash £8 billion food mountain". Those first steps are a long time coming. The Daily Telegraph of 17 November sums it up clearly: It is now brutally clear that the much-praised financial settlement at Fontainebleau in 1984, to control farm spending and put EEC finances on a secure footing, has failed miserably.

Hon. Members

Hear, hear.

Dr. McDonald

Plainly, there is much agreement on both sides of the House on that point. However, today we are told that the Prime Minister will act and all the problems will be solved by 31 December, when the British presidency of the European Community comes to an end. We are told: In a courageous bid to tackle a crisis which European leaders have been dodging for years, she will fight hard to impose this British last-resort solution at a crucial EEC summit meeting in London next month.

Sir Russell Johnston (Inverness, Nairn and Lochaber)

Does the hon. Lady agree that that article was an extraordinary, sycophantic piece of writing in a major front page story in a supposedly independent paper?

Dr. McDonald

I could not agree more with the hon. Gentleman, especially in view of the fact that the article on the inside page contradicts most of the sentiments in the front page article in a much more careful analysis of the workings of the agricultural policy. I have already quoted from that page.

Mr. Teddy Taylor

I cannot understand this. Why does the Labour party object to this dramatic new plan called "set aside"? Surely, if it was applied to all other industries, including engineering, shipbuilding and mining, we could solve unemployment totally by paying everyone for doing nothing.

Dr. McDonald

I am sure that the hon. Gentleman will commend his solution to the Prime Minister, who presumably is anxious to solve that problem in time for the election. I shall leave him to his own devices.

I am glad to note that, having belatedly recognised that the problem still exists—it is really only in the article that the Prime Minister admits that budgetary discipline has not solved everything—and having finally taken note of what has been said so often by both sides of the House, the Prime Minister at least has taken up the view expressed by Opposition agriculture spokesmen, my hon. Friends the Members for Pontypridd (Mr. John) and for East Lothian (Mr. Home Robertson) in agriculture questions and in speeches outside the House. The Labour party's policy is that land should be taken out of production of surplus products but, for environmental and employment reasons, it does not want that land to be left idle. We would prefer it to be used for other profitable and important industries, such as forestry.

Mr. William Cash (Stafford)

Has the hon. Lady noticed that the Agriculture Act, which was introduced by the Government, was amended, when in Committee, to allow persons in agriculture to obtain grants to enable them to go into ancillary industries along the very lines she has advocated?

Dr. McDonald

I have noticed that. We are waiting for the exemplification of the Government's political will to bring that about. I am sure that the hon. Gentleman is glad to note that the Labour party is about to produce a detailed document on that matter. My hon. Friends have given a little precursor of that.

The Prime Minister hopes to solve this matter by the end of December. However, it will also involve the agreement of other Agriculture Ministers in the Community. She will no doubt have noticed the difficulties faced by her own Agriculture Ministers in endeavouring to bring it about. I refer to a report in Agra Europe dated 3 October 1986 which is entitled Playing the Fool in Windermere. It says: While the EEC's Ministers of Agriculture may have enjoyed the Cumberland wrestling, sheep dog trialing and shepherd's crook sampling laid on by the UK government at their 'informal meeting' in England's Lake District this week, it is clear that this meeting suffered from an even greater degree of unreality than is normal at Agriculture Council gatherings. It goes on to describe the meeting as a "Mad Hatters' Party" and refers to the French Agriculture Minister who expects to be taken seriously when he suggests that the Community's claimed reduction in milk ouput since 1984 has been replaced in the world market by increased output from New Zealand and the United States. It goes on: of course he knows, his colleagues know, and anyone who knows anything about the dairy industry knows, that the Community is now producing and processing just as much milk now as it did in 1984 when quotas were introduced. Whatever the intention of the Prime Minister may be, it is obviously a little bit more difficult for the British Ministers to obtain agreement on those matters within the European Community.

As the Prime Minister is pursuing the matter she should further realise that there are delays in reducing milk surpluses which are partly due to Britain's unwillingness—I do not in any way condemn that—to part with one particular method, known as method B, of calculating the levy, which is done for us through the Milk Marketing Board. That may well be understandable. I am not proposing to comment on the details of the matter All I am pointing out is that there are delays in reaching agreements in the Agriculture Council, some of which are due to understandable objections raised by British Agriculture Ministers. When the Prime Minister says that she is going to push the EC farm plan and all is to be solved by 31 December, all I can say is that she is about to become a magician. I doubt whether she will succeed.

The article in Agra Europe also refers to the bid to slash the 8 billion ecu food mountain. Of course, that is something everybody wants to see. However, how is it to be achieved? How do we dispose of the surpluses? The Minister will know that the European Parliament voted for a separate fund outside the budget to deal with the problem of surpluses in accordance with the recommendations of the Baron report on future financing, which was voted in October. The Minister did not tell us his views on the matter. Is the Prime Minister intending that her right hon. Friend and his hon. Friends at the meeting in Brussels and subsequent meetings should agree to a separate fund to dispose of the surpluses in time to fulfill the Prime Minister's word? What is the Government's decision on that?

Although we all agree with the sentiments expressed by the Prime Minister—it must have been in one of the Lobby briefings which are not supposed to take place any more—we regret that she has come to that view so late. We wonder how on earth she will achieve it and can express only scepticism. Will it not be another failure in the Government's record of sorry failures in dealing with the EC, especially its agriculture spending?

7.45 pm

Sir Edward du Cann (Taunton)

I shall deal in a moment with some of the points made by the hon. Member for Thurrock (Dr. McDonald). First I should like to refer to the typically elegant speech made by my hon. Friend the Minister of State. It was a valiant attempt to defend the indefensible. He reminded us that the Scrutiny Committee recommended that we should debate nine papers this evening. If one goes to the Vote Office, as I did before the debate, one is handed a great mass of 20 papers. I took them to the Library and weighed them. They weighed no less than 1.55 kg. To put that in English, they weighed 3½

I hope that right hon. and hon. Members will not mind if I speak in English. I find it difficult to get used to the new jargon such as FEOGA, ECOFIN and, worst of all, mecu. Why do we talk about mecu? Why has my hon. Friend the Minister introduced mecu? Why do we not talk about the pound sterling, which is our own currency? It is the pound sterling in which our national accounts are written and in which our fellow citizens pay their taxes. It is pounds sterling, too many of them, which the House votes in order to support the European Community. We should stick to the use of the term pound sterling.

Whether one talks about nine or 20 documents, kilograms or pounds or pound sterling and mecu, the point at issue is essentially simple—the validity of the budget. In my view, I say plainly and at once, the budget is bogus and a sham. I say that because everyone knows that the budget will not be kept to. That is admitted. The Prime Minister said on 18 November: the Commission has warned that on present policies a substantial overrun…is likely."—[Official Report, 18 November 1986; Vol. 105, c. 85.] Indeed, the Minister, with typical honesty and straightforwardness, reminded us of that. It is common knowledge that there will be an overrun. The amount is variously estimated. Some say that it will be £1 billion and one Member of the European Assembly said that it would be £2 billion. I am talking about pounds sterling. What is clear, as my hon. Friend the Minister said, is that the pressure is always upwards. The pressure for expenditure comes not least from the European Assembly itself.

Whatever the amount of the likely overrun, it is clear that this is not a budget in the ordinary sense. It is misleading so to describe it. One end of the account is open-ended—the spending side. It is obvious, nobody can possibly deny it, that the spending side is out of control.

It is true that the 1987 revenue figure is fixed at the legal limit; that is, 1.4 per cent. of the take from VAT.

Mr. Nigel Spearing (Newham, South)

This is an important point which is universally misunderstood. If it were only 1.4 per cent. of the VAT take, we would not be so concerned. But the calculations, varying a little from year to year, show that it is between 12 per cent. and 14 per cent. of the Treasury's VAT take. It is 1.4 per cent. of the VAT base which, rather like rateable value, is placed upon the United Kingdom by a Commission calculation. The right hon. Gentleman will see that the amount that we pay each year is approximately 10 times what some people think that we pay.

Sir Edward du Cann

The hon. Gentleman does the House a service in spelling things out exactly, but I shall continue to use the phrase "1.4 per cent. VAT" as a kind of shorthand. We were told that that limit was intended to last for several years, but again the House was misled. Paragraph 4 of the White Paper states: The budget uses up virtually all available resources within the new 1.4 per cent. VAT ceiling. In other words, as sure as we are in the Chamber today, the European Community will be coming back for more money and the European Assembly or Parliament, which is certainly no watchdog, will do nothing to prevent that.

I appreciate the point made earlier by the hon. Member for Newham, South (Mr. Spearing). The White Paper puts the matter modestly. In fact, this near-balance has been achieved only by a series of accounting adjustments such as the advance payment of contributions—the postponement of rebates to the United Kingdom, delayed intervention payments and levies on member states in respect of storage—for which "creative accounting" is the professional term and "fiddling the books" the vulgar one.

The hon. Member for Thurrock rightly referred to the interesting articles in The Times today. The Times states: an unreformed system would bankrupt the Community. That is an accurate description of the situation. Remarkably, those of us who are in favour of the Community, as I am, and those who are against it find that their interests coincide in this respect. Whether one is for or against the Community, everyone agrees that there must be reform. The complaint is of the lack of political will to achieve that reform. In this respect the hon. Member for Thurrock was less than fair to my right hon. Friend the Prime Minister who, alone among Community Heads of Government, has shown that political will. My only reservation in stating that plainly is, alas, in having to disagree with my hon. Friend the Minister's comment today that a good start has been made on reform. The whole nation knows that no start whatever has been made.

As the hon. Member for Thurrock said, in the year of grace 1987 the bill will come in and it will have to be paid. One can only speculate as to how it will be paid—more delays in repayments, more one-off subventions, more advance payments—but paid it will have to be. Again, Parliament has been misled. It is impossible not to reflect that the Government are practising double standards. I regret having to say that, but it is the truth. It was good to see my right hon. Friend the Chancellor present at the beginning of this debate. In his autumn statement he prided himself on his ability to control Government expenditure and, indeed, local government expenditure—that is, domestic expenditure—but when it comes to control of European Community expenditure there is apparent indifference.

I do not know how one is expected to explain these things to one's constituents. Perhaps Opposition Members have the same difficulty. How can I tell my constituents that expenditure must be curbed, that the second stage of the new Taunton hospital cannot be brought forward and that people in attractive places such as Norton Fitzwarren and Dulverton cannot have a desperately needed bypass because the nation cannot afford it? What do I say when they refer to my right hon. Friend the Chancellor's statement to the Select Committee on the Treasury and Civil Service that the promised reduction of standard rate income tax to 25 per cent. is now unlikely because these things are not easy to achieve? When people tell us that the highest rate of income tax in the United States is now to be less than the United Kingdom standard rate, what are we expected to reply? Are we to tell them that the Chancellor says that we have careful control over expenditure, or do we say that things would be very different if only we could control expenditure in the European Community?

The House itself cannot escape criticism on the same account. We are tigers in following up the competent work of the National Audit Office in pursuing folly, incompetence and carelessness in the spending of taxpayers' money voted by us for expenditure by Departments of State, but with the exception of debates such as this, which are not particularly well attended, we have no machinery for the scrutiny of European Community expenditure. That is why our decision on this matter tonight is of special importance. Indifference to the way in which money is being squandered in Europe would be intolerable.

I believe that we have been misled in two other respects. First, the House set great store by the Fontainebleau agreement, to which the hon. Member for Thurrock has referred. My right hon. Friend the Prime Minister was widely and rightly congratulated on her achievements in that respect. But the practice has been markedly different from the promise. My right hon. Friend the Chancellor said in his Budget statement that the figure for the 1986–87 United Kingdom net contribution to the EC would be about £600 million. No doubt that sounded fine to most hon. Members, but in the autumn statement the figure was revised upwards to more than £1,000 million. In other words, despite all the talk and all the understandings, all the boasts and all the promises, after all the rebates and all the refunds, our payments for 1986–87 represent an all-time high. Again, the House has been misled.

The second respect in which the House and the nation may have been misled relates to the budget itself. In 1984, there was a massive increase of 40 per cent. in the VAT levy, but it was agreed that agricultural spending would rise only in line with the rise in the resource base—that is, in proportion to receipts. It was agreed that any overspending one year would be recouped the next. Last but not least, it was agreed that there would be strict budgetary controls. In reply to the hon. Member for Newham, South, my right hon. Friend the Prime Minister said that the new controls would be binding on the Council and that that was the basis on which an uneasy House of Commons assented to what was proposed in our name. All those undertakings have been ignored.

The hon. Member for Thurrock referred particularly to agriculture. As the House knows, some 70 per cent. of planned Community spending is for agriculture and about half of every penny spent by the Community goes on storing, dumping or destroying food surpluses. A recent House of Lords report estimated that the common agricultural policy added 10 per cent. to food prices in the United Kingdom. We all know that consumers are not happy about that. Equally—I can speak only for those in my own area—I have never known a time when farmers were more worried and uncertain about the future. It is a skilled political exercise to make both consumers and producers unhappy at the same time—an extraordinary political Left and Right.

Another matter to which the hon. Member for Thurrock referred requires further comment. The common agricultural policy is now one of the strongest supports of Communism. Exports to the Soviet Union have risen by 1,100 per cent. since 1978. With net prices of 3p to 4p per pound for butter, 11p per pound for meat—these are delivered prices—and wine at 7p per litre, we are virtually giving away the European Community's food stocks. In Russia, bread costs between 14p and 25p a large loaf, whereas in our supermarkets it costs 57p. How many SS20s does that folly help to fund? One the one hand, the United Kingdom taxpayer supports the defensive Alliance of NATO, but on the other, his political masters are subsidising the offensive might of the Warsaw pact. What folly! We should end it at once.

The hon. Member for Thurrock also referred to the cost of storage, for example, of grain, wine, butter, milk powder and beef. A third of farm spending goes on storing the butter mountain alone. Here is mismanagement on the grandest possible scale. It is said that if the CAP—the sacred cow of the European Community—continues as at present, the unwanted surplus of cereals alone will treble by 1991. I do not know about that, but I do know that year after year this sovereign Parliament is expected to acquiesce supinely to this state of affairs. We are expected to write yet another blank cheque. It is high time to say, "No, we have had enough." We could not give my right hon. Friend the Prime Minister a better support than to do that.

What of the other assertions to which I have referred? We were given three undertakings, but there are no proposals for recoupment and none for any sort of budgetary control. Since every understanding has been broken, my own view is that we would be right to show our profound disapproval in the best way open to us. We have every right to say that we will not approve any budget until the undertakings given to Parliament—which we accepted in good faith—are kept. Indeed, that is our duty.

The historic purpose of this House is to supervise and if necessary, to control the activities of the Executive. On the Back Benches we can question, we can debate and discuss—as we do tonight—and we can criticise. However, in the end the only power that we have if we are dissatisfied is to deny Supply until we achieve reform. Sooner or later we should do that, and it should be sooner rather than later.

8.3 pm

Sir Russell Johnston (Inverness, Nairn and Lochaber)

As we are reviewing Community policy, I should like first to put on record my disagreement with the decision of the Leader of the House to continue the so-called experiment of excluding European Community questions from a fixed slot within Foreign and Commonwealth Affairs questions, on the ground, according to a letter that he wrote, that it is "generally acceptable". I am not clear on what basis he reaches that conclusion. I suspect that it is by guess and by God rather than by any systematic approach. There is no evidence that it is "generally acceptable".

Apart from our regular debates, there should be some means for regular oral questions on the Community. They need not necessarily be a part of foreign affairs questions because, despite the remarks made by the right hon. Member for Taunton (Sir E. du Cann), I no longer consider Community affairs to be foreign affairs.

The Minister adopted a narrative approach when he introduced the debate. It is a well-known debating device in this Chamber when issues are somewhat controversial—as we know this issue is—to introduce a lawyer to lower the excitement level. The Minister succeeded admirably in that objective. From phrases such as "a good start has been made", and "we intend to maintain the pressure for reform", one did not obtain any sense of compelling urgency in his approach to the matter.

In my view—in this case, my view accords even with those of some who are opposed to the Community and have long been so—there is no doubt whatever that the Community faces the gravest crisis, which, if it is not resolved within at least a year or a couple of years, or if clear guidelines for reform are not laid down, could lead to the complete break-up of the Community.

In successive debates I have repeated the view—I do not apologise for it—that, while it is not possible to achieve any immediate reduction in surplus productivity, such a reduction must be achieved. It can only be achieved by means of a four or five-year phased policy covering all commodities.

Mr. Teddy Taylor

So irresponsible.

Sir Russell Johnston

That is true. However, I advise the hon. Member for Southend, East (Mr. Taylor) that the policy should cover all commodities. If restrictions relate to only one area, farmers will inevitably switch production. If necessary, such a policy should enable people to leave production and it should also take some proper account—I doubt whether the hon. Member for Southend, East would do that—of the wider rural economy in less favoured areas.

Mr. Teddy Taylor

Would the hon. Gentleman give the House the broadest outline of how the Liberal party recommends that this reduction in agricultural output over a five-year period should be achieved? Would he give us a broad outline of how a Liberal Government would go about that task?

Sir Russell Johnston

I shall probably have answered the hon. Gentleman's question by the time I sit down.

Mr. Nicholas Soames (Crawley)

I bet you a tenner that you do not.

Sir Russell Johnston

I assure the hon. Member for Crawley (Mr. Soames) that I make a principle of giving way to the hon. Member for Southend, East. It may be a misleading principle, but never mind.

Where the Government are open to the greatest criticism is that, until today's dramatic story in The Times, to which the hon. Member for Thurrock (Dr. McDonald) referred, they had not taken any lead in looking for ways to bring down production and to deal with the soaring costs of intervention. There is no evidence in the past, the recent past and certainly during the period of our present presidency of the Council, of the Government taking any lead in that matter.

We all remember that before the introduction of quotas into the dairy sector, the Minister of Agriculture, Fisheries and Food was addressing dinners and telling people to increase their production. With respect to the hon. Member for Southend, East, there has been no shortage of proposals for achieving that objective, in particular from the Commission and more recently from the Parliament.

The hon. Member for Thurrock referred to the European Parliament's proposal under article 200 to have some sort of war chest to set about dealing with the accumulated surpluses. She also criticised the Minister—quite rightly, in my opinion—for making no reference whatever to that and to what view the Government might take.

We cannot reform the agricultural policy unless the problem of the existing accumulated surplus is tackled. I should like to know whether the Government support that approach and, if not, what alternative they advance. Incidentally, at the same time, the European Parliament proposed an additional cut of 5 per cent. in the milk quota. I should like to know the Government's reaction to that.

At this point I should like to pick up part of the question put to me by the hon. Member for Southend, East. If one accepts the need to regulate production, as I do—I am surprised that the hon. Gentleman does not, but perhaps I should not be surprised, considering how long I have known him—one requires the establishment of comparable methods, not necessarily the same as those in the dairy sector, but a quota by one name or another.

It could also take the form that Dr. Sicco Mansholt talked about in an interview in The Times today, where a certain amount of land is taken out of production compulsorily on a phased basis. However, that must be done across the board, but it cannot be done all at once. It could not be done simply by the price mechanism because, to have any effect on cereals, for example, one would require something like an instantaneous 25 per cent. drop in the price mechanism, which the big boys would be able to absorb, while the smaller producers would be decimated. That would not be socially or politically possible or desirable.

Such a phased approach would work. Let us do credit to the European Parliament—we should not forget that it is dominated by people from other member countries of the European Community whom certain Members in our Chamber often condemn as irresponsible. It suggests, having seen the introduction of the quota system in the dairy sector, that the slow tightening of the screw be achieved so that production is further reduced. That is the approach that I would recommend to the House and the hon. Member for Southend, East.

Hon. Members will recall that on previous occasions I have argued repeatedly for more Community spending and Community programmes in the areas of what we describe as non-obligatory expenditure—that is, unemployment, regional development, social concerns and research and development—but because of the overspend on agriculture, it is there that we have cuts. In the new technology, Japan and the United States are pulling far ahead, yet the budget for European research has been cut, and four out of five applications for research funds are turned away. We cannot even agree a framework programme for technological co-operation. I regret to see that Britain was associated with France and Germany on that.

I am sure that the Minister of State will recall having listened to or read a speech by Jacques Delors at the recent CBI conference, in which he properly criticised that and said that, in his opinion, such a framework programme was an essential part of the drive for a single market by 1992, with which the Government have been so strongly associated.

There will be a major shortfall in the European Community budget, as the Minister and the hon. Member for Thurrock (Dr. McDonald) said. The guideline for agriculture is given as 22,960 mecu—I say that with apologies to the right hon. Member for Taunton (Sir E. du Cann), but that is the description—

Mr. George Robertson (Hamilton)

Million ecu.

Sir Russell Johnston

I am sorry—million ecu.

The estimated need for 1987 is 26,130 million ecu. That leaves a deficit 3,175 million ecu. If, as the hon. Member for Thurrock said, one adds the overlap from 1986 of 700 million ecu, one gets a total of 3,875 million ecu overspend. The 1986 deficit can be associated to a large extent with the change in the value of the United States dollar, but I do not think that the overspend for 1987 can be similarly easily explained.

This is a short debate, and I shall not hold up the House for any length of time. I must confess to hon. Members that I was very much tempted to vote for the amendment on the Order Paper in the name of the Leader of the Opposition, but the final phrase is: calls on Her Majesty's Government to restrict the expenditure of the Community in 1987 to sources of income already approved by this House. That is an impractical and inflexible approach. Were it not for that phrase, I could easily have supported the rest. Her Majesty's Government have not covered themselves with any distinction in their approach to the matter. The sadness is that if, as The Times has reported to us, the Prime Minister is about to embark on a serious approach to the CAP, the plain fact is that her political clout and capacity for influence have been gravely damaged by the long previous wrangle about the British contribution.

I believe that we can solve the problem, first with a phased reduction of production, on the lines that I gave when I responded to the hon. Member for Southend, East. Secondly, it will be necessary to reduce existing stocks. That may mean doing things, which, on the face of it, are foolish. There will be no option unless we become overwhelmed by them totally. In tackling those two problems, we must try, if we can, to separate them from the development aspect of the European Community in the area of research and development, regional development, approaches to unemployment and the social consequences of the decline of older industries. I very much believe that only in an effective development of those areas does our future as a country lie.

8.16 pm

Mr. Tom Normanton (Cheadle)

As a member of the Budgets Committee of the European Parliament, I am in a somewhat unusual position in being able to make a contribution to the debate. I should like to concentrate my comments on the Community budget for 1986 and on what I call the draft budget for 1987 because it is only in an early stage of development.

Before I come to those two main items, I should like—at the risk of being accused by the Opposition of being sycophantic—to place firmly on the record of the proceedings of this House the negation of what was said by the Opposition Front Bench. It was implied that my hon. Friend the Minister of State, Treasury had been wrongly praised for his handling of the acting presidency of ECOFIN since Britain assumed the presidency of the Council.

I should like to say firmly that, in the months that my hon. Friend has been acting president, he has won an enormous amount of understanding and support from his fellow Ministers and also from Members of the European Parliament who are concerned about negotiating the budget arrangements for 1986 and 1987. Taking over the duty of acting president on 1 July, as he said in his speech tonight, he was faced with settling the conflict that had existed between the Council and the Parliament over the 1986 budget. By the exercise of what I can truly describe as skill and diplomatic expertise—and, as my right hon. Friend the Member for Taunton (Sir E. du Cann) suggested, by charm—he succeeded in resolving the many differences relating to objections from the European Parliament, which threatened a deadlock among the member states.

I confess to a sense of deep anxiety during that period over the working of the Community in 1986 and 1987. If my hon. Friend failed to achieve that agreement in July, there would have been no prospect of resolving the problems—immense as they are—in the rest of this year. He did not fail, but let there be no doubt that the action brought against the European Parliament by the Council, by the British Government, though confirming that the European Parliament was constitutionally out of order and had acted illegally in connection with the 1986 budget, proved that in financial and budgetary terms the Parliament's analysis was fully vindicated. That was the finding of the European Court about the compromise agreement between the Council and the Parliament.

The Council is still failing to come to grips with political problems and procedures underlining the constitutional relationship between the two budgetary authorities—the Parliament and the Council. I could present many illustrations of that, but I shall quote the failure of the Council in its draft budget. It failed to make budgetary provision for the accession of Spain and Portugal to the Community on 1 January 1986. I should place it on record that my hon. Friend the Minister of State, Treasury was not occupying the presidency of any of the European Community councils at the time.

In a sense, the councils are a collegiate body, and they completely failed to make provision for the entry of Spain and Portugal. The political problems and the terms and conditions for joining were negotiated and settled, but the 1986 budget, which the Parliament opposed, made no financial appropriations for the implementation of the decision to admit Spain and Portugal. Those matters have already been spoken about and, to use the jargon, the burdens are past. No doubt my right hon. Friend the Member for Taunton will criticise that jargon, but the term relates to European Community practices and policies and to the regional development funds. This was an aspect of the 1986 budget which the Parliament rejected and bitterly fought.

The CAP worries all hon. Members, and the Council has constantly ducked the issue. First, it has failed to come to grips with avoiding surpluses. Secondly, it has not made provision for writing off what one would call bad stock, if one were engaged in normal business activities. Thirdly, it has made no provision for write-off, either physically or financially. We are constantly witnessing schizophrenia between Ministers of the member states which make up the various councils of the Community. It is between those who make policy decisions which incur expenditure and Finance Ministers who have to find the cash and make provision for paying bills. The European Parliament's Budgets Committee, and even the Parliament in full session, constantly try to force the Council to face those two conflicting realities.

If an industrial undertaking were to follow the practices pursued by the Council of Ministers, that undertaking would soon be out of business, in Carey street or in the Old Bailey. My hon. Friend the Minister of State is striving to prevent the Community institutions from moving into any of these embarrassing positions. I pay tribute to his efforts in that regard. During one late sitting of the Budgets Committee, which perhaps would be better described as an early-morning sitting, he spoke to it on behalf of the Council and tried to persuade it to meet in trilogue discussion. Some critics may say that that is part of the jargon of our membership of the Community. It means to meet in discussion with the Council, the European Parliament and the Commission. Only by doing that did he think that consensus could be reached.

Perhaps, when he is winding up, my hon. Friend will comment on how he sees the prospects for a successful outcome to such a trilogue. Will he also give the House his assessment of the way ahead? He is the acting President of ECOFIN and perhaps he can tell us what he is trying to achieve.

Perhaps hon. Members are not aware of the way in which a Community budget evolves. That is hardly surprising, because the budget has no counterpart, either procedurally or constitutionally, in this House. We as MEPs have a role to play and a responsibility to bear in the development of a budget. The 1987 budget is referred to on the Order Paper, and MEPs have responsibility on the principle and detail of the budget. The European Parliament shares that responsibility with the Council and without the agreement of both there cannot be a budget, spending commitments or payments.

The House should note that the European Parliament has some significant powers through its budgetary control committee and through the court of auditors. It also has the power of discharge. All three are extremely valuable weapons with which to influence the decision-taking process on financial matters in the Community.

Mr. Cash

Does my hon. Friend agree that there is a slight problem, in that a budgetary discipline is applied to the amount of money paid out? I think that Mr. Christopherson made that clear in July, before a House of Lords Committee. However, there is apparently no budgetary discipine for the amount of commitment. There is a serious problem related to the difference between the amount to which one is committed and the amount that one pays out. Will my hon. Friend comment on that?

Mr. Normanton

I am grateful to my hon. Friend for making that point because, in a sense, the conflict between the Parliament and the Council centres on that point. The vice-president, Mr. Christopherson, is in the Commission responsible for the budget and has repeatedly made the point that my hon. Friend makes. I have already spoken about the schizophrenia in the Council of Ministers which makes policy decisions without attaching to them an evaluation of cost. The bills have to be picked up afterwards, but there is no link between policy making and financial provision.

The 1987 budget is still being negotiated between the Council and the Budgets Committee, and between the Budgets Committee, the Parliament and the Parliament's spending committees. On 13 November, the European Parliament completed the first reading of the budgetary negotiating cycle. There is far more mileage or, for the benefit of my right hon. Friend the Member for Taunton, far more kilometrage to run before the 1987 budget is signed by the President of the European Parliament. There are many points of conflict, but one is the cost of financing additions to surpluses such as milk. Parliament voted for a cut in quotas. That will be received with great hostility in many quarters, including farmers in my constituency, but it is Agriculture Ministers who must grasp the nettle and make the decisions. Policies must carry a financial liability.

Unless expenditure on agriculture and FEOGA is cut, there will be no money to spend in areas which can most effectively be managed on a European scale, such as energy, research, industrial strategies and the development of European technology to enable Europe to match Japan or the United States. Does my hon. Friend the Minister agree that the draft budget is completely out of balance with the economic requirements and priorities of a European industrial community? Does he agree that the alternative which faces the EC is to rejig the balance of the budget, which inevitably means cutting CAP expenditure, or a major increase in the contribution of member states above the 1.4 per cent. which has been mentioned? I ask those two questions and present no answers.

I do not envy my hon. Friend the Minister his extremely difficult task. I and my hon. Friends who serve in the European Parliament wish my hon. Friend every success in the deployment of his political skill and expertise. He will need it. This relatively short debate in no way reflects the importance of the subject. If the House divides, I shall oppose the amendment in the name of my right hon. Friend the Member for Taunton (Sir E. du Cann) and that in the name of the Leader of the Opposition with complete determination and enthusiasm.

8.32 pm

Mr. Eric Deakins (Walthamstow)

I did not agree with very much of what the hon. Member for Cheadle (Mr. Normanton) said, but he gave the game away towards the end of his speech when he said that an alternative was to consider increasing the 1.4 per cent. VAT limit. I am sure that he speaks for a great many Members of the European Assembly, and perhaps the majority of the Budgets Committee, the work of which he describes admirably, but I doubt whether he speaks for more than a handful of hon. Members, who have to justify the extra expenditure to our taxpayers.

I do not want to concentrate on the document because, as the Minister said, several of the factors involved could change in the next few months in respect of 1987's draft budget and the outturn for 1986. I shall concentrate on what is wrong with the financing side of the Community—its financial procedures. I increasingly regard the catalogue of errors, supplementary budgets and court cases as a Whitehall—perhaps it should be Brussels—farce. We will go through it all again next year, and the European Court may be dragged in if the Council's budget for 1987, which will be settled this month or next, is unacceptable to the European Assembly and it decides to do what it did last year.

The EEC's procedures are inadequate to deal with all financial matters because agriculture expenditure is open-ended. It is not axiomatic that such expenditure has to be open-minded. From 1947 to 1973, agriculture expenditure in Britain was kept within reasonable margins by Treasury control and various other mechanisms. We gave that up when we entered the EEC.

The common agricultural policy system has many defects, but it is absurd because the budget is open-ended. It is even more absurd when one considers that the Council of Ministers recently decided that any excess agricultural expenditure in one year should be clawed back in subsequent years. It took no account of extra expenditure required by agricultural policies.

Can anybody in their right mind imagine that, in 1987 or 1988, EEC Finance and Agriculture Ministers will agree to claw back excess expenditure? Of course they will not, but that is the principle to which the Council of Ministers has committed itself.

We should bear in mind the pressures to increase expenditure on agriculture. As I said in an intervention, Greece, Denmark and West Germany, of all countries, are saying that we must be careful when talking about a cut in expenditure and reform of the CAP, as there are political and social considerations to bear in mind. They represent one quarter of the members of the Community. I doubt whether they represent a blocking minority, but that is a taste of what is to come. They have a lot of farmers and do not want expenditure to be cut if it will hurt their people.

As the hon. Member for Cheadle said, expenditure is decided by spending Ministers, not by Finance Ministers. That is a complete reversal of the system employed by nearly all national Governments and, as long as it continues, we shall never have radical reform of EEC spending.

The financial guidelines were much trumpeted 18 months ago as the quid pro quo for agreeing the increase from 1 per cent. to 1.4 per cent. of the VAT limit. I was fairly sceptical about the impact that the guidelines would have at the time but, as a Minister in another place has observed, I was charitable enough to say that we must give them a chance to work. We have. Can anybody now be sanguine about the guidelines restraining CAP expenditure? One would have to be optimistic to believe that they will.

The Government probably share my view in regard to my next worry, but I am not sure what, if anything, is being done. I refer to the fact that commitment appropriations on the non-obligatory side and on one part of the obligatory side bear no necessary relationship to payment appropriations. That has led to the so-called problem of the "cost of the past."

That is not the end of it. We shall also get the cost of the past coming up in the future. I draw the attention of hon. Members to the fact that the cost of this problem in the future will increase. This year, the Assembly, in voting for the budget for this year and that for next year, has suggested further increases in non-obligatory expenditure. Leaving aside the principle of the increases, it is noteworthy that the increases in payment appropriation are different from the increases in commitment appropriation. Once again, we are building up further problems for the years ahead, if the Assembly has its way over the imbalance between commitment and payment appropriations in a particular financial year.

My fifth criticism of the financial procedures of the EEC, typified by what we have heard from the Minister, is that the expenditure grows and little can be done to stop it. It is growing in accordance with, and in relation to, the increases being made available to it. Is it not astonishing that, in the first year of the 1.4 per cent. coming in, total expenditure for the year comes very near 1.4 per cent.?

Mr. Cash

Is this not like a recent film, and are we not going back to the future?

Mr. Deakins

I did not see the film, but I can understand the hon. Gentleman's sentiment.

If the House were foolish enough at some time in the future—next year probably—to agree to the VAT limit being raised to 1.6 per cent., with effect from 1 January 1986, who can doubt the expenditure implications of such a rise in the own resources of the EEC? The EEC expenditure is encouraged to rise by the very fact that procedures are inadequate because last year, the year before and this year, we indulged in bailing out procedures. As the Minister has admitted, we shall have to indulge in that next year.

We also have the intergovernmental agreements and supplementary budgets. Who can doubt that expenditure will not be contained by the budget or by the financial guidelines? Everyone knows that, whatever has been spent, or has been committed to be spent, the money will have to be found from somewhere. Even if it is not found legally as part of the budget, it will be done not within the framework of the European treaties but by means of intergovernmental advances and other such subterfuges. That is not a satisfactory state of affairs.

A sixth criticism of the financial procedures of the EEC, which has not been touched on, and on which the Minister might care to comment, is that the Assembly and the Council have for the past few years had different definitions of non-obligatory expenditure. I do not profess to know the basis of the differences, but there are differences, and this is highlighted in the Commission's public relations document on the budget and its differences and problems. It makes the point that there is a difference between the Assembly basis and the Council basis. If the Community cannot even agree on the base figure of such important items as non-obligatory expenditure, how on earth can we expect to get proper financial control?

My last criticism also has not been touched on, and again I would welcome a comment from the Minister. The budget procedures, up to and including the conclusion of each year's budget for the following year, take no account of what are called agrimonetary changes. There is no mechanism in the financial procedures for bringing this into the calculations.

There are two sorts of agrimonetary changes, and it is important to be clear on the differences between them, although they both have the same impact on the budget. The first, which we have seen this year, is the major realignment of exchange rates within the EMS. I asked the Minister a question only a few weeks ago. I asked whether, in future, he would seek to require the EEC Commission to make estimates of the effects of EMS realignments on EEC budget costs and on a resources revenue". He replied: I agree that the Commission should be asked to make such estimates, even though they must be very uncertain."—[Official Report, 23 October 1986; Vol. 102, c. 947.] I am grateful for that reply, but they are not so uncertain, because there is an amount in the supplementary budget, which has been mentioned in other answers, for the impact of some of these agrimonetary changes.

As long ago as April this year, an article in the Financial Times from its Brussels correspondent said: The recent realignment of the European currencies within the European Monetary System—is estimated to cost Ecu 380m in 1986 and Ecu 600m in 1987. That was almost at the time when the changes were taking place. How is it that a Brussels correspondent of a major newspaper can get a reasonably accurate assessment of the changes, when Her Majesty's Government, some months after the event, cannot give the House of Commons some idea of the impact of the agrimonetary changes?

The EMS realignment was only part of the problem of agrimonetary changes. Every year that we have been in the EEC, and possibly more, we have had a variety of arrangements for rearranging the green rates for currency. This is a complex subject, on which I do not claim to be an expert, so I shall put this as simply as I can. Whatever prices are decided by Agriculture Ministers at the Agriculture Council each year for the coming agriculture price year they are not necessarily, and indeed in most cases are not, normally prices that will be received by farmers in their national currencies.

The Government trumpeted the 1986 settlement as being another start on a major reform of the CAP. I quote from the Financial Times of 28 October, again from the Brussels correspondent, who said: The key to the farm price of the deal…was the devaluation of the 'green' currency rates of all the members except West Germany and the Netherlands. This move will soften the impact of the price freeze"— note those words— by granting effective price rises for some products ranging from 3 per cent. in Britain and France to 5 per cent. in Italy". When the Agriculture Ministers are making price cuts across the board, and in particular on agriculture commodities as a result of green currency devaluations and revaluation, and altogether apart from EMS realignments, which is another factor, farmers in many countries are getting more than they should be according to the determination of Agriculture Ministers.

The agrimonetary changes are being used, sometimes deliberately, to subvert the decisions of the Agriculture Ministers. What a crazy system. The agriculture system is appalling, but when Ministers, perhaps genuinely, have tried to modify its impact and reduce spending, the green currency exchange reduces the impact. If prices go up, farmers are encouraged to increase production rather than decrease it.

On this, I have an important question to ask the Minister. In previous answers and statements, the Prime Minister and Ministers have said repeatedly that this year, and by implication in future years, there are certain exceptional circumstances which mean that the financial guidelines have to be exceeded. The major exceptional circumstance has been, and one understands this, the decline in the rate of the dollar-ecu relationship. However, exceptional circumstances, in the normal sense of the term, using the English language correctly, are circumstances for which one cannot be responsible. Now they are beginning to say in parliamentary answers that agrimonetary changes are exceptional circumstances. But agrimonetary changes are within the sphere of operation of the Commission and the Councils. They are brought about by decisions of Ministers. How on earth can they possibly be exceptional circumstances? However, they are not taken account of in the draft budgets. Now Ministers say that they will cause increased spending and that therefore these are exceptional circumstances.

I quote from an answer from the Minister of State, Treasury, to me on 6 November 1986. He said: at the October ECOFIN council…the Commission warned that, unless action is taken, actual expenditure"—for 1987— is likely substantially to exceed the guideline figure. This assessment took a number of factors into account including a further fall in the value of the US dollar and recent agrimonetary changes…Whether any additional expenditure will involve a breach of budget discipline will depend on whether there were genuinely exceptional circumstances which made such expenditure necessary."—[Official Report, 6 November 1986; Vol. 103, c. 522–3.] It is clear from that—at least, it is clear to me, but I hope that the Minister will clear up this point if I am wrong and I shall certainly apologise to him—that agrimonetary changes are regarded now by Her Majesty's Government as exceptional circumstances that would allow something beyond the financial guidelines in relation to expenditure on agriculture.

Mr. Spearing

My hon. Friend has unearthed a matter of potential importance. Does he agree that the only possible excuse for including in the formula the change in agrimonetary rates would be if the circumstances in each of the countries concerned were exceptional and that that would have to be proved to legitimise this devise?

Mr. Deakins

Yes. My point is that this is something about which I am in doubt and about which the House must be in doubt, since contradictory answers have been given by the Government. The issue is not clear and it needs to be clarified. However, it is only one of a number of financial procedures that cause me concern and that should cause the House concern. Until the financial procedures are put right the budget will not he put right, nor will the spending or the own resources be put right.

8.52 pm

Sir Anthony Meyer (Clwyd, North-West)

Like the hon. Member for Walthamstow (Mr. Deakins) I, too, am gloomy about the common agricultural policy, although perhaps I am more genuine in wanting to see it improved.

My contribution will be brief, although it will not be particularly welcome to anyone. My hon. Friend the Minister of State is carrying out his extremely difficult job very well. Europe is aglow with good will towards him for his skill, his patent honesty and his assiduity. However, the job is impossible. The pessimists are right—as, indeed, they usually are. Sooner or later, financial disaster looms for the European Community. It is helpless to avoid it because there is no way in which the decisions necessary to postpone, let alone avert, that disaster can be taken. The Single European Act was a step in the right direction but it was completely inadequate. Neither the machinery nor the will to take the necessary decisions exist even now.

The current villains of the piece are the Germans who, faced with critical elections in a few months, dare not take any decision that is even slightly unpopular with their farmers. But when the German elections are over, there will be another Government facing an election, or a vote of confidence, or a financial crisis, which will make it impossible for them to take a decision. As, one after another, they exercise what my right hon. Friend the Member for Taunton (Sir E. du Cann) would call their sovereign right to refuse to accept what they particularly dislike, the only thing on which they can agree is to slap down the only institution in the Community which has anything sensible to offer—a superanational Commission.

The British record is as bad as any. Since the days of Labour's botched renegotiation, through this Government's short-term—but oh how short-term!—achievements in getting the provision for a British refund written into the budget system to the present half-hearted and last-minute attempts to get a grip on the escalating cost of encouraging surplus production and then financing the storage or wasteful disposal of that surplus—provided always that we do not upset our own farmers too much, or do not push up the price of food to our consumers, or do not hand over any more power to the bureaucrats in Brussels, or do not weaken our national veto—it is a sorry tale of the country's long-term interests being subordinated to the real need to demonstrate to the Labour party how completely it failed to stand up for this country's interests, whether long-term or short-term, and to prove to a small group of malcontents, led by my right hon. Friend the Member for Taunton, that this Government, while firmly committed to the European Community, are as staunchly nationalis- tic as any. Indeed, through our preposterous refusal to join the exchange rate mechanism of the European monetary system, when it comes to cutting off our own noses to spite our faces, we yield to no one.

My right hon. Friend the Member for Taunton and his supporters have a bad case but some very good arguments. Their case is bad because they seek to weaken this country's involvement in the European Community. We have no choice but to remain in the European Community, for it is the only economic and, to an increasing extent, the only political base that is available to us. Unless we can make it work a great deal better than it is working now, it will be a disintegrating base—like badly laid concrete in an earthquake. However, my right hon. Friend and his supporters are quite right to point out that the surpluses that are being generated by the CAP, and the gigantic costs of storing or disposing of them and the damage that is thus being done to world trade, to our relations with the United States and to the hopes of the developing countries by disposing of them on the world market, will bring the whole edifice of the CAP, and in due course the Community itself, crashing to the ground.

Furthermore, they are right—this may surprise some of them—when they question the real value of the Government's achievement in securing offsetting European Community expenditure in the United Kingdom, mainly through the European regional development fund, so as to reduce the United Kingdom's total net contribution to the European Community budget. They ask what sense there is in financing the construction of roads, bridges, schools and hospitals in our assisted areas with money that was contributed in the first place by the British taxpayer, sent to Brussels as part of our budget contribution and then sent back to us via the ERDF, having passed through a number of sticky hands on the way. They are quite right to query the logic of using the huge potential power of the world's largest trading bloc in order to build a bypass round a village in north Wales.

As long as we go on like this—with some of my hon. Friends seeking every means to discredit British membership of the European Community, with the Opposition led by "the hon. Lady Mrs. Facing Both Ways" leaving us in the dark as to whether they want to stay in the European Community and yet demanding that Her Majesty's Government get more out of it, and with the Government contenting themselves with proving both lots spectacularly wrong but doing so by the shortest of short-term expedients—we shall get nowhere.

The time has at last passed when the budgetary crisis in the European Community could have been dealt with usefully and relatively painlessly by using the huge potential wealth of a truly unified Common Market to finance industrial modernisation and expansion so that agriculture was relegated to a secondary role in European politics and funding.

That chance was lost because member Governments—none more so than Her Majesty's Government—refused to contemplate either the radical removal of barriers which would have enabled the Common Market to emerge, or to accept the increase in the Community's budget which would have been necessary to create such an industrial investment and reconversion fund. They feared that any increase in the budget would be largely swallowed up by agriculture.

There will now have to be an increase in the budget and, instead of being largely swallowed up by agriculture, it will be completely swallowed up by agriculture. I fear it is now too late for reforms of the CAP to be carried through relatively painlessly. It is too late to avoid unacceptable damage to the legitimate expectations of our own farmers.

The choice now facing us is a good deal less inviting than it was even a year ago. But we do still have a choice. We can either go on as we are and allow the CAP to burst, inflicting irreparable damage on the Community and leaving it as an empty shell providing its members with no real benefits, or we can tackle the problem of agricultural over-production now, which will mean paying a heavy price—a heavy price in terms of cash now and in terms of political concesssions—to those European Governments most of whom are more at the mercy of their farmers than we are.

If we do that we can just retain some of the option of achieving a true common market by the elimination of obstacles to trade as Lord Cockfield has been urging so gallantly and so fruitlessly for so long. But, even so, we must face two extremely unpleasant certainties, as my hon. Friend the Member for Cheadle (Mr. Normanton) pointed out. The first is a substantial increase in our net contribution to the EC budget. There is now no getting away from that. The second is a dose of medicine for our farmers very much nastier than even the most pessimistic of them have been expecting.

That is the choice facing the Government. I do not envy them. But I am at least relieved that it is they, not the professional malcontents on the Conservative Benches or the short-term opportunists on the Opposition Benches, who will have to make the choice.

9 pm

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

One need not be a professonal malcontent to express dismay at developments within the European Community and vis-a-vis the budget. I have a great deal of sympathy for the concern expressed by that dark prince of malcontents, the right hon. Member for Taunton (Sir Edward du Cann), especially when he talks of the deep unhappiness of consumers and producers alike.

Two industries are deeply affected by budget constraints in my constituency. One is shipbuilding and marine engineering. One must look hard through the huge collection of documents to see anything that is at all sympathetic to the United Kingdom shipbuilding industry. When I talk about the shipbuilding industry I am also referring to the important marine engineering industry, or rather, the vestiges of that industry that remain.

The other industry, again of crucial importance to my constituency, and, indeed, to the Scottish food and drink industry, is cane sugar refining. Again, one must look hard and long to find anything that is at all sympathetic to that traditional industry.

The draft proposal for a Council directive on aid to shipbuilding—document COM (86) 531 final/2 dated 17 October—says: it is therefore proposed to authorise a level of production aid up to the level of a common maximum ceiling, based on compensation for the cost disadvantage of the most efficient European yards compared to the price of the most competitive Far Eastern price leaders in the categories of ships for which the European yards are relatively more competitive. All forms of production aid, both direct and indirect, will be included in the calculation of the ceiling. That is poppycock.

A report in that august journal, the Greenock Telegraph, on Friday 21 November 1986 said: Scott Lithgow"— a shipyard in my constituency known to some right hon. and hon. Members— were secretly excluded in 1984 from receiving European subsidies for shipbuilding in the foreseeable future. I had examined those documents and nowhere is that statement contradicted. That means, as the article goes on to say: It is expected that aid of up to 26 per cent. will be agreed on shipbuilding and conversion contracts accepted on a loss-making basis by European yards. These are aimed at helping to bridge the gap between Europe and the Japanese, who can build at half the cost, and Koreans who build at a third. Scott Lithgow, who have just landed a £8 million contract to lengthen the Atlantic Conveyor"— the replacement vessel for the one sunk so tragically in the Falklands campaign— are thus at a 26 per cent. cost disadvantage to other British and continental yards. Where then is the assistance that one should be able to expect from the European Community, and where are the budget provisions for this important industry? It is a scandal and I sincerely hope that the Secretary of State for Trade and Industry will defend the interests of Britain's shipyards and Britain's marine engineering industry. To make a constituency point, which I try to avoid doing, Scott Lithgow is now one of the best yards in western Europe, just as the Clark-Kincaid of Greenock is one of the finest marine engineering builders in Europe.

Mr. Cash

With reference to Scott Lithgow and any other industrial or commerical enterprise as regards the legislative and industrial policies of the EC, does the hon. Gentleman agree that it is up to the companies, the industries and trade associations concerned to make the most of the EC by arguing effectively—which, regrettably, often appears not to be the case?

Dr. Godman

I agree with the hon. Gentleman, but I would say that it is essential for the Government to argue a strong case for British shipbuilding industry interests. The Government have signally failed to do that on the proposal for a new directive on shipbuilding aid. The House should debate such a directive because the existing one ceases on 31 December 1986 and we shall be saddled with a new directive, I suspect, on the basis of no discussions whatever in the House.

I shall turn quickly to the problems of the cane sugar refining industry. Since the accession of the United Kingdom to the EC, cane refining has suffered badly under the European Commission's sugar regime, which is dominated by beet interests. In recent years cane sugar capacity has been severely reduced and four out of the United Kingdom's six refineries have been closed. Since 1977, 4,200 jobs have disappeared.

Under the EC sugar regime, cane sugar is allowed a much smaller refining margin than beet which means, for example, that British Sugar plc can always win business from the cane industry. It is in the public interest that the United Kingdom cane sugar refining industry survives. It will enable the United Kingdom and the EC to honour their obligations to the African, Caribbean and Pacific sugar-producing countries.

The House passed two resolutions, one in November 1974 under the Labour Government and a similar one in December 1985, without any Divisions about the need to protect those developing nations and the United Kingdom cane sugar refining industry.

If the cane sugar refining industry survives, we shall secure the jobs of those in the cane industry, which is important for my constituency and Scotland. The most effective way to maintain United Kingdom cane refining would be a merger between Tate and Lyle and the British Sugar Corporation. It would remove the risks to cane sugar that would arise from the much stronger position of British Sugar. It would make further investment possible and bring about economies in production and distribution that would enable cane to be cost-effective under the beet-dominated EEC sugar regime. Finally, it would realise the advantages recognised by a Conservative Minister of Agriculture, Fisheries and Food in 1973, when he advocated a unified beet and cane sugar industry in the United Kingdom. Mr. Godber, as he then was, said: It is essential to have an efficient and viable refining industry in this country ready to take, and committed to take, the Commonwealth raw cane sugar available to it. My own view, however, is that that purpose could best be served by having an integrated refining industry which has both port cane refineries and inland beet factories at its disposal."—[Official Report, 24 October 1973; Vol. 861, c. 1302.] I agree entirely with that Conservative Minister of Agriculture, Fisheries and Food.

Such a move would also give the United Kingdom sugar industry a unified voice in Brussels, which we do not have now; hence the powerlessness of the cane industry in Brussels. A merger between Tate and Lyle and the corporation would have no adverse effect on competition. The real competition comes from the threat of imports from other European Community nations, and that will continue to be the position. There is more than enough surplus quota sugar available on the continent to satisfy the entire United Kingdom demand. There is over 1.7 million tonnes just across the Channel in France, and most of that sugar is to be found stored in Picardy and the Somme valley.

I turn to the dangers that are facing our cane sugar refining industry from an Italian company that is being encouraged from Brussels. I refer to the Italian company of Ferruzzi, and I must offer a serious warning about its bid for British Sugar. If it were successful, it would mean the rapid demise of the cane sugar refining industry in Britain. Under Ferruzzi, the incentive to wipe out the cane sugar refining industry would be even greater than it is now, and the ability to do so would be increased.

The incentive would be greater because Ferruzzi would gain a valuable means of access to our market. With the disappearance of Tate and Lyle and the demise of the cane sugar refining industry, Ferruzzi would be able to sell French surplus sugar into the United Kingdom through British Sugar's distribution network. That would be dangerous for Britain's cane sugar industry. Ferruzzi could use the French surplus to take business away from what was left of the cane industry.

Ferruzzi, with some encouragement from Brussels, has become the largest sugar producer in the EEC. With the control of British Sugar it would have 25 per cent. of the EEC's sugar market. Unied Kingdom prices for the industrial and retail consumer would probably be higher under Ferruzzi than at present or under a British Sugar Corporation-Tate and Lyle merger. Any suggestion that benefits would accrue to the British farmer from Ferruzzi because of its stronger voice in Brussels are likely to be outweighed by the disadvantages from the conflict between Ferruzzi's French, United Kingdom and Italian interests.

I make no apologies for saying that in terms of shipbuilding and the cane sugar refining industry, the EEC has let British interests down badly. That does not make me a professional malcontent or a sympathiser with them, but a tough critic of the European Community. I shall continue in that role until my constituents in the shipbuilding and the cane sugar refining industries are given a fair deal. God knows they are not getting it now.

9.15 pm

Mr. Teddy Taylor (Southend, East)

This debate is pretty useless because whatever we say or agree tonight will not have the slightest effect on the EEC's spending or on the simple fact that it is overspending it's legal maximum, which was determined by agreement of the Council of Ministers. Despite that, the debate has been worth while just to hear the speech of my hon. Friend the Member for Clwyd, North-West (Sir A. Meyer). I hope that all hon. Members who were not here will read his speech and learn what was behind it.

I do not wish to spoil my hon. Friend's speech by trying to paraphrase his remarks and possibly misinterpret them, His speech was most honest and despairing. It was made by someone who had hoped for great things from the Community and who was regarded in the House as a great enthusiast for the Common Market. My hon. Friend said that, sadly, the Common Market appeared to be heading for disaster and that the constitution of the EEC and of the Council of Ministers was such that difficult decisions simply could not be taken. In those circumstances, it was honest of him to express his fears for something that he had regarded with great hope and expectation. I do not criticise him for that in any way, despite the remarks he made about the little group to which I belong.

The debate was also worth while because we heard at last the Liberal party's solution to agricultural problems. The hon. Member for Inverness, Nairn and Lochaber (Sir R. Johnston) said that he and his party would support the so-called European Parliament in the proposal for a war chest. The war chest is a substantial additional sum of several hundred thousand million pounds which will be used to sell off the mountains more cheap by than they are sold at present, thereby somehow to get rid of them.

Last week, we heard a report of the sale of 200,000 tonnes of beef to Brazil, at 12p a pound, which will, of course, return to Britain in the form of corned beef. Is it the policy of the Liberal party that extra hundreds of millions of pounds should suddenly be made available to offer the beef to Brazil at an even lower price?

The crucial matter is that we are discussing an entirely bogus budget. The Government are well aware that there is not the slightest chance of the EEC budget being kept within the legal maximum which was declared in the budget. The Commission has clearly said, as the Prime Minister reported only last week, that there was not the slightest chance, on present policies, of those figures being adhered to.

The Minister has a duty to say something more about the specific assurances which were given to the House to persuade hon. Members to vote for the 40 per cent. increase in Common Market funding. The Minister must recall that we were told that there was a binding agreement whereby Community spending would be subject to strict restraint. We were specifically told that farm spending would increase only in terms of the natural increase of the own resources base—about 3 or 4 per cent. a year. We were also told that a safeguard existed to ensure that if, by any mistake, the EEC budget was overspent one year we would get the money back in future years. We were also told that the money would last for several years.

This is the first year of strict budgetary control, but within a few weeks of the beginning of the year the Ministers met and agreed that it would be an exceptional year. We are right up to the maximum of 40 per cent. which was meant to last for several years. We know that 1987 will be another exceptional year, and that the year after that will also be exceptional. I wish that my hon. Friend the Minister would accept the plain fact that Common Market spending is wholly out of control and that there is nothing, on present policies, that the Government can do about it. We want to know what can be done about it in future.

The excuse has been given that, sadly, the dollar fell in value, so the cost of the CAP increased enormously. I hope that my hon. Friend the Minister will think about the consequences of currencies going up and down. Our understanding is that if the value of a currency falls, prices tend to rise, and vice versa. The prices of foodstuffs, such as bananas and peppers, which have nothing to do with the Common Market, did not fall when the dollar fell. Prices change in accordance with supply and demand, and the price of Common Market foodstuffs plunged simply because we are loading more and more on to the world market.

The Common Market is now spending more than £100 million every week on storing, dumping or destroying foodstuffs. According to the Common Market's own consumer unit, the average British family has to spend £13 a week because of the cost of the CAP. Yet only last week, the Government agreed to a devaluation of the green pound, which will increase the price of food in Britain by 5.5 per cent. All the time, appalling damage has been done to the Third world. The Common Market appears to care nothing about that. Damage, distress and starvation are being inflicted on the Third world because, by our crazy dumping, we are depriving it of a fair price for its food.

Mr. Cash

Having read last year's report of the Court of Auditors does my hon. Friend agree that it was extremely critical of the way in which the Commission distributed food to people in the Third world? Should not that situation also be remedied?

Mr. Taylor

I absolutely agree. In addition to the way in which food aid is wasted, we must consider what we are doing to those countries which cannot pay their international debts or afford to buy British machinery. We are killing the economies of the poorest countries in the world by dumping vast surpluses on the world market, so forcing prices down to nothing.

It would not be so bad if the budget had reached the legal limit and been kept to it. But we all know that devices are used and that there is cheating in order to get above the expenditure level. We had the unpopular co-responsibility levy, and people discussed whether it would help or hinder agriculture. It was meant to do neither. The aim was simply to get more money in and to increase spending. It went up by £400 million. There was also advance payment of our contributions, which served only to help overspending.

Britain's rebates have been postponed, which has also helped to increase spending. Moreover, foodstuffs in intervention are now not being paid for on time. This week, I was told by the Intervention Board that payments for butter in intevention are now being delayed by eight months. Member states are also now having to pay 25 per cent. of the cost of storing foodstuffs in intevention. Every one of those measures enables the Common Market to spend a bit more. Thus, we are now talking about a budget that is well in excess of the legal maximum.

Why have things gone so far wrong since even July of this year? Then, my hon. Friend the Minister said: We see no case for the provision of any additional funds."—[Official Report, 21 July 1986; Vol. 102, c. 68.] Again, on 21 July, we were told that there would be no "carrying forward" of expenditure from 1986 to 1987. My hon. Friend the Minister should ask himself what he intends to do about the increase in spending. The House was assured that 1.4 per cent. was the absolute limit, and that it was legally binding. But we all know that the Common Market will spend much more than that. How will the difference be met? Are we not heading for an explosion in the CAP that could have devastating effects on British agriculture?

It would not be so bad if there was the slightest sign of change, or the slightest possibility of realistic CAP reform. Instead of reform, the ludicrous, old, helpless idea of set-aside is being floated. Instead of paying farmers for producing food and then dumping it, we are paying farmers for producing nothing. There is a real chance that it will be taken up by the Common Market.

The Opposition appear to think that it is a grand idea. Perhaps they would like to extend it to the motor car industry and all the redundant industries in Britain. We know that the Liberal party supports that idea. It always supports spending more money from the Common Market, irrespective of how that money is spent. Before my hon. Friend the Minister jumps at the ludicrous idea of set aside, he should consider what has happened in the United States and in this country. Of course, it might buy some time—perhaps two years. If there is a set-aside of 20 per cent., and we pay out a fortune, Common Market policemen will have to be employed to check that farmers are not growing where they should not be growing. If we did that even on 20 per cent. of our land, the Minister should accept the advice of the chemical industry, the National Farmers Union and others who have said that yields are increasing all the time. Indeed, on the continent yields are also increasing. Even if we were to pay off, sterilise or shoot 20 per cent. of the farmers, and all that goes with them, we would find that—[Interruption]. I was referring to sterilising the land, not the farmers. The latter is a different thing altogether.

Before the Minister accepts the proposal as a possible solution, will he consider what has happened in the United States and accept the common-sense argument that argricultural yields are soaring all the time? Even if 20 per cent. were cut out, within two or three years we would be back to square one, with surpluses mounting as before.

In much the same way, if the Minister spends billions of pounds on a war chest, as urged by the Liberal party, on selling food to Brazil even more cheaply than the 12p per pound at which we sold it beef this year, again the mountains will rise substantially.

I want to make one suggestion, which I believe is the only hope for containing Common Market expenditure, for improving the Common Market, and for British agriculture. Instead of fiddling the figures with our European friends—I do not mean this unkindly; it happens under all Governments—instead of trying to find devices to get through legal limits and instead of bringing out bogus schemes to control expenditure—but which do not—the Government should accept the simple proposition of repatriating agriculture from the Common Market. In other words, every country should be left to deal with its own agricultural problems.

If the Government would decide their own future instead of looking over their shoulder to see if one country is getting more than another or depending on what election is taking place in a particular place, they might find that to be one way of containing expenditure. In Britain, it is one way of safeguarding agriculture, instead of facing the dramatic crisis that will come with overspending and breaking through budgets. There is no surplus of food production in Britain. There is a surplus to some degree in cereals and dairy products, but not an overall agricultural surplus. We could offer our farmers not a future of expansion, but a deficiency payment system based on standard quantities related to national needs. We could then safeguard agriculture from the disaster that lies ahead.

Such a proposal would improve, not wreck, the Common Market. It would take away from the Common Market the one policy that eats up 70 per cent. of spending and which, as my hon. Friend the Minister knows, gives the Common Market a bad name because of the repulsive policy of dumping at crazy prices.

That is the only answer to what my hon. Friend the Member for Clwyd, North-West rightly described as an insoluble problem. Those who think that Common Market Ministers can sit around a table and solve the problems of the CAP are living in cloud cuckoo land. That happened with milk quotas. They were meant to improve matters, but sadly, all that happened was that we paid out money to farmers to go out of milk production and they moved into other areas of production, such as beef, where there was already a surplus.

I hope that the Government will at least consider the possibility of repatriation of agriculture from the EEC as a possible solution to the problem. The Minister will find that the agricultural community will regard this not as the answer to all its problems—because it will bring it under Treasury discipline again—but as something which could avoid an agricultural catastrophe. The Minister will find that some of the most enthusiastic supporters of the Common Market will say, "If only it could get rid of the CAP, the Common market might do some sensible things."

We are discussing a nonsense budget that the Government know they have not the slightest chance of keeping. They must accept that spending is wholly out of control and that the budget mechanism has been a disaster and has achieved absolutely nothing. I hope that, in the circumstances, the Government will examine real, radical decisions, not other nonsense such as putting in £5 billion or £6 billion in the hope that the problem will disappear. The real solution is to repatriate agriculture and let the Common Market take other measures that it considers to be more sensible.

9.30 pm

Mr. William Cash (Stafford)

A few weeks ago, as a member of the Select Committee on European Legislation, I had the honour and pleasure of cross-examining my hon. Friend the Minister. These documents—3 kg of them—have been placed before the House in pursuance of a recommendation for debate by the Select Committee. It might be appropriate for me to comment on the implications of these documents.

I speak as one who takes a constructive and pragmatic view of the European Community. In no sense am I anti-European. Since I have been a Member of the House, I have made a number of points in debates, questions and at other times which I hope have amply demonstrated that I believe that the European Community is a constructive framework within which we can achieve a great deal for this country and the rest of the world.

A Treasury memorandum about the policy implications of the documents stated that there were "none at this stage." I was left wondering precisely at what stage the policy implications are likely to appear.

I have heard much this evening about creative accounting. The creative accounting of the kind to be seen in the Commission's document makes genetic engineering look like child's play. Above all else, we must try to place some kind of segmentation limit on the European budget as it develops. An independent group of experts recently considered ways and means of constraining the overall apparently limitless European Community budget. That group recommended that we should have a form of segmentation whereby the weak parts of the budget—the social fund, the development fund, and so on—should be allowed to expand but the other parts of the budget, particularly agriculture, which has now hit 62 per cent., should be restrained within an overall box. That segmentation policy should be pursued.

I should like to hear what my hon. Friend the Minister has to say about the experts' report. On 30 October, when the Committee had the privilege of having him appear before it, he was cross-examined on that point. He said that, as we move to the end of the year, the independent experts' report will be considered by Treasury and that we are likely to have some guidance on the Government's reaction to it. The hon. Member for Thurrock (Dr. McDonald) asked a puzzling question about the control of public expenditure. It seems extraordinary that the Labour party, whose lack of control over public expenditure is notorious, should be so articulate when seeking to control public expenditure in the European Community. I hope that the House will take note of the Labour party's grave inconsistency.

I am concerned about two main sectors—manufacturing and farming. There are farmers in my constituency who are deeply worried about the CAP. There is no doubt that many would like it to be reformed. They regard it as a policy that creates great uncertainty for them. Recently, it was proposed that in the dairy sector there should be a reduction of as much as 6 per cent. in the quota. The differences between what goes on in other countries and what happens in this country—the same will apply to the set aside policy—must be handled carefully by Agriculture Ministers.

Dr. Godman

Reform of the CAP should not be seen as an impossible task. The common fisheries policy was no less controversial, although of less significance than the CAP. By and large, that issue has been resolved to the satisfaction of the overwhelming majority of fish producers in the Community.

Mr. Cash

It is possible to negotiate within the existing framework of the common agricultural policy a policy that will fairly represent the interests of British farmers. I fear that the set-aside policy—I am thinking of the Mediterranean programme and similar programmes—will be used to provide what is effectively a social wage for other farmers in the Community at the expense of ours. I hope that my right hon. Friend the Minister of State, Ministry of Agriculture, Fisheries and Food will ensure that, when the set aside policy is brought in, British farmers will get a fair slice of what is going on. It has become apparent to farmers in my constituency that they have been given less than a reasonable and fair deal in respect of dairy quotas and other aspects of the CAP.

I congratulate my right hon. Friend on his amendment to the Agriculture Bill, which has provided for grants to farmers to enable them to become involved in alternative production. As one who is in favour of a constructive European policy, I urge that the set-aside system should be combined with the grant aid system so as to ensure that the land is not regarded as of no value and as not to be used in any way but is used to enhance certain activities, for example, recreation and fishing.

There is no doubt that the Court of Auditors has been deeply critical of the way in which the European Community operates. It is a pity that the court's report is not taken more seriously. If the European Community is to be put into some shape, even with all the difficulties ahead of us, my hon. Friend the Minister of State, Treasury, must follow up the advice he gave the Select Committee on European Legislation. He said: it is essentially an issue to which the Court of Auditors should address itself. As the Committee will recall we have a regular debate in the House on the Court of Auditors' report where they are specifically commmenting on Commission work. I urge my hon. Friend to ensure that the Court of Auditors' report is made available to the House in good time so that we can examine it and build on the useful criticisms that it continually makes of the workings of the European Community.

9.39 pm

Mr. George Robertson (Hamilton)

In this short debate we are considering nine documents, the sight of which is positively fearsome. The nine documents are being dealt with by the European Scrutiny Committee in a way that is almost completely unsatisfactory. The documents have nine separate reports attached to them. Indeed, the Minister's interrogation cannot even be published as a report because his evidence is not a document as such. My hon. Friend the Member for Newham, South (Mr. Spearing), who chairs the Committee, has said that it has unanimously asked for the terms of reference to be changed so that coherent reports can be made on the sort of documents being considered. There have been no objections of any type or from any quarter but there has still been no response to that proposal. That matter deserves urgent consideration so that the House can more properly consider the important matters we are talking about tonight.

These debates are, of course, repeat performances. Sadly, we have all been here too often before. They would be hilarious if they were not so tragic in their effect. The hon. Member for Harrow, East (Mr. Dykes) who has left the Chamber, made a contribution to the work of the Select Committee on European Legislation. He said: Do you not think, Minister of State, that we are getting a little obsessive about EEC budgetary discipline control (although it is desirable and necessary) when you compare it with the relative indiscipline which applies to national budget discipline, including our own country? That is a seductive argument. There is an attractive point hidden deep within that.

Will future generations look back on these debates and the squabbling over 1 billion ecu here and 500,000 ecu there and condemn us for the apparent petty-mindedness we display on these occasions? Will they, enjoying the marvellous benefits of a barrier-free integrated market of 250 million people, think in some wonderment of these debates? Will they, revelling in the fruits of massive research projects in the highest of technology throughout the Community, reaping the rewards of a co-ordinated energy plan and looking in wonder at the pearls bestowed by appropriate regional and social fund programmes, think us mean-minded in the extreme and nit-picking to be so fastidious and spend all our time and effort looking with such painful thoroughness at these accounts? Of course, the truth is that, if those benefits were there to be enjoyed, that might be an accurate view to express. When it is only the costs that are to be the burden of future generations of Europeans, they will thank us for taking the time and effort to highlight this Alice in Wonderland comedy and expose it for what it really is.

On 10 September The Times said: Mrs. Thatcher has vowed to make budget discipline a hallmark of Britain's handling of EEC finances during its six month presidency. The job of making budget discipline a hallmark lies on the shoulders of the Minister of State, Treasury. In August of this year the Financial Times said he is A patient and courteous man with (so it is said) an impressive grasp of financial detail even at 3 o'clock in the morning. Sometimes we get close to that in these debates, but so far we have not had an EEC budget debate at 3 o'clock in the morning. Perhaps we would have to do so in order to see that courteous and able man display the mastery of figures that he all too clearly does not have when we have debates earlier in the day.

This courteous and honourable man spoke in a broadcast direct from Brussels—at 8 o'clock in the morning—after negotiating the 1986 budget. The House had sweated through an evening's debate on the budget which, thinking to escape that punishment, he had left to the Economic Secretary. To the astonishment of those of us who had sat through the debate, we were told from Brussels that the 1986 budget settlement was "a victory for common sense". Those are the words of a conjuror, not an accountant.

The Government took the European Parliament to court because it had approved a budget 1,102 million ecu over the Council's 1985 budget. They went to all that time, trouble and, no doubt, enormous expense and won the court case, only to shell out an extra 3,457 million ecu the very next day in the budget settlement. Replacing a 1 billion ecu deficit with an overspend three and a half times the size is some victory for common sense. It should be enough to gain the Financial Secretary a place in the Magic Circle.

The action in the European Court was a charade, a synthetic crisis blown up to cover the incompetence of the Council of Ministers. The hon. Member for Cheadle (Mr. Normanton) usually lauds the European Parliament and the European Community, but as a member of the Budgets Committee of the European Parliament he blew the gaff in a remarkable speech today. The fault in that crisis, which was developed and then taken to the European Court, lay within the Council of Ministers. It was a worthless charade—a crude attempt to siphon off people's proper indignation at the utter collapse of budget discipline into an accusation against the European Parliament and European parliamentarians.

There is better yet to come. Leaving aside the convolutions of the 1986 budget and its death throes, the pantomime of the 1987 budget is still to come. The ink was scarcely dry on the 1986 budget—that victory for common sense—when a deficit was discovered. It has been passed off today as trivial and a matter of no consequence, a mere shortfall in revenue. That is Eurospeak for a cash shortage of 776 million ecu. The Minister coined a new expression today, referring to the deficit as 776 mecu to make it sound even less, but it actually means £500 million. That is more than the Government are being asked to provide to finance the teachers' pay settlement, but it is wafted away in the guise of 776 mecu, instantly eliminating the entire budget deficit.

Through the magic of the market, that deficit is then called a "negative reserve". It is a standing joke that this country does not have terrible debates about the budget deficit as the Americans do, because we do not call it a budget deficit—we call it the public sector borrowing requirement. The hon. Member for Southend, East (Mr. Taylor), I believe, once said that most people probably thought that the PSBR was the parcel service of British Rail. By such convolutions, we avoid the problem. The European Community has what the rest of us would call a debt, an overdraft or a shortage of cash, which it promptly calls a negative reserve and puts on to next year's budget.

The budget, which was the victory for common sense, is now in the past, apart from the £500 million debt problem. What a legacy, and what a commentary on the so-called budget discipline, leaving behind 926 million ecu above the agriculture guidelines, and, of course, getting worse every day. Some 63 per cent. of the whole Community budget was devoted to agriculture.

The 1986 budget was almost the good news, but for no other reason than that it would be better than the 1987 budget. The 1987 budget—we are not even in 1987—is bust already. The President of the Commission, Jacques Delors, now openly says that it will be £2 billion—not mecu, ecu or anything else, but pounds—short of what is necessary and what is available on the own resources of the Community, and that by the middle of 1987, if the Minister survives that long—survivability is not long in that job—he will be back again with his begging bowl for another intergovernmental agreement, a non-reimburseable advance or a reimburseable advance, all feeble disguises for more cash and fewer goods.

The Minister even dared to wander on to the subject of the famous IGAs, another euphemism for yet more cash, but we can take the prediction that there is no possibility of an IGA next year with exactly the same pinch of salt as we have taken every other guarantee on that matter from any one of his predecessors.

The Minister says that there is now 665 million ecu of headroom. That is what he told the Select Committee on European Legislation. But since the Committee's meeting, the European Parliament has managed to use its margin, which it always knew it would use in any event, and has reduced the so-called headroom even more. On top of that headroom, the marvellous £400 million or so of headroom that is apparently there before we hit the ceiling, we have 776 million ecu of revenue shortfall. That is another £500 million that has to be found from last year's budget. Again, in an offhand way the Minister says that, because the dollar-ecu rate is still being misjudged, another 750 million ecu, another £500 million extra, will have to be found this year on top of all that, to fund the mistakes in the accountancy.

We have all that—we are in crisis already—and what will we get for it? Overseas aid has been cut substantially—£138 million has been cut from the Commission's proposal. There are cuts in energy, research, industry and transport budgets. The regional and social funds will not even rise by the rate of inflation in the Community. There will be more of the cost of the past and nothing has been set aside for the cost of implementing the Single European Act and the commitments in that legislation that we were told were so important.

All that is being done to fund the uneatable, the unsaleable, the unusable, the untenable, and, of course the wholly unacceptable surpluses. Nothing is being done about them. We are also told in some of the newspaper articles from which we derive most of our information that there might be a delay in the British rebate being considered. Will the Minister tell us whether that is true? We are also told that the President of the Commission is now considering a new system for borrowing on the world markets to destock the butter and the grain mountains. Can the Minister enlighten us on how that new foreign flotation of the ecu will take place? Or will the same geniuses who are selling British Gas to the British people who own it in the first place be in charge now of selling the uneatable surpluses to the Third world? We wait pregnantly to find out the answer on that count. It is a lamentable farce. Hon. Members on both sides of the House have underlined only too vividly the disasters of the common agricultural policy, which has brought this great Community to the borders of ruin in that way.

If the documents and these two budgets are to be paraded as the genuine hallmark of what the Prime Minister sees as budget discipline, then no wonder there is trouble. The debate has highlighted the hallucination that is financial common sense in the European Community That is not a condemnation of the Community but a sickening condemnation of the political leaders who know the scale of the challenge before our continent and who know with startling and vivid clarity what is preventing them from getting down to dealing with it. So long as successive Ministers in this House and the rest of Europe continue to chicken out from dealing with the blindingly self-destructive farm policy, the only thing ahead for the European Community is disaster.

In this debate we see the same picture as before, and all the sycophantic whitewashing of the Prime Minister's so-called courage in taking on what she has never dared touch before will not convince anyone. Only the House can stop this madness and our amendment is a moderate and minimum way in which it can be done. I commend it to the House.

9.56 pm

Mr Brooke

This has been an admirable debate. The number of hon. Members present for the debate has been spoken about and I am delighted to see the hon. Member for Knowsley, North (Mr. Howarth). The hon. Member for Thurrock (Dr. McDonald) was a little casual in her disclaimer about the words in the Opposition amendment. She implied that because it contained a reference to payment appropriations everyone would understand what she meant, the implication being that payment appropriations for anything other than non-obligatory expenditure were somehow not payment appropriations. I shall remember that for future debates.

The hon. Lady talked about the 776 mecu shortfall, and for the purposes of brevity I shall continue to use the term "mecu". She also spoke about the serious implications that that might have in 1987. When we debated this matter in the Council on 8 and 9 September my hon. Friend the Economic Secretary argued on behalf of the United Kingdom for the budgetisation of the revenue shortfall of 776 mecu. It is a matter to which we shall return when we meet in Brussels on Wednesday at which time the Council will have other matters to put to us.

The hon. Member for Newham, South (Mr. Spearing) put a question, in a sense via his hon. Friend the Member for Thurrock, about the 1.4 per cent. I shall answer at a little length to make sure that I clarify matters. Whether the 1986 budget is strictly in balance and, if it is not, whether it is illegal, was implicit in the hon. Gentleman's appropriate question. The budget adopted is in balance. The predicted revenue deficit has not been budgetised, at least not until now.

Mr. George Robertson

It will sound much better at 3 o'clock in the morning.

Mr. Brooke

It will read terribly well. To the extent that the necessary offsetting savings are not found this year there will be an end of year deficit to be carried forward. The financial regulation makes clear that the carrying forward of a surplus or deficit from one year to the next is normal budgetary procedure. There is no question of illegality. A usual procedure would be for the Commission to bring a deficit to account in a preliminary draft amending budget, in this instance in the summer of 1987. The Council will discuss this matter again at Second Reading on the basis of revised and updated Commission figures. I shall carry the matter forward in the context of 1987 because it has obviously informed the debate.

The Commission took into account the prospective revenue deficiency in 1986 when drawing up the preliminary draft budget for 1987. The main effects on the 1987 budget are the likelihood, which must be even greater now, given the upward revision of the Commission's revenue deficit in 1986, of a substantial deficit being carried forward from 1986, revised calculations for the United Kingdom's abatement in respect of the VAT adjustment which we paid on 1 August, and the proposed change in the 1986 VAT assiette. There is no question of expenditure in the draft 1987 budget exceeding that allowed under the 1.4 per cent. VAT ceiling. If the funds are not available, they cannot be spent and expenditure over the VAT ceiling would have to be cancelled or deferred.

Mr. Deakins

The hon. Gentleman has raised an important point of principle, which I had not appreciated, which is that deficits in one year can be carried forward to the next. Might that be one way in which weaker spirits in the Community might want to postpone resolution of the financial problem—by having a bigger and bigger deficit each year and carrying the deficit forward to the next year?

Mr. Brooke

We are not talking about something new. There have been budget deficits and surpluses in previous years. It goes without saying that those who might be described as stronger brethren in the Council would be anxious to prevent what the hon. Gentleman describes occurring.

The hon. Member for Thurrock referred to the effect of the 0.96 dollar/ecu rate and quoted freely, as did the hon. Member for Hamilton (Mr. Robertson), from The Times, which I thought was not acceptable reading on the Opposition Front Bench. I listened to everything that they said. In regard to what was discussed in the ECOFIN Council on 17 October, the hon. Lady said that there was no likelihood of anything like that happening in the Community in the near future, but the seriousness of the matter indicated by the 0.96 rate is having a powerful effect on everybody concerned.

The ECOFIN to which the hon. Lady referred was the first that anybody can remember to which the agriculture Commissioner, the budget Commissioner and the President of the Commission all came to discuss the issue with the Council. When I attended a cross-examination by the Scrutiny Committee on 30 October, I said that I thought that there was a distinct movement in the European Parliament on this issue. That view was confirmed by the votes on the European Parliament on agriculture issues on 13 November.

In view of the stance taken by the hon. Member for Thurrock, I am slightly surprised that she seemed to forget price fixings under the CAP which were taken by the Labour Government. The Government have consistently advocated effective reform of the CAP to restrain its claims on the limited budgetary resources available to the Community and to reduce the economic waste involved in stockpiling surplus production. Effective reform is likely to involve several elements, and more realistic support prices and limiting the open-ended nature of price guarantees must play an important part. We have recognised that other measures may be necessary, and my right hon. Friend the Minister for Agriculture, Fisheries and Food recently circulated a suggestion for a scheme to divert some land out of cereals production.

During our presidency, top priority has been given to considering the Commission's proposals for reform in the beef and dairy sectors. Those proposals are still before the Agriculture Council, which will meet again on 8 and 9 December. My right hon. Friend the Member for Taunton (Sir E. du Cann) rebuked me about mecu. My plea is that, in the 3.5 pounds of paper which compromise the explanatory memorandums, all of the figures are given in mecu and sterling. The problem with dealing in sterling is that one has constantly to refer to the exchange rate, whereas mecu remain constant in these transactions. My right hon. Friend mentioned creative accounting, but I do not think that he challenged its legality, as did my hon. Friend the Member for Southend, East (Mr. Taylor). My right hon. Friend the Member for Taunton said that no start has been made. That phrase was picked up by the hon. Member for Inverness, Nairn and Lochaber (Sir R. Johnston). When the Council reached its budget first reading on 8 September, budgetary discipline was maintained, as was loyalty to the agriculture guideline. There was still substantial headroom below the 1.4 per cent. VAT ceiling in the budget which we sent to the Parliament.

My right hon. Friend referred to double standards and the difference in terms of the autumn statement remarks on domestic expenditure and the Community's apparent indifference on these matters. I would claim credit for the Government for the manner in which they have, both in the Council and in the Parliament over the past year, convinced an increasing number of people that the method by which commitment appropriations increase faster than payment appropriations is the road to ruin and needs to be reined back.

My right hon. Friend the Member for Taunton said that the House had been misled and be referred to the great store set by Fontainebleau. He specifically referred to the change that had occurred in the current year between the figures originally predicted and the figures in the autumn statement. Although I agree that there is a difference in the wrong direction of over £400 million in these figures over the course of the next two years, if he reads further on in the document he will see the trend in the opposite direction of £800 million in the United Kingdom statement.

My right hon. Friend the Member for Taunton referred to the 1.4 per cent. VAT ceiling, but it is worth reminding the House that the United Kingdom paid 0.68 per cent. My right hon. Friend gave a broadcast, which I much enjoyed listening to this morning, in which he said that his support for the Prime Minister was total. I can only express my personal regret that this does not extend to supporting the Government in the Lobby tonight.

The hon. Member for Inverness, Nairn and Lochaber implied that I am a lawyer, but I am not. He referred to my quotation about a good start having been made, and implied that it had not been. I was making that statement in the context of the budgetary process for 1987 and the fact that we delivered the First Reading within the budgetary guidelines. I am not sure what he meant in implying that that was not so.

My hon. Friend the Member for Cheadle (Mr. Normanton) said some kind words about me, for which I am grateful. He implied that the Council is failing to come to grips with the difficulties and complications. He went on to ask about the process of trilogue, which is a triangular meeting between the Presidents of the Commission, the Council and the Parliament. While the Council has been pressing for a trilogue to take place and for that process to be advanced there are some practical difficulties in the fact that, for perfectly understandable reasons, officials on the Parliament side have greater difficulty in committing their masters than do those on the Council side.

My hon. Friend referred to enlargement. There was no change in the provision for Spain and Portugal between 27 November 1985, Council Second Reading, and the budget that was adopted on 10 July. My hon. Friend said that the budget was out of balance, and that reflected what many hon. Members feel about the CAP.

The hon. Member for Walthamstow (Mr. Deakins) made a thoughtful speech, as he does on these occasions, and asked a number of questions. The 1.4 per cent. ceiling and the ex novo review into which the Commission is going are not within the bounds of that at which we are looking tonight. We are debating three reports which the Commission will be bringing forward, probably before the end of the year, or, if not, early in the new year, on the future financing of the Community, the structural funds and the common agricultural policy.

The hon. Gentleman asked about clarification and such questions are being taken to the trilogue for resolution, with the Commission holding the ring in terms of convening the meeting and conducting the debate. The number of lines involved in very small.

The hon. Member for Walthamstow then asked me whether agrimonetary changes are regarded as exceptional circumstances under budgetary discipline. The Government do not accept that the budgetary effects of agrimonetary changes should necessarily be regarded as exceptional circumstances, justifying an excess over the budget disciplone guidelines. Although the Commission has advanced this argument, the timing and effect of EMS realignments cannot readily be forecast in advance. The question whether there are exceptional circumstances in 1987 will be considered by the Council next year.

My hon. Friend the Member for Clwyd, North-West (Sir A. Meyer), to whom I apologise for having been out of the Chamber at the beginning of his speech, also made some kind remarks about me. A great characteristic of these debates is that a number of hon. Members participate in them regularly, which very much contributes to their sense of continuity. The emphasis that my hon. Friend placed on the common agricultural policy was characteristic of the move that has occurred in the European Parliament on this issue, where real movement is taking place on policy thinking.

The hon. Member for Greenock and Port Glasgow (Dr. Godman) made an avowedly constituency speech. It was worth being reminded that the 3.5lbs of paper to which reference was made have an impact in the constituencies of every hon. Member, although I appreciate that, as the hon. Gentleman said, the impact is not always satisfactory.

My hon. Friend the Member for Southend, East argued that the budget was wholly bogus. I recount to him also the fact that there is headroom within the 1.4 per cent. ceiling in terms of the budget which the Council sent to Parliament. Budgetary discipline is not bogus. Nevertheless, I acknowledge that policy changes are needed to bring spending into line with the figures.

My hon. Friend referred to cheating and to illegalities, but I do not believe that he was implying that the co-responsibility levy is illegal. I am not entirely clear how the advance payment of contributions would help overspending since it is essentially a cash flow exercise. I agree with my hon. Friend about late payments. However, they are an indirect way of reducing the intervention price, which the Government support.

My hon. Friend also referred to the implications of the 1.4 per cent. ceiling in 1987. I referred earlier to the point raised by the hon. Member for Walthamstow concerning the ex novo reviews. I see little prospect of the Community accepting my hon. Friend's idea of repatriation of the CAP. However, I hope that he will take comfort and encouragement from the question asked by my hon. Friend the Member for Stafford (Mr. Cash) about the report of the Centre for European Policy Studies on the future financing of the Community. The report refers specifically to segmentation of the budget, with the agriculture policy being separated from everthing else.

The Government regard this as a serious contribution to the consideration of reform of the Community budget. The key message is that there is no prospect of further substantial progress in the Community until the growth of spending on agricultural price support has been brought under control. We fully support this aim. The study advocates the separation of agriculture from the rest of the budget. That is worthy of future consideration.

The suggestion that the agriculture budget should have its own resources and should be required to live within its means reflects the need to exert greater discipline over agricultural spending. The ideas in the study about how to achieve greater discipline are interesting. I hope that the Commission will take full account of the basic principle set out in the report when it publishes its ex novo review. The precise mechanisms will require full discussion.

The hon. Member for Inverness, Nairn and Lochaber said that I was a lawyer and the hon. Member for Hamilton said that I was the Financial Secretary, both of which descriptions I regard as compliments, although, in fact, I am neither.

The hon. Member for Hamilton went on to say that he had heard me at 8 am in Brussels. I was actually broadcasting at a civilised hour in Strasbourg. He said that the action of the Council in bringing the case before the court was a charade. I am delighted to say that the court did not take that view. I have to say in a low and quite voice that the hon. Gentleman does not understand the negative reserve, but, for the benefit of the House, I shall explain it to him in another place and at another time.

As to the survivability of Ministers in my position, my right hon. Friend the Chancellor of the Exchequer did it for two years, my right hon. Friend the Secretary of State for the Environment did it for two years, my hon. Friend the Economic Secretary did it for nearly two years. I have, so far, done it for one year and I am greatly enjoying it. That is long enough to live with the consequences of one's own actions.

The hon. Gentleman implied that there was likely to be a delay in the British rebate. I am delighted to say that as a result of what the Council of Ministers decided on 8 September the payment of the British rebate was accelerated rather than delayed.

Question put, That the amendment be made:—

The House divided: Ayes 82, Noes 174.

Division No. 6]	[10.15 pm
AYES
Archer, Rt Hon Peter	Banks, Tony (Newham NW)
Ashton, Joe	Benn, Rt Hon Tony
Atkinson, N. (Tottenham)	Bermingham, Gerald
Bagier, Gordon A. T.	Bidwell, Sydney

Boyes, Roland	Lewis, Ron (Carlisle)
Brown, N. (N'c'tle-u-Tyne E)	Lloyd, Tony (Stretford)
Buchan, Norman	Lofthouse, Geoffrey
Callaghan, Jim (Heyw'd & M)	McDonald, Dr Oonagh
Campbell-Savours, Dale	McKay, Allen (Penistone)
Clark, Dr David (S Shields)	McKelvey, William
Clarke, Thomas	McNamara, Kevin
Clay, Robert	McWilliam, John
Clelland, David Gordon	Marek, Dr John
Clwyd, Mrs Ann	Mason, Rt Hon Roy
Conlan, Bernard	Maxton, John
Cook, Robin F. (Livingston)	Millan, Rt Hon Bruce
Corbyn, Jeremy	Miller, Dr M. S. (E Kilbride)
Deakins, Eric	Nellist, David
Dewar, Donald	Parry, Robert
Dixon, Donald	Patchett, Terry
Dormand, Jack	Powell, Rt Hon J. E.
Dunwoody, Hon Mrs G.	Powell, Raymond (Ogmore)
Eastham, Ken	Prescott, John
Evans, John (St. Helens N)	Randall, Stuart
Fatchett, Derek	Raynsford, Nick
Fields, T. (L'pool Broad Gn)	Redmond, Martin
Forrester, John	Roberts, Allan (Bootle)
Foster, Derek	Robertson, George
Foulkes, George	Rogers, Allan
Godman, Dr Norman	Ross, Ernest (Dundee W)
Golding, Mrs Llin	Sheerman, Barry
Gourlay, Harry	Shore, Rt Hon Peter
Hamilton, James (M'well N)	Skinner, Dennis
Hardy, Peter	Smith, C.(Isl'ton S & F'bury)
Hogg, N. (C'nauld & Kilsyth)	Smith, Rt Hon J. (M'ds E)
Home Robertson, John	Spearing, Nigel
Howarth, George (Knowsley, N)	Wareing, Robert
Hughes, Robert (Aberdeen N)	Welsh, Michael
Hughes, Sean (Knowsley S)	Winnick, David
Jones, Barry (Alyn & Deeside)
Lamond, James	Tellers for the Ayes:
Leadbitter, Ted	Mr. Ron Davies and
Leighton, Ronald	Mr. Mark Fisher.
NOES
Alton, David	Cash, William
Amess, David	Chapman, Sydney
Ancram, Michael	Chope, Christopher
Arnold, Tom	Clark, Dr Michael (Rochford)
Ashdown, Paddy	Clarke, Rt Hon K. (Rushcliffe)
Aspinwall, Jack	Colvin, Michael
Baker, Nicholas (Dorset N)	Coombs, Simon
Baldry, Tony	Cope, John
Beaumont-Dark, Anthony	Crouch, David
Bellingham, Henry	Currie, Mrs Edwina
Benyon, William	Douglas-Hamilton, Lord J.
Best, Keith	Dunn, Robert
Biggs-Davison, Sir John	Durant, Tony
Blackburn, John	Dykes, Hugh
Boscawen, Hon Robert	Edwards, Rt Hon N. (P'broke)
Bottomley, Peter	Eggar, Tim
Bottomley, Mrs Virginia	Evennett, David
Bowden, Gerald (Dulwich)	Fairbairn, Nicholas
Braine, Rt Hon Sir Bernard	Fallon, Michael
Brandon-Bravo, Martin	Fenner, Dame Peggy
Bright, Graham	Finsberg, Sir Geoffrey
Brinton, Tim	Fletcher, Alexander
Brooke, Hon Peter	Forman, Nigel
Bruce, Malcolm	Forsyth, Michael (Stirling)
Bruinvels, Peter	Forth, Eric
Buchanan-Smith, Rt Hon A.	Fowler, Rt Hon Norman
Buck, Sir Antony	Fraser, Peter (Angus East)
Bulmer, Esmond	Freeman, Roger
Burt, Alistair	Galley, Roy
Butcher, John	Garel-Jones, Tristan
Butler, Rt Hon Sir Adam	Gower, Sir Raymond
Butterfill, John	Griffiths, Sir Eldon
Carlile, Alexander (Montg'y)	Griffiths, Peter (Portsm'th N)
Carlisle, Rt Hon M. (W'ton S)	Ground, Patrick

Gummer, Rt Hon John S	Maude, Hon Francis
Hamilton, Hon A. (Epsom)	Mayhew, Sir Patrick
Hamilton, Neil (Tatton)	Merchant, Piers
Hanley, Jeremy	Meyer, Sir Anthony
Hannam, John	Miller, Hal (B'grove)
Hargreaves, Kenneth	Mills, Iain (Meriden)
Harris, David	Mitchell, David (Hants NW)
Haselhurst, Alan	Montgomery, Sir Fergus
Hawkins, Sir Paul (N'folk SW)	Morrison, Hon C. (Devizes)
Hayes, J.	Neale, Gerrard
Hayward, Robert	Nelson, Anthony
Heathcoat-Amory, David	Normanton, Tom
Heddle, John	Norris, Steven
Henderson, Barry	Oppenheim, Phillip
Hicks, Robert	Osborn, Sir John
Hind, Kenneth	Ottaway, Richard
Hirst, Michael	Page, Richard (Herts SW)
Holland, Sir Philip (Gedling)	Peacock, Mrs Elizabeth
Howard, Michael	Penhaligon, David
Howarth, Gerald (Cannock)	Pollock, Alexander
Howell, Ralph (Norfolk, N)	Portillo, Michael
Hubbard-Miles, Peter	Powell, William (Corby)
Hunter, Andrew	Powley, John
Hurd, Rt Hon Douglas	Price, Sir David
Jackson, Robert	Raffan, Keith
Jenkin, Rt Hon Patrick	Renton, Tim
Jessel, Toby	Rhodes James, Robert
Johnston, Sir Russell	Rhys Williams, Sir Brandon
Jones, Robert (Herts W)	Ridsdale, Sir Julian
Kellett-Bowman, Mrs Elaine	Roe, Mrs Marion
Key, Robert	Sainsbury, Hon Timothy
King, Roger (B'ham N'field)	Sayeed, Jonathan
Knight, Dame Jill (Edgbaston)	Silvester, Fred
Knowles, Michael	Skeet, Sir Trevor
Latham, Michael	Soames, Hon Nicholas
Lawler, Geoffrey	Speller, Tony
Lennox-Boyd, Hon Mark	Stanbrook, Ivor
Lester, Jim	Stern, Michael
Lightbown, David	Stevens, Lewis (Nuneaton)
Lilley, Peter	Stewart, Allan (Eastwood)
Livsey, Richard	Thompson, Patrick (N'ich N)
Lloyd, Peter (Fareham)	Thurnham, Peter
Lord, Michael	Townend, John (Bridlington)
Luce, Rt Hon Richard	Wakeham, Rt Hon John
Lyell, Nicholas	Wardle, C. (Bexhill)
McCrindle, Robert	Wells, Bowen (Hertford)
McCurley, Mrs Anna	Wells, Sir John (Maidstone)
Macfarlane, Neil	Wheeler, John
Maclean, David John	Wiggin, Jerry
McLoughlin, Patrick	Wilkinson, John
McNair-Wilson, M. (N'bury)	Yeo, Tim
McQuarrie, Albert
Major, John	Tellers for the Noes:
Malins, Humfrey	Mr. Michael Neubert and
Mather, Carol	Mr. Gerald Malone.

Question accordingly negatived.

Main Question put and agreed to.

Resolved, That this House takes note of European Community Documents Nos. 5484/86, key figures for the 1987 Budget; 7113/86, Preliminary Draft Supplementary and Amending Budget No. 1 for 1986; 7068/86, updated key figures for the 1987 Budget; 7927/86, Preliminary Draft Budget for 1987; 9192/86, Draft Budget of the European Communities for 1987; 8877/86, Letter of Amendment No. 1 to the Preliminary Draft Budget of the European Communities for 1987; COM(86)360, Letter of Amendment to the 1986 Budget; 8876/86, Preliminary Draft Amending Budget No. 1 for 1986; 8883/86 and Addendum 1, Commission Communication on recent developments affecting the 1986 Budget and 1987 Preliminary Draft Budget; and supports the Government's efforts to achieve tighter restraint and better balance in the Community's Budget.