European Community (Finance)

HC Deb 19 May 1988 vol 133 cc1155-98

Mr. Speaker

I must announce to the House that I have selected the amendment in the name of the Leader of the Opposition.

7.13 pm

The Paymaster General (Mr. Peter Brooke)

I beg to move, That this House takes note of European Community Documents Nos. 10552/86 and the un-numbered Explanatory Memorandum submitted by the Treasury on 18th March 1987 on the 1987 Community Budget, the un-numbered Explanatory Memorandum submitted by the Treasury on 18th March 1987 on carry-over of appropriations from 1986 to 1987, 6037/87 on the 1987 Budget situation, 6822/87 and 7552/87 on Supplementary and Amending Budget No. 1 for 1987, 6048/87, 7211/87, COM(87)240, COM(87)677 and COM(88)81 on the 1988 Preliminary Draft Budget, 4766/88 on the 1988 Draft Budget, 4051/87 on financial engineering, 5266/88 on Own Resources, 5282/88 on amendments to the Financial Regulation and the un-numbered Explanatory Memorandum submitted by the Treasury on 10th May 1988 on budgetary discipline; and endorses the Government's objectives of securing effective and binding control of Community expenditure.

I am delighted that the House has the opportunity this evening to debate the unfinished business of the Brussels European Council and the 1988 Community budget, ahead of the decisions which the Council of Ministers and the European Parliament are likely to reach over the next month or so.

The motion mentions a number of documents, deposited with the House, which the Scrutiny Committee has recommended for debate. I pay tribute to the Scrutiny Committee for its clear, concise and conscientious reports on these documents. I pay tribute also to the Treasury and Civil Service Committee, which has been monitoring developments in Brussels with all the diligence and understanding that we have come to expect from that Committee.

Mr. Teddy Taylor (Southend, East)

As my right hon. Friend said that the Council and the Parliament are likely to agree these matters within a month, will he explain how that is possible under article 199, when this Parliament and other Parliaments have not approved the increase in resources that would match the expenditure under article 199?

Mr. Brooke

If my hon. Friend will be content to know that I was going to deal with those matters at some length, it might be more sensible if I took them in logical order.

The House may find it helpful if I begin by saying a little about the likely timetable of events in Brussels, the Community's financing needs and the procedures for obtaining Parliament's approval for the Community's new own resources decisions and the 1988 intergovernmental agreement, or IGA. The House may like to be reminded that the Heads of Government agreed at the Brussels European Council in February on a new own resources ceiling and system for the Community. They also agreed that it should take effect for the current year by means of an agreement between the member states that they will provide supplementary contributions to the 1988 Community budget in the form of non-reimbursable advances against the newly agreed own resources, pending ratification of the new own resources decision.

To begin then, with the likely timetable, we learned from Strasbourg last night that the European Parliament had reached agreement with the President of the Budget Council on the 1988 Community budget, though it is not yet clear whether the President of the Parliament, Lord Plumb, will declare the budget adopted until final agreement has been reached on the other unfinished business of the Brussels European Council.

The Community has still to reach final agreement on all the other main documents implementing the European Council conclusions, including the new decisions on own resources and budget discipline and the 1988 IGA. Also unfinished are the negotiations with the European Parliament on an inter-institutional agreement about implementation of the Community's expenditure policies over the next five years. There now seems a good chance that all this unfinished business will be resolved over the next three or four weeks, but I cannot, of course promise the House that that timetable will be fulfilled.

If I may turn next to the Community's financing needs and the question of seeking the House's approval for the Community's new financing agreements, I want to say first that the Government will not pay any contribution to the Community under the new own resources decision or the intergovernmental agreement until the House has signified its approval. I have made that point already to the Treasury and Civil Service Committee, and I am glad to repeat it in the House now.

The Commission will, however, have an urgent cash-flow problem over the next few weeks. It has calculated that this will arise in any case as a result of the Community's existing obligations, whether the 1988 budget is formally adopted or not. The cash requirement has nothing to do with adoption of the budget or the IGA, but simply reflects the fact that the level of spending to which the Community is committed, in particular on agriculture, is running faster than the limited revenues which are available, month by month, under the present provisional twelfths regime. Earlier in the year the Commission's cash position was strong and this enabled it to make ends meet. This month, however, it has had to call for an advance payment of traditional own resources under article 10(2) of regulation 2891/77. I shall be providing details of this in a written answer tomorrow.

Mr. Eric Forth (Mid-Worcestershire)

The House might be slightly puzzled, as I confess to being, at hearing my right hon. Friend say that there are problems of expenditure outrunning resources. My right hon. Friend will recall that when Fontainebleau was concluded we were told that effective measures had been put in place to control expenditure. If I am not mistaken, we shall probably be told something similar in a few moments. How can my right hon. Friend square the fact that the Parliament and the Community have run out of money and are in crisis with the fact that Fontainebleau was supposed to provide the answers some two or three years ago?

Mr. Brooke

My hon. Friend will be familiar with the answer. In the current year the Community is operating on provisional twelfths. Provisional twelfths quite clearly do not represent the level of resources that would otherwise have been adopted, because no budget has been adopted. That is why the Commission has a cash flow problem.

Mr. Terence L. Higgins (Worthing)

Is it quite accurate for my right hon. Friend to say that the Commission has a cash flow problem? Would I be wrong in supposing that if the House does not agree to an IGA or to the increase in own resources, the Commission does not have a cash flow problem; it quite simply does not have the money?

Mr. Brooke

The provisional twelfths amounts come through on a monthly basis. It is a current month problem that the Commission has asked us to address. The nature of a 10(2) overdraft request is simply to ask for own resources to be brought forward and to be paid at a slightly earlier date than they otherwise would be.

Mr. Nigel Spearing (Newham, South)

I am grateful to the right hon. Gentleman for giving way at this point, because it helps to bring about a rational debate. He may have said something that he did not intend. He said that the new IGA would not be approved by the Government unless it had been endorsed by the House. That has to happen through a Bill or an Estimate. Can he assure the House that the Government would not assent to that in the initial stages, before it was endorsed by the House, unless and until there had been agreement in the institutions of the EEC to the British rebate formula and the disciplinary documents? Surely the former depends upon the acceptance of the latter.

Mr. Brooke

The hon. Gentleman is perfectly correct in identifying that as a subject that came up when I gave evidence to the Treasury and Civil Sevice Select Committee last week. If the hon. Gentleman will bear with me I shall come to the issue and deal with it within the logical framework of my speech.

Next month the Commission expects to have to call for overdraft facilities under article 12(2) of the same regulation, although on a much smaller scale than would be implied by a six-monthly slice of IGA contribution.

When the 1988 budget is finally adopted, the Commission will need further funding without too much delay to enable it to fulfil its responsibility to implement the budget. It has suggested that it is likely to call up contributions from member states in the form of IGA contributions or of overdraft advances under article 12(2) of the regulation to which I have referred, depending on what has been agreed in the Council and what is possible for the member state concerned. Initially, these requests for the funds will be needed to cover cash flow requirements which would have arisen in any case. The IGA cannot be finally crystallised until we have agreement on all the relevant provisions of the Community's new own resources decision, including the United Kingdom abatement provisions.

Member states are obliged to comply with overdraft requests by the Commission under article 12(2) of the regulation, provided that these are genuinely needed to cover a prospective cash deficit, and provided that they would not involve exceeding the own resources known to be available for the year. The Government stand ready, therefore, to meet such overdraft requests, before or after adoption of the budget, and before or after final agreement on the IGA, provided that these conditions are fulfilled. We would charge such overdrafts directly against the Consolidated Fund, like all other Community obligations, while keeping the House fully informed. The Government would not, however, intend to meet demands for overdraft contributions, to the extent that these were in effect requests for IGA contributions, without first seeking the House's approval for the necessary supplementary financing.

As we cannot be sure when the supplementary financing will first be needed, we may well find that we have to seek Parliament's approval on a somewhat accelerated timetable, though the overdraft facility will continue to be available in the way that I have described. If that happens, I am sure that the House will understand the reasons why.

As to the means by which Parliament's approval will be sought, there are in principle two main options. One will be to seek approval my means of a composite Bill, covering both the new own resources decision and the IGA. This would follow the precedent of the European Communities (Finance) Act 1985. The Bill would be introduced as soon as possible after the IGA and the new own resources decision have been formally agreed and the 1988 budget adopted. The initial instalment or instalments of the IGA would be financed as necessary from the Contingencies Fund if and when Parliament has given the Bill a Second Reading.

The other option would be to decouple the own resources decision and the IGA. On this approach we would seek approval for the own resources decision through a Bill while separately presenting a special Estimate and Consolidated Fund Bill to cover our IGA contributions. The procedure for approval of the 1984 IGA would provide a precedent for that.

I imagine that most hon. Members would feel, as I do, that the composite Bill approach would be preferable to the decoupled approach.—[HON. MEMBERS: "No."] I shall stick by the observation I have made. If hon. Members wish to disagree during the debate, I shall look forward to replying later.

Mr. Spearing

This is a Committee-style exchange because Committee-style detail is required. Surely the right hon. Gentleman appreciates that the IGA is outside the treaties and is an agreement between Governments not within the treaty of Rome. The draft decision, which has also to be ratified by the House and which has not yet been completed in Brussels, will have to be ratified to cover the new financial structure for the next five years. Surely it would be quite wrong to put the two together—one intra-treaty and one extra-treaty—in the same piece of legislation.

Mr. Brooke

I have offended the purist instincts of the House in suggesting that they should be taken together. I did not hold the office for which I am currently responsible during 1984 and 1985. My understanding of the affairs of that time was that Parliament in general, and the Treasury and Civil Service Select Committee in particular, had shown a preference for the linked approach and the composite Bill. It is the case—I am now referring to Parliament's convenience—that one would be taking through the entire complicated matter in a single tranche rather than as separate measures. No doubt other hon. Members who registered a negative a moment ago will want to enlarge on that when they speak.

The final choice will have to depend on the timing of agreement in Brussels on the various elements in the total package. If the final agreement on the own resources decision, or even on the IGA, should be delayed, the composite Bill route might not be available and, as I understand it, would not be to the liking of the hon. Member for Newham, South (Mr. Spearing). Decoupling might then be the only solution.

Before leaving this important subject I should emphasise again that the timetable in Brussels remains uncertain and we do not yet have final decisions on how the Commission will handle these somewhat complicated financing issues. The Government's own proposals on procedure must likewise, therefore, remain provisional for the time being. I shall keep the House informed about developments.

The documents that appear in today's motion fall into four categories: documents relating to the 1987 and 1988 budgets; a document on the Community's "financial engineering" proposals; the Commission's proposal for a new own resources decision; and documents on budget discipline and management.

With the House's permission, I shall say a few words about each of those subjects. First, I shall deal with the 1988 budget. The documents in today's motion have been largely overtaken by the developments in Strasbourg last night. which I mentioned earlier. Although precise details are not yet clear, it seems that the European Parliament voted yesterday evening to reinstate all its first reading budget proposals, thus creating, on present indications, an excess of 200 mecu in commitments over the statutory margin that the treaty allows the Parliament to add to the Council's proposals for non-obligatory expenditure, while using up all the margin for payments.

In response to this, the President of the Budget Council announced that he had authority from the Budget Council to negotiate a new maximum rate of increase for commitments and would therefore agree to the Parliament's proposals on the Council's behalf. The result is that we now have agreement between the Council and the Parliament on the 1988 budget.

It remains uncertain when the President of the Parliament, Lord Plumb, will declare the budget adopted. He said last night that he would take time to consider—

Mr. Stuart Holland (Vauxhall)

I hesitated for a moment before pointing this out, but I think the right hon. Gentleman will find that he has already made these points to the House this evening.

Mr. Brooke

I will, if I may, continue my speech.

Mr. David Curry (Skipton and Ripon)

I wonder whether it would assist the House if I told my right hon. Friend what happened in the European Parliament yesterday, because I was there. The Parliament voted through a budget that went beyond what the Council regards as the margin of commitments and the President of the Council, Mr. Tietmeyer, signalled his consent to that higher amount by fixing a new maximum rate. Therefore, the situation is that the budget is now in a condition to be signed by the President of the Parliament. He has said that he will sign the budget after he has studied it, and the event upon which he is waiting is the next round of discussions on the inter-institutional agreement, to which my right hon. Friend referred, and which represents the Parliament's desire to be associated with the longer-term framework of budgetary discipline over a five-year period. What has not yet happened, as my right hon. Friend said, is any vote in the Parliament on the financial regulation or the own resources decision.

Mr. Brooke

By some process of serendipity, my hon. Friend has anticipated with absolute precision the remarks that I was about to make. I shall enlarge upon what I said earlier about Lord Plumb before the hon. Member for Vauxhall (Mr. Holland) intervened.

Lord Plumb said last night, as my hon. Friend the Member for Skipton and Ripon (Mr. Curry) mentioned, that he would take time to consider whether the budget had a secure revenue base, and also the state of play on the inter-institutional agreement about the development of the Community's programmes over the next five years, which the Council and the Parliament are trying to negotiate. Some members of the Parliament are arguing that, in the absense of agreement on the new own resources decision and the IGA, the budget has no secure revenue base. We have considerable sympathy with that view. The decision, however, is for Lord Plumb. Here, too, I undertake to keep the House informed about developments.

As to the magnitudes involved, we do not yet have the detailed figures from Strasbourg. Our own provisional calculations suggest, however, that the budget as now agreed will provide for total commitment appropriations of 45.3 becu and total payment appropriations of 43.8 becu. Compared with the final budget for 1987, the percentage increases are 20.9 per cent. for commitments and 21 per cent. for payments.

Within the totals, the level of agricultural guarantee expenditure is exactly as agreed at the Brussels European Council. The percentage increase in non-obligatory payments is 9.5 per cent.

Mr. Ron Leighton (Newham, North-East)

I am trying to understand what is going on. It seems that we are in a rather humiliating position in that we do not know what we have to pay. All we know is that it is continually more each year and each time the Paymaster comes along. That is a singularly appropriate nomenclature. He is the paymaster of the Common Market. Whatever it says we have to pay, he coughs up the money. He is not sure what we have to pay, but we have a helpful intervention from a member of a slightly alien institution who gives him helpful advice as to how much we have to pay. Whatever it is, he gives us the bill and we pay it. Is that what the British Parliament has come to?

Mr. Brooke

If the hon. Gentleman will excuse me, I think that that was a largely rhetorical intervention. I can assure him that when I became Paymaster General I informed my friends in the Budget Council that my attitude towards them had not changed at all and that my title did not indicate any change in my attitude.

I was referring to the level of agricultural guarantee expenditure. The increase in non-obligatory payments is 9.5 per cent. This, too, is broadly in line with the level of expenditure envisaged at the Brussels European Council, although the increase of 12.6 per cent., in non-obligatory commitments is somewhat higher than I would have wished. I argued at the last Budget Council, with French support, that the Council should not agree to any excess over the statutory margin which the Parliament is entitled to add to the Council's non-obligatory expenditure proposals. The prevailing view was, however, that the President of the Council should have a certain flexibility to negotiate with the European Parliament.

I turn briefly to the document on the Order Paper, No. 4051/87, which introduces the Commission's ideas on financial engineering. "Financial engineering" is a term of art in the Community—if art is the right word—which refers to the mobilisation of funding for investment. The Government share the Commission's views on the importance of the spirit of enterprise, the working of market forces and productive investment.

We are not convinced, however, that new Community funding mechanisms are necessary. In most of the Community countries we already have highly developed private sector mechanisms for funding investment programmes, and the Community itself already has a major institution, the European Investment Bank, for the funding of investment projects in Europe. The member states will no doubt wish to examine the Commission's idea carefully with these points in mind.

Mr. Curry

Does my right hon. Friend agree that if the British Government's ideas on reducing the number of commissioners had been adopted, so that there was one per country, we might have rather fewer policies, because it would not be necessary to find policies for every commissioner to manage?

Mr. Brooke

I am familiar with the application of Parkinson's law in all areas of human endeavour, and in the Commission in particular.

Mr. Teddy Taylor

Before my right hon. Friend leaves document COM(87)150, as he has referred to the percentage increase in agriculture, could he explain why on page 16 of that document, which seems to be the fundamental page setting out the figures, according to the Commission and according to those who published it, there is a proposal to increase expenditure on agriculture by 16.03 per cent., and not the figure that he mentioned, particularly as this seems to be an extravagant figure well beyond what was mentioned in his speech or in the discussions in the European Council?

Mr. Brooke

As that is a rather detailed statistical point and I do not have the document readily at hand, I shall respond to my hon. Friend at the close of the debate.

I turn now to the new own resources decision. Document 5266/88 in the motion contains the Commission's proposal for this important new decision, which the Council and official Committees in Brussels have been debating for several weeks. The purpose of the new decision is to give effect to the agreements on own resources which the Heads of Government reached in February at the Brussels European Council. In keeping with this, the decision provides for: a new own resources ceiling of 1.2 per cent. of the Community's GNP, with a corresponding 1.3 per cent. of GNP ceiling on commitment appropriations; limitation of VAT contributions to 1.4 per cent. of the VAT base, which is similar to consumer expenditure; a redefinition of the VAT base, known as "capping", such that in future the assessable VAT base of each individual member state may no longer exceed 55 per cent. of its GNP; the introduction of a fourth own resource, based on GNP shares, which will take its place alongside the existing levies and duties and VAT own resources and serve as the Community's residual source of finance; and new provisions to ensure that the Fontainebleau abatement system for the United Kingdom remains intact within the new system of own resources.

For the United Kingdom the effect of these provisions wil be that for any given level of the Community budget our gross contribution will be lower in the first instance than under the existing own resources system, because of the provisions for VAT capping and the new fourth resource; but we shall receive correspondingly less abatement in the following year. The overall effect on the United Kingdom will thus be neutral, except that there will be a timing advantage.

The Commission's draft of the own resources decision makes no provision for sub-ceilings on own resources: that is to say, intermediate own resources ceilings for the years between now and 1992 below the overall 1.2 per cent. of GNP ceiling. However, the Brussels European Council made explicit provision for such sub-ceilings and the Council has been considering how they should be incorporated within the own resources decision.

There are, in addition, certain other arguments over the text of the own resources decision which have still to be resolved in the Council. The largest of these is the so-called Italian problem. The Italians claim that the Commission's proposals for financing the United Kingdom abatement will result in too much of the budget being financed from the new fourth resource and too little from VAT own resources. Since the Italians' share of the Community's GNP is considerably larger than their share of the Community's VAT base, the Italians would be better off under a different system, which provided for more VAT and less GNP-shared financing.

We remain hopeful that these and other problems will be finally settled over the next two or three weeks. The Government have, however, made clear throughout that the United Kingdom will not finally and formally agree in the Council to the new own resources decision until there has been agreement to the other elements in the Brussels package, notably the decision on budget descipline.

The last two papers listed in the motion deal with the important subjects of budget discipline and management. On budget management, the Commission proposal in document 5282/88 for amendments to Community's financial regulations is concerned with giving legal force to changes for which the United Kingdom pressed hard in the future financing negotiations. The first is a provision whereby the traditional Community practice of carrying over unused budget appropriations from one year to the next should become the exception rather than the rule. The second is a provision limiting any negative reserves which may be entered into the budget to 200 mecu.

So far as budget discipline is concerned, the explanatory memorandum, which is the last document listed in the motion, summarises the proposal for a council decision on budget discipline for obligatory expenditure, and in particular for agricultural guarantee expenditure. As hon. Members will recall, the United Kingdom fought long and hard in the months before the Brussels European Council for improved discipline over agricultural spending. That is reflected in the draft decision.

As I explained to the Treasury and Civil Service Committee last week, there are five critical areas in which the controls on agricultural spending have been strengthened. First, the guideline limit for this spending will in future be enshrined in a legal instrument which will be binding on the Council.

Secondly, the notorious provision in the 1984 budget discipline conclusions for exceeding the guideline in "exceptional circumstances" has been scrapped. In its place we are to have a symmetrical monetary reserve arrangement to deal with the budgetary effects of substantial movements in the ecu/dollar exchange rate in either direction within a limit of 1 becu a year.

Thirdly, the Commission has undertaken to put forward price proposals which are consistent with the guideline limit; to insist on a joint meeting of Finance Ministers and Agriculture Ministers if the latter seem likely to take decisions which would involve exceeding the expenditure implied by the Commission's original proposals; and to manage the agricultural budget chapter by chapter—or, in other words, major commodity by major commodity—not globally as in the past. The Commission has undertaken to monitor expenditure and take remedial action if it threatens to exceed the budgetary provision, either by using its own management powers or by making proposals to the Council on which the Council will be committed to act within two months.

Fourthly, the instruments for controlling spending on individual commodities have been greatly strengthened by the introduction of automatic stabiliser mechanisms in all the main product regimes.

Finally, there are new arrangements for systematic depreciation of new agricultural stocks, with special provision earmarked for the cost of depreciating existing stocks.

Mr. Forth

My right hon. Friend was not in his present position at the time of Fontainebleau, and cannot therefore take any credit for it, but having looked back at it and at what was said in the House after it, when a number of us were accused of being unhelpful and cynical for suggesting that Fontainebleau was not all that it had been cracked up to be, will he assure me that he and our right hon. Friend the Chancellor of the Exchequer are satisfied that we have got it right this time? By conceding an interest in the Community's resources, will we get the effective discipline that we emphatically did not get after Fontainebleau?

Mr. Brooke

I assure my hon. Friend that the narrative of the Fountainebleau debates is well known to me, and I am aware that several of my hon. Friends made such comments at the time. The position today is greatly improved, but my hon. Friend and I belong to a party that has always believed that this is an imperfect world, so I cannot promise him everything.

Mr. Curry

Does my right hon. Friend accept that one of the important things that has happened since Fontainebleau in the changing budgetary arithmetic of the Community is that France is moving into the position of being a net contributor rather than a recipient and so has a greater vested interest in the control of expenditure? Equally, Spain stands to make no great gain out of agriculture and therefore has an interest in limiting agricultural spending to create resources for the funds from which she would benefit. Is that geographic change not as politically important as formal guarantees about agricultural expenditure in determining what happens?

Mr. Brooke

I am grateful for my hon. Friend's comment, although some of it might have come in a speech at a later stage. On the first day of the international cricket season, I have no desire to bat all day and I shall seek now to bring my speech to an end.

For non-obligatory expenditure, there appears to be no scope for a legal instrument, based on treaty, comparable to that proposed for obligatory expenditure. The problem is that such an instrument would fetter powers which the treaty itself confers on the Parliament. The Brussels European Council agreed accordingly to seek an inter-institutional agreement with the Parliament over the development of non-obligatory expenditure during the next five years and, failing such agreement, to adopt on its own initiative internal rules for restraining the growth of such expenditure.

The Council's proposals, which were enshrined in the Brussels European Council conclusions, provide for specific additions each year to commitments for the structural funds, confirmation of existing multi-annual commitments for research and development and integrated Mediterranean programmes, and containment of commitment appropriations for the rest of non-obligatory expenditure within the statistical maximum rate of increase laid down in the treaty.

Although the provisions for budget discipline over non-obligatory expenditure cannot be enshrined in a legal instrument of the same kind as for obligatory expenditure, the political commitment to this element in budget discipline is every bit as binding as for agricultural expenditure. In addition, the sub-ceilings on own resources which I mentioned earlier, taken together with the guideline limit on agricultural guarantee expenditure, will indirectly provide an overall and binding limit on the scope for increases in non-obligatory expenditure.

I apologise if this speech has been a little protracted by interventions. Some hon. Members may feel that I have raced with indecent haste through a labyrinth of complex issues. If they do, I ask their forgiveness. The Government will continue their efforts to put the Community's finances on a sound basis, and we hope that hon. Members of all parties will support us in that.

7.47 pm

Mr. Stuart Holland (Vauxhall)

I beg to move, to leave out from "discipline" to the end of the Question and to add instead thereof: 'views with concern the proposals of government to conclude an agreement to provide payments to the European Community prior to final adoption of instruments authorising own new resources and discipline; and calls on Her Majesty's Government to give notice to the Council of Ministers that its agreement to the draft budget and the proposals for own resources is dependent on rapid agreement on new financial disciplines, particularly those related to the Common Agricultural Policy, and on the formula for the United Kingdom rebate as agreed at the last European Council in Brussels, on adoption of a genuine and expeditious programme for a substantial reduction of Common Agricultural Policy spending, on a corresponding increase in other budget allocations, not only for the social regional funds, but also for the environment, and for assistance to developing countries, on recognition that a harmonisation of VAT rates is not necessary for achievement of a common internal market by 1992, on international governmental action for a recovery of employment, income and trade in the Community, including re-establishment of a major role for the Medium Term Economic Policy Committee, and on new accounting procedures to gain transparency on the market behaviour and abuse of dominant positions by bigger business in the Community.' Some things bear repetition—music is a case in point—and I must repeat that the Government's record of failure in the matter of budget and own resources is deplorable by the standards that they have set themselves. I am sure that we shall shortly benefit from a contribution by the right hon. Member for Worthing (Mr. Higgins) who, in the Treasury and Civil Service Select Committee on 11 May, put the following question to the Paymaster General: We were told some years ago, were we not, when the original budgetary package on this came through, that the proportion spent on agriculture would fall? The Paymaster General replied: I think it is a matter of common knowledge between us that the arrangements which were secured in 1984 for the restraining of agricultural expenditure were not as effective as they should have been. That, I suggest, is the understatement of the month.

In the same Select Committee—in passing, I congratulate it on the work that it has done—the right hon. Member for Worthing said: If we go, as the Michelin Guide would say, for a little history, the Government's position originally was that there would be effective budget discipline. This Committee at that time expressed extreme scepticism as to whether that would be effective. That indeed turned out to be the case: that it was not effective. We were then told by the Prime Minister that she would not go along with any further arrangements for increasing own resources until the whole thing was tied up in a legally binding way. I do not recollect her saying 'except for non-obligatory expenditure.' This is typical of the overruns that we have had time and again in the Community. It is clear that Fontainebleau has not stuck and that the fundamental problems have not been resolved. The overwhelming share of the overruns will still go to agriculture, although a sizeable share goes to the regional fund. The situation is clearly out of hand.

Mr. Curry

The general secretary of the Labour party was in Strasbourg earlier this week. Did the general secretary advise the members of the British Labour group to vote against the increase in non-obligatory expenditure in the budget?

Mr. Holland

That is a fascinating intervention. I have not spoken to the general secretary of the Labour party since he was in Strasbourg. There will be a vote in the House tonight. If the hon. Gentleman cares to pay attention, as I am sure he will, to what I am saying or to the terms of the amendment, he will see that the amendment is constructive. It proposes that the framework of expenditure in the Community could well be put to useful purposes. That is not happening at present because the common agricultural policy is simply out of control.

One of the reasons for that is precisely the whole strategy adopted by the Government towards the budget. It is common knowledge that in an exchange between the then Prime Minister of France and our Prime Minister at the last summit an untranslatable French word employed by the French Prime Minister provoked a response from our Prime Minister. I am perfectly aware of what the word means and the hon. Member for Skipton and Ripon (Mr. Curry) may also know what it means. I do not propose to translate it here.

Governments of the Left, Right or Centre in the European Community are sick and tired of this Government approaching the question of the budget only in terms of the rebate. The rebate is very important, as my hon. Friends will quite rightly stress, but the Government have failed to adopt a constructive attitude towards what the Community might well do in common in a range of areas where the budget is allocating funds between and within member states.

It is quite clear that we need a square deal from the Common Market. All hon. Members agree on that. We also need a new deal from the European Community. We need a new deal for Europe that will enable us to address matters of urgent and pressing importance affecting our joint economies. We need to be able to address the role that Europe plays in the OECD and the kind of economic difficulties into which the world economy is moving with, for example, the potential slowing down of the United States economy. We should be able to address the question of target exchange rates and the attitude of the Government and other Governments towards the European monetary system. These matters very much affect the feasible kinds of expenditure that can be undertaken by member states and not simply by the budget itself.

Our amendment stresses that there should be a substantial reduction in spending on the common agricultural policy and not just a slowing in the rate of increase of CAP spending. There should be a corresponding increase not only in the social and regional funds, but in spending on the environment and on assistance to developing countries.

Mr. Teddy Taylor

The hon. Gentleman said that there will be a slowing down of the rate of increase in agricultural spending. Can he find anywhere in the mountain of documents with which we have been supplied any evidence that there will be a slowing down in the rate of that increase?

Mr. Holland

No; and one of the points that I shall deal with in summing up is that the stabilisers appear to be not declining but inclining and that we are not actually getting the reduction that we should be getting.

The budget, the "take note" motion before the House and the documents to which it refers cover the social and regional funds, the environment and, as it happens, assistance to developing countries. These are all brought within the terms of reference of the Commission's consultative document 4051/87 which is referred to on the Order Paper and in the Commission's document as "financial engineering." I have not had a chance to consult whoever is responsible for translating this document either in the Commission or in the Foreign Office. Financial engineering is not at all what the document is about. That suggests to me that whoever found the French term for financial mechanisms translated it into the English equivalent of mechanique, which is engineering. This document is not about engineering in any way; it is about financial mechanisms.

When the Paymaster General gets to his feet and says, "We have considered this document and looked in depth at all the proposals that it makes on a range of issues," I have to ask the House whether that can possibly be the case when the very title of the document makes no sense whatever. Financial engineering there may be in the European Community or in the common agricultural policy, but that is clearly not the intent of the document. Moreover, the document contains many useful proposals on the renewal and strengthening of industry and the industrial base in the Community and on the very imaginative possibility of joint ventures with, for example, developing countries.

The Paymaster General says that there is no evidence of a gap. The Treasury memorandum says: The Commission assumes, but does not demonstrate, that there are gaps in the financing of viable projects left by the private market. This is yet another area, as on the budget rebate, that preoccupied the whole summit agenda and on which the Government are totally out of step with every other Government in the Community. All those Governments have medium to long-term credit institutions and regional development agencies focused especially on the promotion of small and medium enterprises, precisely because they recognise, as did the Macmillan report in the 1930s in this country, that there is a financing gap for small and medium firms because they face problems in raising funds on equal terms with larger businesses. Larger firms have a larger volume of borrowing, so they gain lower interest rates.

Therefore, intervening in the market to give, for example, an interest rate advantage in regional or structural funds to small and medium firms is not a distortion of the market but an equalisation of competition in the market. However, I do not expect the Paymaster General to be following that argument in this paper with much attention because he has not even managed to realise that the title of the paper is mistranslated.

I would not expect the Paymaster General, given his opening speech in the debate, to realise that if the Government do not support these new proposals for financial mechanisms in the Community, they may find themselves out of line with Council decision 87/307 and amending Council decision 83/624 87, known in less numerate terms as the SPRINT programme. If we look at annex III to the SPRINT programme, in the document to which I have referred, we see that we had agreement by the Council for priority action on Organisation of pilot activities, transnational in aim or in nature, relating to the training of technology transfer specialists on the management and financing of innovation and related fields". There is even Establishment of liaison mechanisms between local authorities"— I stress that to my hon. Friends— as agents in the innovation process, as regards both the possibility of fostering innovation through co-operation on procurement and their role, or that of equivalent bodies responsible for innovation". This, again, is an example of the Government's bias against mixed economy intervention at local authority level. It is to the credit of the Commission, in bringing forward proposals such as it has brought forward in the document that is mistitled "financial engineering", that it realises that there is a need for joint action and joint policies between Governments to strengthen and equalise the competitive opportunities for small and medium firms. That has a major relation to the feasibility of effective regional development, which itself concerns the spending of regional funds.

Sir Anthony Meyer (Clwyd, North-West)

I am listening to the hon. Member for Vauxhall (Mr. Holland) with great interest and a certain amount of encouragement. The hon. Gentleman talks about the need for more common action, but is what he says compatible with the passage in the amendment that he is moving, which seems to regard any movement towards harmonisation of VAT as not necessary for the achievement of a common internal market"? Perhaps the hon. Gentleman will cover that point, as I should like to hear his views on it.

Mr. Holland

As the Paymaster General might say, I am indeed coming to that point. I am sure that the hon. Member for Clwyd, North-West (Sir A. Meyer) would not wish me to break the logic of my exposition.

On the social fund, I should like to raise a matter that was brought to the attention of my hon. Friend the Member for Barking (Mr. Richardson), by the Glamorgan women's workshop for high technology. [Interruption.] The project is jointly funded by South Glamorgan county council, the European social fund and Cardiff city council. Before Conservative Members show further that they regard this as a derisory matter not worthy of discussion in the House, they might pay attention.

The arguments made on behalf of the workshop are: It is clear from studies Europe-wide that women are still vastly under-represented in certain traditionally male occupations. They continue: We are particularly disturbed that the guideline under which most women's training projects are funded has been amended from a general priority for training women—in areas where they are under-represented—to a priority in the first year of operation only. They point out: This will exclude all training projects in the women's training network which have already been in operation for over one year. We share the view: It is crucial that the European social fund confirms its commitment to women's training by retaining the specific guidelines relating to women. There is no adequate provision for women under the other guidelines, and for a small operation like us, the restriction of priority status to projects concerning over 1,000 people certainly excludes all women's training projects. I see that the Paymaster General is expressing interest in the matter. Part of the nature of the Community in its decision-making is that we cannot expect an assurance tonight from the Dispatch Box, but we take the matter seriously. It is another way in which lipservice is paid to the rhetoric of promoting small and medium enterprises in the Community when, as Conservative Members well know, any enterprise employing more than 1,000 people is no longer a small enterprise, but a larger medium-sized firm.

The hon. Member for Clwyd, North-West asked about harmonisation of VAT rates, and our call that agreement should depend on recognition that a harmonisation of VAT rates is not necessary for achievement of a common internal market by 1992". The hon. Gentleman may not have been present when last I raised the matter from the Dispatch Box in relation to the internal market in the United States.

This is not a new area of interest for me. I shall not detain the House with a personal history, but I spent some time in 1970 at the Brookings Institution in Washington, looking precisely into the extent to which features of the common internal market of the United States depended upon integration and harmonisation of tax rates and other provisions, rather than the sheer size of the market, and the chance to achieve economies of scale within that market. Frankly, having studied the matter then and having looked at differences between corporate tax rates and local and state taxes in the United States, I could not find any commentator in the United States who thought that harmonisation of state and local taxation, or even harmonisation of corporation tax, was essential for economies of scale inside the United States. I suggest that the Commission and many of those who service it and those in the think tanks have got it wrong.

There is no more a need for us to have completely aligned VAT rates than to have completely aligned social security or Health Service provisions. One of the problems of the Community is its failure to address priority issues such as joint action to ensure a regaining of the industrial competitiveness of firms in Europe. Joint action could counter a continuing risk—despite what is reported by OECD—of a world economic recession, ending in a slump. We should tackle structural and technological unemployment. Instead, we have harmonisation of rear-view mirrors, rubber products, passport covers and number plates. Those have as great a role in stimulating economic growth as the harmonisation of VAT rates. They are all of secondary importance. They verge on the trivial. This is the problem with the Community's agenda.

The sort of agenda that we are asked to address in the debate tonight, in the achievement of an effective Commmunity budget, does not depend on harmonisation. The imperative of the European Comunity today is not to integrate but to co-operate. It is failing even to agree to co-operate on measures for integration of VAT. However, I do not particularly want to hammer the Government on this matter, because they have said already that they have reservations about it. Perhaps we could have a cross-Bench alliance on this matter, as well as reconsideration of the Commission's proposals on financial mechanism, rather than engineering. That could have beneficial effects locally and regionally.

Moreover, in answer to the hon. Gentleman's point, fiscal differentiation might be beneficial rather than a disadvantage or an obstacle to integration. Unequal integration has been admitted right from the report by the founding fathers of the European Community at the Messina conference. It was admitted then, unlike the terms of the treaty of Rome, that free working of the free market mechanism aggravated structural, social and regional disparities within the member states, which needed to be offset by the regional and social funds that we are debating tonight. Fiscal policy has a positive role to play, if that is the case, as it could equalise terms of competition.

There are certainly some cross-border problems. The hon. Member for Clwyd, North-West referred to this with regard to VAT harmonisation. In the case of Luxembourg and neighbouring states, differing VAT rates may promote cross-border shopping trips. But on the major issue, whether we must have VAT on food, clothing, children's clothes, books and publications and reading material in this country, which is the greater priority—the problem in some border areas of shopping sprees, or a taxation measure that would penalise everybody who eats, every child, and everybody who reads? We ought to get the priorities right.

We have drawn attention to the fact that cross-border exchanges between the Republic of Ireland and Northern Ireland have been promoted because there are different tax regimes for goods. In another context, no doubt we would all welcome that. But if we are all to be good Europeans, perhaps we should have differing VAT rates for promoting co-operation.

I am keeping an eye on the clock, Mr. Deputy Speaker, for the sake of Conservative Members and my hon. Friends who wish to speak in the debate.

On the further matter referred to in our amendment, we believe that the real priority agenda should be joint international economic action. That concerns less all Community Europe expenditure passing through the eye of the needle in Brussels, and more the Commission, the Community and Parliament playing a bigger role in sponsoring encounters between those who want change in the industrial structure of Europe and joint economic programmes for recovery to take the strain off the dollar and stabilise world currencies, and more give some reality to the negotiating triad of the Japanese, Americans and European Finance Ministers, which lies behind the Group of Seven, or any other major group, in terms of summit economic policy.

In that context, we have chosen to refer to the role of the medium term economic policy committee, with which at least Treasury officials should be familiar in its renamed form, the economic policy committee. It is not surprising that the words "medium term" have been dropped. I mean no discredit to those who serve on it, but increasingly this committee, which used to have a powerful role and was a useful forum for intergovernmental co-operation within the Community, has been reduced to the role of a forecasting unit. It is no more effective than an inner OECD working party.

When the committee was set up by Marjolin in 1964 and produced its first report in 1966. it was a major forum enabling member Governments to address at Community level what, in their view, was their important agenda, rather than simply react to Commission proposals and act within the terms of reference of the treaty of Rome, which is now 30 years out of date. Member Governments were able to set their own agenda on comparisons of the consistency of their macroeconomic policies and structural, social and regional policies. It is important that the committee should play such a role and important that its actions are reported to the House.

Our amendment states that there should be new accounting procedures to gain transparency on the market behaviour and abuse of dominant positions by bigger business in the Community. This relates to what much of Community budget spending is about. There is much rhetoric and many measures concerning the budget and structural funds and about promoting a dynamic of small and medium-sized firms. The reality—I gave some illustrative figures earlier—is that bigger businesses dominate an increasing share of the Community's markets. Between 1963 and 1982, which was the last year for which figures were available, the top 100 firms increased their share of the Community's GDP from over one fifth to nearly two fifths. The top 10 non-agricultural firms in the EEC have as big a share of the Community's GDP as does the whole of the agriculture that is supported by the common agricultural policy.

Behind this lies a sorry tale of the Community's failure to develop, on a joint governmental basis, effective mechanisms for industrial intervention and industrial policy. We shall not get it as long as we do not know what is going on. Articles 85 and 86 are full of claims for transparency and alleged concern about abuse of dominant position. While we are talking of the Single European Act and a larger and larger market, the debates in the House on spending and budgetary policy should include reference to the obligation on the Commission to ensure that an effective accounting is undertaken of these larger businesses. I believe that research programmes should be supported on that basis. If they want any help, I am perfectly willing to give it.

There is an imbalance between the peripheral agenda and the central issues affecting Community Europe. This budget debate is stuck in the mud of the common agricultural policy. Agriculture is the last sector in Europe that one should seek to integrate because of its phenomenal efficiency differences—15:1 between Denmark and Portugal in terms of milk products. It is impossible to integrate and have a common price system for such a sector without reinforcing those who are already rich in multinational agribusiness while still giving no more than a marginal income to peasant farmers.

When we look at the quality of services—housing, health, education, and so on—the Government and the Treasury have one policy: "If at first you don't succeed, cut, cut and cut again." When it comes to the common agricultural policy, it is: "If at first you don't succeed, pay, pay and pay again," without effective accountability and benefits to consumers and with vast profits to agri-business firms and stabilisers which appear to be on the incline rather than the decline.

With due respect for the fact that the Paymaster General gave way several times, and therefore perhaps lost track of the argument, his was a sorry speech, covering a sorry deal. It is time that the House gained redress.

8.15 pm

Mr. Terence L. Higgins (Worthing)

I gladly join my right hon. Friend the Paymaster General in the tribute that he paid to the Scrutiny Committee, which has done an extremely good job. When one considers the fact that the papers that we are debating form a stack 5 or 6 in thick of closely typed foolscap, the motion that the House should "take note" of those documents has a certain irony. The Scrutiny Committee's work is of considerable help in enabling the House to give some sense of priorities to assessing these various documents.

My right hon. Friend the Paymaster General was kind enough to express appreciation to the Select Committee on the Treasury and Civil Service, which I have the honour to chair. In return, I am bound to say that the help that he and his officials have given our Committee has been of considerable value. As often happens with our reports, the evidence is more important than the report. I hope that we have managed to set out some of the dilemmas that confront the House.

It is difficult for the House to debate these matters in the present form. In a sense, we would be much better off with a Committee stage procedure, when there could be more orderly interventions—I say that despite the generosity of my right hon. Friend the Paymaster General in giving way —and hon. Members could speak more than once. It is difficult in this form of debate to come to grips with some of these difficult and complicated issues.

The fact that we have a debate ahead of the Foreign Ministers' meeting enables the House to express a firm opinion on some points. As has been pointed out, the House will not come to a decision—in whatever format is decided upon—until later. This is not exactly a preliminary, but it is an interim, run round the course.

Mr. Spearing

The Scrutiny Committee is one of the best staffed Select Committees. The right hon. Gentleman is correct in saying that the House should be able to consider more legislation to approve decisions on the new financial structure. Does he agree that this is our last opportunity to discuss approval of next year's budget?

Mr. Higgins

I hope to turn to that point. That may turn out to be true. I hope that my right hon. Friend the Paymaster General will clarify the precise position. To say the least, it is obscure. If one were less charitable, one might say that it is chaotic. My right hon. Friend the Prime Minister returned to the House on 15 February and made a statement about her meeting in Brussels between 11 and 13 February. The impression was created that, although big changes were envisaged in terms of increasing own resources by 25 per cent. and strengthening budgetary discipline and so on, somehow this was a matter that could be decided and we would then move forward to 1992. I certainly welcome progress in that direction.

In the course of our analysis of what has been devoloping, we discovered that, far from the matter being cut and dried, there are serious procedural problems and timing difficulties. There are proposals for paying more money to the Community in the form of an intergovernmental agreement and an increase in own resources. We are setting those proposals against guarantees on budgetary discipline on the one hand and effective implementation of the United Kingdom's rebate on the other.

It is important to get the sequence of events right, lest we agree to paying more money to the Community without obtaining those things that my right hon. Friend the Prime Minister believes that she has negotiated. We need only consider the experience of the Fontainebleau agreement which, as my right hon. Friend the Prime Minister now recognises, has broken down as an effective form of budgetary restraint, to realise the considerable dangers.

I wish to deal with a point raised by my right hon. Friend the Paymaster General about our obligation to meet overdraft demands from the Community. He referred to that as a cash flow problem, but I am doubtful whether it is a cash flow problem. It is euphemistic to describe as a cash flow problem a situation in which, unless one receives additional money from another source, one finds oneself bankrupt. As I understand it, if we do not agree to an intergovernmental agreement and to an increase in own resources, it is not a cash flow problem, but a situation in which we simply run out of money.

I wish to deal now with the question whether we are obliged to go along with the overdraft agreement. My right hon. Friend, in an interesting passage in his speech, appeared to imply that we were obliged to do so if the overdraft requested did not exceed the amount that we were obliged to provide sooner or later under the existing own resources agreement. I hope that we shall not go beyond that, and I see no reason why we should. That would put us in danger of finding that our bargaining position had disappeared and that we had not secured what we wanted to secure.

I do not wish to deal here with the question of the composite or own resources bill. We shall have to consider that matter carefully, depending on how it develops, but the question of the budget, which was apparently agreed yesterday, is important in this context. It shows clearly how the Community is continuing to increase its expenditure all the time. My right hon. Friend said that Parliament had gone along with that, although Lord Plumb had not yet finalised matters. As I understand it, the President of the Council said that he was prepared to go along with the increase in the figure originally thought to be appropriate, although I am not sure by what authority he did that.

Perhaps my right hon. Friend would clarify the position. The crucial question is whether to go along with a proposal for an intergovernmental agreement after the budget has been approved. My right hon. Friend said, in evidence to the Select Committee, that we would not do so until everything that we wanted had been agreed. I hope that he will make it clear that that is the position.

I turn now to the difficult question of rebate. On 15 February, my right hon. Friend the Prime Minister gave the impression that our rebate was completely protected, but there is now the so-called Italian question. I am not clear on what basis the objections are being raised, as they clearly appear to contravene what was thought to be agreed at the summit. We have experienced this problem before. We go along with these ideas in broad outline, but, when settling the details, we find that the matter is not as cut and dried as we thought it to be.

My right hon. Friend did not mention the change in principle from a VAT-based own resources to a GNP-based own resources. The Select Committee commented on that and my right hon. Friend gave evidence on that point in Committee. The Committee has had occasion, in its recent report, to point out that the United Kingdom's calculation of GNP is extremely difficult because one can calculate it in various ways—for example, by the expenditure method or the income method—and obtain different answers. It is worrying if, in the light of that, the Chancellor of the Exchequer does not have a good basis upon which to react in terms of economic policy.

However, something different is involved in this change. We are relying on the GNP calculations to decide how much money we pay over in terms of taxpayers' hard cash. If our GNP figures are as suspect as they now appear to be, I wonder what the GNP figures are like in other countries. We should not go along with the proposal until we are satisfied with the statistical basis for the calculation.

I wish to say a few words about budgetary discipline. It has been suggested that the move towards stabilisers in relation to the common agricultural policy is a great advance. My right hon. Friend the Prime Minister, in her statement on 15 February, said that the stabilisers on agricultural products would be very important and that, if the output were too great, there would be a price cut of 3 per cent. a year on the whole crop. It is important that that should relate to the crop as a whole, but, nevertheless, the cuts are cumulative and, if harvests continue to exceed the threshold, there will be a huge 12 per cent. price cut by the fourth year. The idea that that will have a dramatic effect in reducing surpluses, even over the four-year period, is absurd, but I view with scepticism the idea that it will have an immediate effect when the surpluses continue to increase.

Similarly, we have been told that agricultural expenditure will not continue to increase as quickly as it has been doing and will increase only at three quarters of the rate of the Community's GNP. I have yet to be convinced that there is any case for increase of expenditure on agriculture when we have those surpluses. The idea that budgetary discipline is effective in that respect is therefore very doubtful.

Mr. Teddy Taylor

Does my right hon. Friend agree that, apart from those nonsensical percentage estimates, a considerable amount of expenditure has been added on to budgets for 1989 and the future, instead of being included in the 1988 budget? In addition, some expenditure previously carried by the Community in 1987 is being carried this year by member states.

Mr. Higgins

Those two points reflect the loopholes through which increasing amounts of money are pouring into the sector. However, I do not understand why the agricultural community alone should be protected against fluctuations in the exchange rate. No other industry is put in that extraordinary position. We have not tackled that problem and it severely weakens budgetary discipline.

In the light of experience after Fontainebleau, the Prime Minister told the House, "It didn't work, but we shall have it made legally binding in future. Don't worry—the arrangements that we make on budgetary discipline will be legally enforceable." However, we now discover that that applies only to certain aspects of the budget; it will not be legally enforceable overall. It will apply to obligatory expenditure but not to non-obligatory expenditure.

In that context, we shall have an "inter-institutional agreement". As I understand it, that will not in any sense be legally binding. Therefore, the idea that we shall have overall legally binding budgetary discipline is not the case. Yet that was certainly the impression created in the House at the time of my right hon. Friend's previous statements. It remains doubtful whether the measures which will be legally binding will in reality impose the kind of restraint on Community spending that we would normally mean when we say that there is effective control of public expenditure.

I well understand the difficulties which my right hon. Friend the Paymaster General and his ministerial colleagues are having, but it seems absolutely crucial that we should not go along with an IGA or with proposals for an increase in own resources by whatever parliamentary mechanism may be agreed, until such time as the rebate is effectively imposed and guaranteed and we have an effective degree of budgetary discipline. I regret to say that that has not been achieved.

I hope that I can encourage my right hon. Friend and his colleagues to do everything possible to achieve effective financial management in the Community, which so far has most certainly been lacking. Unless we do that, those of us who wish to see further progress, as I certainly do, in the run-up to 1992 and all that that implies will be seriously compromised.

Mr. Curry

Before my right hon. Friend sits down—

Mr. Deputy Speaker: (Mr. Harold Walker)

Order. I think that the right hon. Gentleman has sat down.

Mr. Leighton

I think that the right hon. Gentleman was just hesitating. He has made an absolutely unanswerable case and we are indebted to him and his Committee for the way in which they have monitored this matter over the years. What moral does he draw from this? There is no financial discipline on the CAP and there will not be. The whole question of reform is nonsensical. The CAP will never be satisfactorily reformed. Can the right hon. Gentleman see any advantage to the United Kingdom in having a CAP? Is not the moral that we should extricate ourselves—

Mr. Deputy Speaker

Order. I thought that the hon. Gentleman was seeking to make an intervention. I call Mr. Higgins.

Mr. Higgins

Having argued for a more Committee-stage approach to these problems, it would be churlish of me to insist that I had sat down.

The reality is that we are making considerable progress towards some control over the problem. Many political pressures are impinging on this. The argument that we shall get more discipline from countries which are net contributors turned out to be a delusion, and that argument was put strongly at one time. We must work hard to get the structure right, and we must all press for that. In terms of practical politics, we cannot say that this is the end of the matter and we shall withdraw. We must work as hard as we can and encourage my right hon. and hon. Friends to do all that they can to bring some sanity into the proceedings.

8.33 pm

Dr. John Reid (Motherwell, North)

My hon. Friend the Member for Vauxhall (Mr. Holland) referred to a mistranslation from the French of the phrase rendered in English as "financial engineering". No doubt that was unwittingly mistranslated. For someone like me who does not have experience of these matters to the extent of some hon. Friends and hon. Gentlemen, it seems, although ironic, a fitting mistranslation. That phrase conjures up phrases such as "creative accounting" and "economic truths". In retrospect, the phrase "economic truths" seems to be a fitting description of some of the budget proposals and discussions that have taken place in the EEC during the past few years. Perhaps that is what gave rise to the motion that was tabled by the Socialist Group last night questioning the legality of the EEC budget.

As I have less experience of these matters than have many hon. Members, I read through the debate of 2 March on the European Court of Auditors and noted, among other things, the excellent contribution of my hon. Friend the Member for Vauxhall. He made some crucial points which merited being aired at a more civilised time. To make a speech at 1.30 am when the press has gone to bed and the Chamber is virtually empty does not reflect the importance of these matters.

The Paymaster General also expressed some anxieties about the budget, and they should be aired again. Three points have not been clarified tonight: the imbalance between expense and revenue, the excess growth of agriculture expenditure, and the burden of past budget management—what would almost be called fraud in other quarters.

The right hon. Gentleman referred to what he called "cash flow problems". It is not a cash-flow problem, but a cash problem. There continues to be an imbalance between expenditure and revenue, and this is what lies at the heart of the Community's financial mess. The imbalance has two main causes: first, the failure of budgetary discipline to control excessive expenditure, especially agriculture expenditure; and, secondly, revenue ceilings which the Court believed were artificial and took insufficient account of the Community's financing needs. The Court of Auditors unfortunately felt that that would continue, particularly in view of the mountains of surplus produce waiting to be disposed of or depreciate.

On the previous occasion the Paymaster General told us that we had the machinery for change—in the context of the Community, that must at least be speculation—and that if it worked we should see a legally binding guideline on agricultural expenditure, which should grow more slowly than the Community's GNP. The Government's message, couched in more equivocal language tonight, is that the days of automatic, unlimited price support are over. I hope that that does not prove to be Government rhetoric, but on the evidence of the past few years our suspicions must be aroused that yet again that will be more rhetorical than substantial.

We have waited long enough for a serious move towards the limitation of CAP expenditure to a progressively smaller share of the budget, reaching, I hope, 50 per cent. by 1992, as opposed to the present staggering figure of 70 per cent. Surely we and the Government must consider our priorities in approaching the whole matter. The provision of increased resources for the structural arid social funds are politically and socially essential for the real success of any common internal market.

We are told by the Department of Trade and Industry—or the "Department of Advertising" as it is rapidly becoming known—that 1992 will provide a historic opportunity for British business. If that opportunity merely puts money in the hands of the likes of Amstrad's Alan Suger, instead of breathing life into a crippled economy, it may satisfy the Government and a few of their City friends, but it will not satisfy Labour Members or British industry generally.

The social fund should be increased substantially if we are to pay more than lip service to the problems of the inner cities. I represent a steel-making constituency. Having learnt, over the last two days, that Ravenscraig, one of the most highly productive steel plants in the world, let alone Europe, is in danger of closure, the Community's preoccupation with agricultural spending becomes a sick joke to my constituents. Those priorities should be ordered not only to support our industry, but to help Portugal and Greece, where political and social measures are vital to the cohesion of the Community.

We have heard much about the Government's commitment to reductions in agricultural spending, and we witnessed an entertaining sabre-rattling performance from the Prime Minister in the European skirmishes. However, the March memorandum from the Select Committee on Treasury and Civil Service reveals that the 27.5 becu of agricultural guarantee expenditure now proposed for the 1988 budget represents no less than a 19.6 per cent. increase compared with the 23 becu provision in the 1987 Community budget.

The 1988 budget will, in addition, include 1.24 becu towards the cost of depreciation and disposal of existing excess stocks. If that additional amount is taken into consideration, the real percentage increase in agricultural spending from 1987 to 1988 rises to 25 per cent. on a budget which the Government constantly tell us should be, and will be, reduced.

In respect of that, the Paymaster General gave us resolute guarantees that the timetable, the cash flow and even the legality are uncertain. Tonight, in line with Churchill's famous phrase, he was "resolute in his equivocation." The efforts to gain control and reduce agricultural spending, and to maintain the system of budgetary control agreed at Fontainebleau, have been a dismal failure and all hon. Members are aware of that.

It is vital that the House and the Government realise the full extent of the failures. My hon. Friend the Member for Vauxhall explained the anomalies and lack of logic in the present position on 2 March. When the treaty of Rome was signed in 1957, one in four of the working population in the Community were employed in agriculture. That is no longer the case; in fact, far from it. The total working population in agriculture of the original six members of the Community is now down to about 5 per cent. For the Community of Ten—before the accession of the Mediterranean countries—that is down to about 7 or 7.5 per cent. It is now feasible to apply a deficiency payments system to the Community. We believe that that relates to the kind of analysis that the European Court of Auditors has made of the social and regional funds.

In the recent debates on this issue, we have heard guarantees from the Prime Minister and the Government that there would be a standstill on, or reduction of, the agricultural budget in due course. I do not agree with much that the hon. Member for Mid-Worcestershire (Mr. Forth) says in the Chamber, but I agreed with his use of the word "cynicism". Perhaps we should have regarded the statements with a little more cynicism. Since the statements were made, the binding controls that were promised have proved not to be binding and the budget is not under control. Spending has rocketed well beyond the ceiling of 1.4 per cent. In fact, it has gone far beyond the 1.6 per cent. which was never agreed to be binding on anyone.

My hon. Friend the Member for Vauxhall said that, instead of adopting a supranational approach to these issues, it would be better if the Community and its member states sometimes tried an international approach. If we cannot achieve co-operation we cannot force integration, and we cannot force integration even on the minor issues—the flood of transcendental minutiae—which have obsessed the Community and in which it appears we are now in great danger of drowning.

If we cannot deal with the minor issues highlighted by my hon. Friend the Member for Vauxhall, we cannot integrate on major issues unless we co-operate. It would be a tragedy, even for those hon. Members who are greater supporters of the Community than I am, if the vision of the founding fathers of the Community—eventual integration—were to become, not a spur, but an obstacle to further co-operation within the European Community.

I regret that the Paymaster General's statement tonight did not enlighten us on any of the problems that have been raised or promise any greater effectiveness from the Government. His statement was bad for the House. In the long run it will be bad for Britain and, I fear, for the rest of the European Community.

8.45 pm

Sir Anthony Meyer (Clwyd, North-West)

These debates are usually depressingly familiar affairs. However, I am bound to say that so far this debate has taken a somewhat different pattern. We have heard two speeches from Opposition Members which started out being very interesting and appeared to face the real issues, but shied away from the fundamentals at the last minute. Neither the hon. Member for Vauxhall (Mr. Holland) nor the hon. Member for Motherwell, North (Dr. Reid) would accept that the further co-operation that they called for in those areas where the Community should be operating, where it should be stimulating new industry and creating new jobs, requires a very much more substantial degree of integration than either were prepared to admit.

The Labour party amendment reminds me of the News of the World calling for a moral revival. It clearly does not square with itself or the proclaimed attitude of the Labour party.

I had intended to say some severe things about the Government and my right hon. Friends on the Government Front Bench. However, I find it almost impossible, because my right hon. Friend the Paymaster General, with his transparent honesty and good will and the tremendous reputation that he has built up in Europe for his knowledge of the subject, is sitting on the Front Bench. He is ready to consider these questions very carefully.

However, I believe that Ministers are not facing the situation as it is and, above all, they are not obliging the House to face the situation as it is. There is general support, which was well articulated by my right hon. Friend the Member for Worthing (Mr. Higgins), for the need to contain the Community's ever-growing expenditure, particularly in the areas where further expenditure will lead only to ever greater surpluses.

There is widespread agreement on both sides of the House that something must be done about that problem. However, the agreement falls short—and I believe that the Government are guilty of allowing it to fall short—in the contemplation of the action that will be necessary to check that growth. It is not enough for the British Government to say, "This is what ought to be done. We all ought to adopt the same kind of rigorous system of financial control as is common practice in the House." At least, we like to think that it is common practice and we flatter ourselves to a large extent about that. It is not enough for the Government to say that other nations must pull their socks up, obey the rules and behave as if they were British. In a 12-nation Community, that simply does not happen.

When we debated the Single European Act, a Minister told us that the proposal for the Act was not only unnecessary, superfluous and bureaucratic, but would threaten our liberties. Would it be possible even to contemplate moving towards a single market—the aim for 1992—without the Single European Act which introduced the notion of majority voting at any rate in those areas where vital national interests were not at stake? That Act was fought tooth and nail, denigrated and had scorn poured on it.

Lord Cockfield was sent to Brussels to achieve an objective. Ever since he has been there, Ministers have constantly decried his efforts and attempted to undermine him. Yet without the single-minded impulsion—the bloody-mindedness—that Lord Cockfield brought to the process, we would not be on the road down which we are substantially travelling today.

The same thing is liable to happen with fiscal approximation. We hear Ministers declaring from the Front Bench that it is unnecessary to move in any direction down the road of fiscal approximation. I take the point made by the hon. Member for Vauxhall, that the American market works well with substantial differences in levels of excise duty and sales tax in different states. But that is a single market, using a single language, with a single Administration. It is one country. It can afford to have different levels of sales tax. Indeed, there are different levels of sales tax in different towns within France. Nobody will call for total fiscal identity throughout the Community. None the less, there must be inexorable progress in the direction of diminishing the substantial discrepancies in border taxes.

Mr. Holland

That is a non sequitur. The large companies, whose activities are so untransparent, already dominate all our markets. It is like the researcher who, before the first application to join the Common Market, asked Pilkington what the effect would be, to which the reply was, "In float glass, we are the Common Market." The hon. Gentleman really cannot see the wood for the trees.

Sir Anthony Meyer

The hon. Gentleman is making my point for me. The supranational companies are not inhibited in their activities by different levels of taxation, but that is preventing smaller firms from growing into major European firms which can transcend frontiers. That is where I take issue with the hon. Gentleman.

The Government are clearly resolute in their determination to get to 1992 to eliminate the tariffs, and at the same time to achieve a Community in which there is reasonable control over soaring levels of expenditure, but we shall not get there until they confront the country and the House with the painful choices that will be involved.

The requirements imposed on the Government and on the House in order to achieve those objectives must transcend the pledges given in the heat of the moment in the course of an election campaign because somebody accuses the Government of wanting to bring in VAT on children's shoes, and so on. Bigger obligations than those are involved here. If we really want to achieve the advantages of a full Common Market, which is not an extravagantly bloated bureaucratic affair, we must give overriding priority to our international requirements and a much lower priority to domestic political ones.

8.52 pm

Mr. Matthew Taylor (Truro)

Our proceedings are made difficult, as hon. Members have said, by the need to debate such matters on the Floor of the House. With documents 4 or 5 in thick, we cannot be expected to make detailed comments on what is happening. In many ways it is a pity that we cannot deal with this in Committee, as has been suggested.

However, even if such a change were to he made for budgetary proposals of this sort, there can be precious little United Kingdom parliamentary control of the budget. The dual system in the EC—the Council of Ministers and the European Parliament, particularly the Council of Ministers—means that there will always be an element of negotiation after anything that the House has said and done. We cannot instruct Ministers in any detail on what is to be done, because there will have to be negotiation. We cannot give the final negotiating position to the Minister, because that would give the game away. We cannot give the upfront starting position to the Minister, because then he has no position from which to negotiate.

Mr. Spearing

There is always contiuous negotiation, and we would not expect the Government to reveal their hand, but does the hon. Gentleman agree that the House is perfectly capable of telling the Minister the point beyond which he should not go or the point at which he should start? Is he aware that the Danish Folketing does that every week within the terms of the treaty of Rome, so why should not we?

Mr. Taylor

Any negotiators who begin by announcing their starting and finishing positions will not get far. However, this is a relatively small point and I make it only by way of comment on what has been said earlier.

There are serious anxieties about the Government's ability, with the European partners, to keep control of the CAP, and, indeed, the European budget as a whole. We can see that they have not brought those under full control. Whether our Parliament sets down rules on that will not make any substantial difference. However, the problem with debates such as this and the way in which the EC currently goes about matters, is that we become obsessed with overall figures, the techniques for controlling them and the techniques for dealing with what are clearly, in many areas within the EC, spending controls that simply have not worked. We have forgotten how I he matter relates much more directly to the individuals in each country—the little people—who bear the brunt of many of the decisions that we are taking. We are looking at overall macroeconomic figures, but those people suffer the microeconomic impact when it comes.

That, more than anything, is true of the CAP. Typically, the Labour party takes a particular interest in the overall cost of the CAP. I take a particular interest in its effect on the smaller farming units, particularly the effect of the controls on the 'CAP on smaller farmers such as those in my part of the country.

The problem with the way in which we deal with such matters at the moment, and the problem with the overall budgetary details in these documents, is that, when we talk about controlling the CAP, because everyone cannot get together to agree a sensible policy to take account of the individuals who are affected by it, we impose it overall., and that has a disastrous impact on those who are most in need of help from the EC.

When we debate budgets and policies, we sometimes forget what the CAP should be about, which is helping those who need help. We should endeavour to ensure that we are not causing greater problems. The House, Ministers and the EC have not successfully tackled that problem.

If we look, in particular, at the way in which the system works, the real problem is that we only consider the macroeconomics and the levels at which budgets should be set, not how they will work in detail. On the CAP, we have no policy to allow maximum control for the smaller communities within the EC to generate policies that are relevant to them. What we do is too much on a macro scale.

Similarly, on fishing, decisions are taken to control the overall budget and we then attempt to implement them in a bureaucratic way, which is about saving money, not about relating policies sufficiently to the particular communities concerned. We feel the impact of that at a local level. Fishermen have no local control over quotas, and MAFF botches it time after time. We talk about the macroeconomic control of the EC's budget but we end up neither controlling that budget nor assisting the very people we are meant to be helping by the spending of that money.

The Labour party's amendment has properly highlighted the fact that, while concentrating on solving the problems of the CAP, we are not putting sufficient effort into the social fund. The Government are under a particular obligation to do so, but they fail to consider how the fund relates to people. They are interested in the cost of the EC—as they should be—but they ignore the benefits we could obtain from the Community by taking advantage of its ability to devise a social and economic policy which will respond to problems in certain parts of this country and to certain parts of the Community as a whole.

The current situation is one almost of farce, in which the Government have said in response to the EC's offer of money to dual the A30 through Cornwall that they will take the money but cut their own budget so that there is no increase in total spending on dualling that road. They appear to have completely lost sight of the potential offered by the Community and of the reasons for our membership of it. The ways in which it can help local communities are being overlooked. Instead, we appear to be focusing only on a general budget document and on making economies. Although the Labour party is right in its analysis, we would like to see the Government do far more.

On the other hand, the Labour party offers the prospect of a new corporatism. Instead of tea and biscuits at No. 10, the idea is to have sandwiches at Strasbourg. There is the notion of "intergovernmental action" rather than integration. That will solve nothing. While ensuring that the European Community generates funds and encourages integration and the breaking down of barriers so that people can take advantage of the opportunities which Europe offers, we must also make sure that that process is not run from the centre by means of a giant corporate strategy perceived in Europe. We must devise a structure that will allow for local control. If we can grasp the opportunity for Community action in that way, we shall gain some advantage from it.

We are having this debate almost as though hardly anyone is affected by the matters being discussed. The small number of hon. Members present in the Chamber shows how few Members of Parliament believe that the Community relates to their contituencies or believe in its ability to tackle local problems. That is a failing of the Community and of the Government.

Integration of the kind I have mentioned need not be inflexible. It need not be on a macro scale or follow the "biggest is best" principle—that the same must apply to all. That is particularly so in respect of VAT rates. I was pleased to hear the Government say that they are not seeking a universal VAT rate. There is no evidence that such is needed. Certainly the American experience does not suggest otherwise. It may be that wildly differing rates in different countries could cause problems, but we are concerned with the ability of our country to react to the problems of the individual and to devise social policies to meet those problems.

We have social policies which meet the problems of children or pensioners, and which ensure that people are equally able to buy books and newspapers. Those policies do not need to change because of our membership of the Community and the wish to break down tariff barriers. It is crucial that we recognise that truth, and that the Minister stands by it.

Mr. Brooke

I infer from the hon. Gentleman's remarks that he is turning his back on the position taken by the Liberal party in respect of VAT in a peculiar debacle earlier this year.

Mr. Taylor

The Liberal party did not take such a position—[HON MEMBERS: "Oh."] I was among those of my hon. Friends who ensured that it never will take such a position. I am happy to confirm that we do not stand by the commitment to which the right hon. Gentleman referred. [Interruption.] I refer instead to our wider commitment to ensuring that the Community is about allowing individuals the freedom to do what they want, in making their own way and in overcoming their own difficulties at a local level. That is the emphasis we place on the European Community. It will be interesting for the Conservative Members who are commenting to see what the Government do in practice. We have heard the Government say that they do not want that; I think that we may well find that it is the Government, not we, who introduce it. It will be interesting to see whether the smiles on the faces of Conservative Members are as broad when that time comes.

9.4 pm

Mr. David Curry (Skipton and Ripon)

Fifteen years ago, I was a Financial Times correspondent in Brussels. It fell to our office to monitor one of the early renegotiations of British membership of the European Community, that conducted by the Labour party when it was in office. I have no doubt that some right hon. and hon. Members will recall that perfunctory and self-satisfied performance, which left the entire fisheries agreement untouched and led to the referendum in the United Kingdom.

If we are to hear criticisms of this Government's performance in reforming the European Community, we must be clear about the yardstick against which it is measured. That performance—now, mercifully, a long time ago, as it is a long time since the Labour party was in Government—is the only yardstick that we have, and it was a dismal performance.

One of my responsibilities was to monitor agriculture. The Labour Ministers of the day had an amazing reputation for conceding high increases in farm prices—once, I recall, a rise of 14 per cent. The problems of the common agricultural policy are not recent; they go back to the origins of that policy. I readily concede that some fundamental mistakes were made at that point. I think, however, that it will make for a more candid debate if we recognise that all parties have faced identical problems in trying to bring reason into some of the Community policies, and that all parties have had to compromise in that pursuit because of the nature of the dynamism within the institutions in the Community.

I note that the hon. Member for Vauxhall (Mr. Holland) appears to be enunciating a new Labour policy towards Europe—I am glad that it is a new Labour policy—that we are looking for a sort of Continentwide intervention via mechanisms such as the social fund and, no doubt, the regional fund, to which I am sure he is equally attached. If that means that we can now argue about Europe not in terms of being in or out, but against the background of the free-market, single market approach to interventionism, at least we put the debate on a sensible, rational footing. I am happy to fight my corner if that is the Opposition's argument.

I also noted several references to the need to attempt to bind the Government when they go into negotiations with the Community. Last week, a Labour amendment was tabled to the discussion on tax approximation and, if memory serves me right, only 91 hon. Members voted for it. Clearly, there is a certain amount of conversion to be done—even on the Conservative Benches—in relation to that thesis. I have to say, however, that the Folketing has not proved outstandingly successful. It has managed only to create enormous embarrassment for its Government, who have spent considerable time and a number of general elections trying to sort the matter out.

Mr. Holland

Does the hon. Gentleman mean that he does not approve of elections as a means for voters to express their will in this matter? Does he not recognise that there is a role for the democratic process in national Governments, rather than their being overridden by supranational institutions?

Mr. Curry

I know that successive Governments in Denmark have found themselves forced into elections almost by accident rather than by design. That sort of haphazard democratic process may not necesarily commend itself to the House.

We have three important documents before us: the proposal on own resources, with the new fourth resource; the proposals for budgetary discipline; and the amendments to the financial regulation. I want to begin with the Cinderella, the amendments to the financial regulations. It is easy to talk in grand terms about controlling this or that, but we have to make sure that the nitty-gritty is right. If we are not in charge of the management of what is happening on a day-to-day basis, we do not stand a chance of getting the big problems put right.

There are three important elements in the financial regulations. The first is the provision which makes it difficult for unused appropriations to be carried over to the following year. Opposition Members talked about the social fund. Its functions are important, but it has a poor record of managing to spend its appropriations. Its efficiency in terms of rate of spend is poor. Opposition Members should recognise that if they want to demand greater resources for it. Up to 1 billion ecu of expenditure has been handed over automatically in the past. That is not a good way to run a railway. In the interests of transparency and the annuality of the budget—because it is an annual budget—it is important that that practice should be changed.

The second measure is the change in agricultural finance, which converts the advances into reimbursement but describes them still as advances. The invention of the retrospective advance is one of the less felicitous inventions of the Community vocabulary. It has now been made permanent, with a two-and-a-half month delay before member states are reimbursed for their expenditure.

This is a positive move, but it would be unwise to attach too much importance to it. Certainly it is better for monitoring and control if the Commission can see expenditure before it has to disburse its resources rather than simply hand out cash in advance. Up to now, the correction to the account has been done in March of the following year, so there is a further useful gain in that, but it is important not to exaggerate its extent.

Certain amendments will be proposed when the measure goes through the European Parliament. I ask my right hon. Friend to do his best to sustain them. At the moment the Commission dishes money out from a general kitty and it goes to wherever it is needed. I think that the Parliament will attempt to establish a series of kitties so that there is a chapter-by-chapter monitoring of expenditure. Again, this would be a management gain in the efficiency of the operation.

The important element of the financial regulations is the attempt to sort out the dreadful business of clearance of the accounts. It has taken five to seven years after the end of a financial year for the Commission to get legal clearance for the money which has been spent. The time is now down to about three years—hardly a brilliant performance. The trouble is that some people have moved on; probably some documents have moved on as well. When there are political problems, such as the way the French implement co-responsibility or, dare one say, the Milk Marketing Board its payments, it is difficult to obtain redress.

There should be much quicker clearance. The Commission is offering to clear the accounts by, if I recall rightly, mid-September of the second year after the closure of the accounts. I urge my right hon. Friend to argue the case for clearance, except in the most exceptional circumstances, one year after the end of the accounts. That should be an adequate period if we are to have effective scrutiny and management of expenditure.

As to own resources and budgetary discipline, I take to heart the comments of my right hon Friend the Member for Worthing (Mr. Higgins) and other hon. Members about the necessary imprecision of certain proposals arid the fact that to some extent one has to take things on trust. In a sense, that is the nature of the organisation.

I want to enumerate some of the bull points. I choose my words with care. We have a legally expressed discipline of farm spending which is linked to new and restructured own resources operating through the stabilisers, and we have renewal of the rebate system, an important achievement which was difficult to get. I agree that the old Fontainebleau system was not as effective as we had hoped, but there is a further strengthening in the mechanism. I urge hon. Members to consider the trend of what has been happening rather than the absolute. We will be disappointed if we always seek absolutes.

With the new system of own resources, based on gross national product, there should be no need for a further increase in Community resources while the present policy mix exists. Provided that no major new policy is introduced, there should be no requirement for further increase. At least that provides a more dynamic basis for a budget than we have had in the past. That gain is worth having.

It is also worth remembering that any system based on GNP helps the United Kingdom, as the United Kingdom's share of GNP is smaller than its share of VAT. We could have done without the 55 per cent. cut-off, but even with that, we benefit from the system. The monetary reserve is better than the exceptional circumstances provision that we had in the past and, as my right hon. Friend said, it works both ways and is specific to the ecu-dollar relationship.

Also important is the year-on-year overall limit on expenditure which was written into the Brussels summit—the sub-ceiling. That is likely to bite quite severely. For example, agricultural expenditure is at a ceiling of 27.5 billion ecu. A number of member states are now pressing for the devaluation of their green currencies in the course of the present farm price fixing, which is at a big round zero, as it has been for a number of years.

The Commission is holding out against that, because a 1 per cent. devaluation of the French franc, which is a major agricultural currency, would add about 120 million ecu to the budget in a full year, and the Commission cannot go beyond the ceiling. The ceiling will start to cause dilemmas, and the United Kingdom has been one of the most insistent countries calling for devaluation of the green pound for its farmers.

Will the stabilisers work? My right hon. Friend the Member for Worthing has pointed out some of the difficulties of the cereals stabiliser. I agree with him that the 160 million tonnes ceiling was too high. It is true that if the 3 per cent. cut applies year on year, it will accumulate to 12 per cent. and eventually will lead to a cut of one third between 1983 and 1993. One is certainly entitled to be doubtful about the long-term effect of such a cut, particularly with an underlying yield increase of between 1.5 per cent. and 2 per cent. and the changes in the green rate which we are demanding and which will counterbalance the cuts as they come into effect.

The wine stabiliser is also important because the price has been cut very severely. The conclusion is that certain countries now have to recognise that they must live in the world market place. A country such as France does not have the option of treating its farmers simply as a sort of social therapy, which some member states seem to consider desirable. It is committed to finding outlets on the world market and therefore has to apply agricultural disciplines.

May I also point out the importance of the depreciation of stocks, and mention one or two brief figures which illustrate some of the effects of the stabiliser mechanism. I have done some research into the level of stocks. The butter stocks are down significantly. The £2 billion specially earmarked for disposals was an extremely expensive operation, but butter stocks are now down to 580,000 tonnes against 1.2 million tonnes a year ago; skimmed milk powder is down to 320,000 tonnes against nearly 800,000 tonnes a year ago, and fewer than 25,000 tonnes of new butter has gone into intervention in the past 11 months.

There is no new accumulation of stock at the moment. More important is the level of world prices which affect the budget. Butter has just been edged up to $1,100 a tonne under the general agreement on tariffs and trade minimum price of $1,000 and there is no reason why that cannot start moving back to the $2,400 per tonne which it occupied some years ago. Skimmed milk powder has moved from $700 to $1,550 a tonne on the world market since June last year and whole milk powder has risen from $800 to $1,500 dollars a tonne on the world market since June last year. Cheese has risen by $400.

Mr. Teddy Taylor

Will my hon. Friend, who understands these things, explain why, in view of the new minimum price, the EEC sold 240,000 tonnes of butter to the Soviet Union at 6p a pound last month?

Mr. Curry

That is because there was a special derogation under the GATT agreement approved by the other major performer on the world market, New Zealand, as some of us heard Mr. Jim Graham, chairman of the New Zealand dairy board, explain about a week ago at the Back-Bench committee. That permitted the Community to sell old butter at a severely discounted price—about one tenth of the $2,400 a tonne which butter has reached as a historical high in the world market. My hon. Friend is correct to say that there was a special discount price for old butter to the Soviet Union. My point is that firmness in world market prices is the best chance of bringing some control to agricultural expenditure.

There are reasons for increasing the structural funds, provided that the money is well spent. At present, it is poor quality expenditure. There is no reason to assume that because agriculture is "bad", the other expenditure is necessarily "good". We need to apply just as firm scrutiny to those funds to ensure that the money is well spent and that it does not simply replace money that has often already been spent by member Governments. The need for scrutiny goes across the entire Community budget.

I hope that when the matter comes to the House fully, hon. Members will feel able to approve the decisions taken at Brussels. They were important decisions and they represent a trend that is going firmly in the direction of budgetary common sense. I hope that I shall have the opportunity of commending them to the House then.

9.20 pm

Mr. Nigel Spearing (Newham, South)

One of the reasons why attendance is perhaps not as great as it might be considering the importance of these matters is the complexity with which we are confronted. There are 14 documents and 16 Committee reports. It is no wonder that the Paymaster General, to use a cricketing analogy, kept a straight bat but did not try to make any runs. If he had tried to do so, the real position, which I find alarming, would be plain for all to see.

I shall attempt the almost impossible. There are about 14 reports from the Scrutiny Committee and, in 10 or 12 minutes, I shall attempt to summarise the summaries. Unless we try to do that, I do not think that we will understand what is happening. If I am wrong on any point, I am sure that the Paymaster General will correct me.

As I understand it, we are discussing four issues. We are discussing a new tax structure for the EEC and, in particular, a new resource. We are discussing whether we can have real budget discipline. We are discussing the budget for 1988 and seeing how, if we wish, we can fund the deficit for this year in the interim. There are other small subsidiary matters, such as keeping our own rebate system in case the Italians upset it. But that is a small matter which we can no doubt get over. I shall take the four major issues in turn.

On the new tax, we keep the old system. All the taxes coming into the country under customs duties are the common Community tariff and are own resources. The same applies to the food levies and the VAT-related payments up to the old 1.4 per cent., which is the Fontainebleau formula. All that stays. In addition, we have the GNP-related tax that will be the increase. According to EEC publication SW3 ABT, published at the time of the Brussels summit, it is going up from about 37,000 mecu in the 1987 budget to a maximum of 52,000 mecu by 1992 on current prices. That is an increase of about 30 per cent.

That will not be achieved in one go. We know that it is going up in different stages. The note issued by the presidency at the end of the Brussels summit—document SN, 461/1/88—says: (d) the application of a rate to be determined under the budgetary procedure in the light of the total of all other revenue to an additional base representing the sum of the gross national product at market prices. On what basis will that percentage be determined? Will it be by a qualified majority vote or will it have to be unanimous? That will determine the extent to which there will be raids upon the tax in years to come.

How much of that is being used up already in the 1988 budget? My calculation is that a great big chunk of it is, but perhaps the Paymaster General will be able to tell us.

What is the new tax to be spent on? First, the structural funds are to be doubled. We start off our discipline by doubling expenditure on one fund. I quote from that same document: The contributions of the Structural Funds to the regions covered by Objective No. 1 will be doubled by 1992. Therefore, we are going to spend double on the European regional development fund, the European social fund and the agricultural guidance and guarantee fund.

That brings us to where the production is coming from and to my second heading—discipline. As the right hon. Member for Worthing (Mr. Higgins) pointed out, it is not going to be much. I summarise the stabilisers programme, which was issued as a great triumph, as at best a means of reducing the rate of increase that would otherwise occur. That is the best way to sum it up. The hon. Member for Norfolk, North (Mr. Howell), a farmer boldly said in the House that he was going to sow more. The stabilisers, of course, will only come into effect a year after the figures are calculated; then there will be a reduction of 3 per cent. on prices for the next year. Even the Minister of Agriculture, giving evidence to the Select Committee, could not put his hand on his heart and say that this would work. He shared the doubts, I think, of those who were questioning him.

Before I come to the 1988 budget, I want to revert briefly to the question, which I rather pooh-poohed, of the importance to the United Kingdom Budget of the Italian question raised by the right hon. Member for Worthing. This is very important. People do not realise how enormous our net contributions would be but for this rebate. Figures provided by the Library show that our contributions for 1987 were something like £4,740 million—over £4 billion—of which the VAT-related contribution was £3,000 million. That is not 1.4 per cent. but 12 to 13 per cent. of the Exchequer income from VAT.

We got back from the agricultural fund £1,422 million, and the net payments before refunds amounted to £2,473 million. We did not get back anything like the amount that we put in. We got another £1,126 million in rebates and had a net contribution of £1,347 million. That shows that an enormous amount of our net payment is relieved by our rebate, and we understand that we may not get it. That is why it is absolutely essential that that rebate mechanism is in place before we agree to any IGAs or any increased tax at all, because power to control that will be power to control the finance that we get from the EEC in future.

I submit that we should not be discussing the 1988 budget with the mechanism. We ought to be discussing the new mechanism, the new discipline and the new tax separately. The only reason why we are discussing them together is that the EEC has run out of money before it has got the new structure in place. In effect, we are being asked in this debate, and may be asked in the future, to approve an estimate before we have approved the tax. That is the essence of the position in which the EEC now finds itself; and, of course, that is quite wrong.

The 21st report of the Select Committee—House of Commons 43 XXI—reproduces the comprehensive table that the Government placed in the explanatory memorandum. The last line states that the budget for 1987 was £25 billion. The draft budget for 1988 is £30 billion—an increase of £5 billion in one year. Is that not about 25 per cent? It also assumes that we shall have the money to pay for the increase and that the taxes will be approved. If not, the money will not be there. The Government want to bridge that £5 billion gap partly by the pre-payments about which we have already heard but whose amounts I do not know. Originally the idea was to bridge the gap with an intergovernmental agreement of £5 billion, of which our contribution was to be about £800 million—a controversial matter.

Today, the Paymaster General revealed new information. He said that we might approve such an intergovernmental agreement in a composite Bill that also approved the draft decision authorising the new taxes. After my intervention in his speech, he went on to justify such a move by saying that there were precedents for it. I do not recall them. The Government got into trouble a few years ago when trying to get through an IGA under the treaty. There was a court case about it and they had to introduce a Consolidated Fund Bill solely for that purpose. This is most controversial because the treaty of Rome says that the EEC should not spend more than its income; but the whole point of the intergovernmental agreement is to enable it to spend more than its legal income. That is illegal under the treaty of Rome. If it were done, any citizen could take the EEC to court.

In this all too brief three hours of debate we are being asked to approve a complex mechanism for a new tax and budget that is, at the moment, illegal. I see no way out of the EEC tangle. Clearly, the commitments to payment rapidly and increasingly exceed the tax that we are being asked to approve. It will bring in up to 30 per cent. more revenue, but the calls on that revenue will not be controlled because the nature of the common agricultural policy and of the politics of the member states of the EEC makes the equation impossible.

9.33 pm

Mr. Teddy Taylor (Southend, East)

I hope that my right hon. Friend the Paymaster General will be able to answer the few questions that I can ask in the brief time that I have.

The small attendance at this debate is due not only to hon. Members finding the subject too complicated, but to a growing realisation that the views of the Government, of Parliament and of hon. Members on European matters are of limited importance. The views that we express have little impact on the amount of money that we shall pour out, and they will have no relevance to what is decided by the House. That is probably one of the main reasons why these important debates are attended by only a handful of people.

Another reason is that in these European debates, which are faithfully attended by the small number of hon. Members who are present tonight, we have been given a series of unfulfilled promises and expectations. I can remember hearing an almost identical debate at the time of Fontainebleau about how the problems were being solved. Yet in one of the many documents before us tonight, the preliminary draft budget, we read: This clearly shows that the Fontainebleau arrangement is hopelessly outdated and that it would be illusory and contrary to the resolve to impose a realism in budgetary matters to seek to adhere to it come what may". In other words, the EC itself says that Fontainebleau was useless and pointless.

I think of the Government's repeated expectations and estimates of our current net contribution. I think of the financial year just ended. Official Government documents show that the estimate for the year just ended was £600 million net. It was then revised to £900 million net, and revised again to £1,500 million net. Most recently, the Prime Minister advised us that it would probably increase by £200 million to £300 million because of the arrangements at the Council just completed. We have had a whole series of disappointments.

I should like to ask the Minister five questions. First, what is the view of the Government or their advisers on the legality of this budget? It seems to me that under article 199 it is just not possible for the agreement arrived at between the President of the Council and the Parliament to proceed, because resources are not there. They have not been agreed or approved by the various Parliaments. What is the Government's view of the legality of the budget, and what can they do about it?

Secondly, can the Government give any estimate of the amount that has been excluded from the figures in the budget because of the special arrangements that were made recently? I refer in particular to the special butter disposal programme. The document says: This is a massive programme costing vast sums of money but has been excluded from the 1988 budget because of a special directive task called 801/87 of 16 March 1987. We know that a whole series of such devices have been introduced to make spending appear to be less than it is. One of the most interesting was the decisions taken 10 days ago by the European Commission to approve without any consultation with Britain a ban on the import of apples. That could result in consumers being forced to eat last year's apple mountain, which is unwanted. This is an important consideration, bearing in mind that this year over 100,000 tonnes of Community apples were disposed of or destroyed at vast expense.

Thirdly, can the Government tell us why, despite the steps that have been taken to reduce surpluses, the estimate for their destruction and disposal has increased to £221 million per week? We have been told about the emergency disposal of stocks and about stabilisers. I cannot understand why the budget should contain an estimate of over £220 million per week, the highest ever, for disposing of butter and other surpluses.

Is my right hon. Friend prepared to put on record his estimate of the percentage increase in the 1988 budget compared with the 1987 budget? What is his estimate of the increase in expenditure on agriculture in the 1988 budget compared with the 1987 budget? What does he think the net contribution of the United Kingdom will be in the forthcoming year? Although we know that my right hon. Friend is an honest and prudent man, he must be aware that the estimates and forecasts given to the House, have all, sadly, proved to be inaccurate, and always in the wrong direction.

The budget and the resources approved by the Government, subject to certain Council considerations, are genuinely disappointing. They are a disaster. They will not cut agricultural production; nor will they stem the increase in spending, which is out of control. Most sadly of all, there is nothing in these measures that will stop the EC from continuing to inflict hardship and damage on Third-world countries by wrecking world food prices.

We have heard many times about the Government's aspirations and expectations, but they must be well aware that by increasing so substantially the resources of the Community, and in the absence of any legal control over about half the budget, they are simply allowing the Common Market to carry on as before—wasting money, inflicting damage on the Third world and having expenditure that is almost wholly out of control.

9.39 pm

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

On behalf of the Opposition, I put on record our disappointment at the lack of involvement, and indeed lack of presence, of a Foreign Office Minister. Some of us remember with fondness the way in which the right hon. and learned Member for Edinburgh, Pentlands (Mr. Rifkind) led the debates, when he was a Foreign Office Minister, with a panache that is now sadly and sorely missing. The Government, and the Paymaster General in particular, have an increasing credibility gap to fill in these European Community budget debates.

I am not up to continuing the cricketing analogies. The Paymaster General started the debate with a long and complicated, even repetitious, description that seemed more designed to obfuscate than to clarify the issue for the House. The right hon. Gentleman used Euro-jargon and referred to articles and regulations and the technicalities of whether the matter should be dealt with as a composite Bill or through the decoupled approach.

My objective, in the last few minutes of the debate, is to try to simplify the issues. Some of us have been attending these European budget debates for many years. My hon. Friend the Member for Newham, South (Mr. Spearing), and the hon. Members for Southend, East (Mr. Taylor) and for Clwyd, North-West (Sir A. Meyer) have sat through all those debates.

EC budget debates have become like Oliver Twist, always asking for more, be it non-reimbursable advances—my hon. Friend the Member for Newham, South will remember that phrase—or what are now called inter-governmental agreements, which have been sanitised as IGAs.

The hon. Member for Skipton and Rippon (Mr. Curry) asked for a yardstick. The Opposition's yardstick is not that used by previous Governments, but is based on the promises and guarantees that have been given by this Government. The Prime Minister said on 1 July 1987: We have made it clear throughout the discussions that it is necessary, before that question is addressed, to have agreement on effective and binding control over Community spending, including, in particular, agricultural spending."—[Official Report, 1 July 1987; Vol. 118, c. 493.] The right hon. Lady repeated the assurance on 15 February 1988.

The Minister of State, Foreign and Commonwealth Office in one of the most telling and, as is usual for the right hon. Lady, frank interventions, said: Our central goal is the achievement of binding controls over spending. Runaway agricultural spending has squeezed all other expenditure. It is now accepted by our partners that the operation of the CAP has been of declining benefit to the very farmers it was meant to help".—[Official Report, 18 November 1987; Vol. 122, c. 1100.] That is what some hon. Members have been saying today. The themes of guarantees and promises constantly come through statements from Government during EC budget debates. First, they say that there should be effective and binding control on expenditure before agreement is reached on the extra spending and funds voted by the House. Secondly, they say that there should be a switch from agricultural expenditure to structural funds and other non-compulsory areas of the budget. It is a pity that Foreign Office Ministers are not with us.

The Foreign Secretary was quoted in The Independent on 25 November 1987 as saying that the Government would block a summit agreement on extra revenue for the Community unless we make a reality of our rhetoric about stabilising expenditure. We must examine today whether the objectives set by the Government, not by the Opposition, have been achieved and whether they have made a reality of their rhetoric, to quote the Foreign Secretary. The question is whether we should be contemplating providing further resources, for whatever it is called and however it is described, or whether, later in our discussions, perhaps next month, the matter will be dealt with by a composite Bill or a de-coupled arrangement. The Government's motion asks the House merely to endorse the Government's objectives of securing effective and binding control of Community expenditure. It still remains only an objective after all these years, including my four or five years of personal involvement in these debates.

Has that objective been achieved? I shall use, not my criteria, but the judgment of the Select Committee on the Treasury and Civil Service, so ably chaired by the right hon. Member for Worthing (Mr. Higgins). On page 6 of its report, the Committee quoted the Prime Minister's statement on the Brussels meeting. She said: the United Kingdom had made clear, first, that any further increase in Community resources must be accompanied by effective and legally binding controls on expenditure". The Committee went on to examine whether that had been achieved. In paragraph 10, on page 7, the Committee said: We pressed the Paymaster General on the question of the legal enforceability of budgetary discipline. On pages 8 and 9, the Committee concluded: We are not convinced that an inter-institutional agreement is the equivalent of a firm and legally binding text … we believe there are still grounds for remaining sceptical about the prospects for budgetary control in the future. That is the control—control dominated by Members of the Conservative party. On page 5, the Select Committee concluded: As yet neither the own resources decision, nor the arrangements for budgetary discipline are in place. There is none of the promised budgetary discipline. That is why the House should support our amendment.

The report says that budgetary discipline and own resources are "inextricably linked" with the provision to preserve the UK's abatement. A number of right hon. and hon. Members, including the right hon. Member for Worthing, said that the Italian question posed a threat to the United Kingdom's abatement. It puts our rebate at risk. The Paymaster General must answer that question, which has been posed by hon. Members on both sides of the House.

As for switching from agricultural expenditure to spending on other aspects, we see that agricultural spending is still out of control. The Paymaster General was asked at the beginning of the debate to give the percentage, but could not. He was asked again. The answer is in the minutes of evidence to the Select Committee, which show that agricultural expenditure has increased by 19.6 per cent. over the 1987 budget. Expenditure on other aspects has not increased substantially, if at all. Far from being increased, the expenditure which we should like on the social and regional funds, overseas aid and research and development has sometimes been cut.

The hon. Member for Skipton and Ripon challenged the efficacy of some of the expenditure, but he should know that the director of the regional fund has produced a report on new structural funds. Any new structure has had to be postponed because of this budgetary problem and the inadequacy of resources. We want money to be put in to help the declining areas, not just of Britain—for example, in the steel industry, which was described by my hon. Friend the Member for Motherwell, North (Dr. Reid)—but of other parts of the Community. Instead of declining, the budget has increased. Instead of being a smaller percentage of the Community's resources, agricultural spending is larger.

In an excellent speech, ray hon. Friend the Member for Motherwell, North said that the vision of the founding fathers of the Community was being lost in such debates. The vision of the potential for political co-operation between Community members is being lost. The potential for improving the employment situation, through an integrated expansion of our economy, is being lost as a result of the detailed debates on these issues.

The United Kingdom Parliament will be asked to contribute more to a budget of doubtful legality. It will be asked to pay more when agricultural expenditure is clearly out of control. We will be asked to pay more when the British rebate is still in danger, the Government's promises remain unfulfilled and the pledges are seen to be hollow. I hope that Conservative Members, including the hon. Member for Southend, East and the right hon. Member for Worthing, who have criticised the Government and their failure to fulfil those promises, will take their courage in their hands, as they have done on previous occasions, and join us tonight in the Lobby to support our amendment.

9.50 pm

Mr. Brooke

It may be a sign of masochism, but, as ever, I have enjoyed this evening's debate. I am grateful to my hon. Friend the Member for Skipton and Ripon (Mr. Curry) for reminding us of the performance of the Labour party when it was in power. I was constantly reminded of that during the speech of the hon. Member for Vauxhall (Mr. Holland).

My hon. Friend the Member for Skipton and Ripon asked a question which caused me to remember the application of Parkinson's law to the Commission's behaviour. This was reflected by the hon. Member for Vauxhall, who disregarded the documents that we are considering this evening and constructed his own agenda. He was also following the other principle of Professor Parkinson—that the nuclear device goes through on the nod and one then has a long argument about the bicycle shed.

The whole of the hon. Gentleman's argument was devoted to the document on financial engineering. I do not want to decry that document. It was put in front of us at ECOFIN in May 1987 and included in translation the words "financial engineering". The hon. Gentleman said that there was adequate provision throughout the Community, but plenty of Community countries disagreed with the proposition relating to financial engineering when it was brought forward.

Whenever I read about the Labour party's attitude towards social engineering in future, I shall seek to substitute the words "social mechanisms" and see whether they work. As to the remarks of the hon. Member for Vauxhall about the Glamorgan woman's workshop, I assure him that I shall bring that matter to the attention of my right hon. Friend the Secretary of State for Employment.

The hon. Member for Vauxhall gave his King Charles head of a multinational company another good airing. He criticised the logic of my speech—and I was grateful to the hon. Member for Newham, South (Mr. Spearing) for disagreeing with him about that. The hon. Gentleman frequently contributes to these debates and is familiar with the issues with which we have to deal. I was addressing the evening's business as set down on the Order Paper while the hon. Member for Vauxhall rambled around his well-loved prejudices.

My right hon. Friend the Member for Worthing (Mr. Higgins) asked me a number of questions. He asked whether the prospective demand for a 12(2) overdraft was due solely to cash flow problems. We have not received a 12(2) request so I cannot give a definitive reply, but the Commission's cash forecasts clearly show a cash flow problem arising from normal transactions over the next few weeks. I acknowledge the rules that we must observe in considering that overdraft and assure him that we shall continue to observe them.

My right hon. Friend asked on what basis the presidency agreed to the budget in Strasbourg last night. Herr Tietmeyer, the president of the Budget Council, agreed to a commitment about 2 per cent. above the limit set by the Parliament's statutory margin, on the basis of his interpretation of a mandate, which he was given at the Budget Council on 28 April, and to which the British Government did not subscribe. My right hon. Friend asked about the question raised by the Italians on the United Kingdom's abatement. The size of our abatement is not at stake. The point raised by Italy was how the other member states would finance the United Kingdom's abatement.

Finally, my right hon. Friend asked about GNP statistics—a question which he also raised with me in the Select Committee. I agree with him, and the European Council agreed that there should be a directive ensuring that the same definition of GNP is applied in all member states for own resources purposes. A draft directive has now been proposed and is under discussion in the Community.

The hon. Member for Newham, North-East (Mr. Leighton) intervened briefly with the word "never", which he repeated on several occasions. My experience, particularly of these debates, is that that is a dangerous word to use.

The hon. Member for Motherwell, North (Dr. Reid) showed a welcome interest in the Court of Auditors, but, given his preoccupation with it, perhaps he had not noticed the expansion of the social fund which was agreed in the Brussels Council's conclusions. He and my hon. Friend the Member for Mid-Worcestershire (Mr. Forth) suggested that so-called cash flow problems are a euphemism for overspending. There is a genuine distinction. For any level of overall annual spending, cash needs are bound to fluctuate from month to month as payments become due on different items at different times. That is why there are routine arrangements for managing own resources contributions in this way.

My hon. Friend the Member for Southend, East (Mr. Taylor) and others asked about agricultural expenditure being 25 per cent. higher in 1988 than in 1987. I wholly agree with them about the need to control agricultural spending, but it is somewhat misleading to talk of a 25 per cent. increase in 1988. Because of the introduction of delayed payments, 1987 was in effect a 10-month agricultural year. Taking account of that, the underlying increase in 1988 is less than 7.5 per cent.

Mr. Foulkes

Does that mean that the Minister can give a clear and categorical guarantee that agricultural expenditure for 1989 will not increase over that for 1988?

Mr. Brooke

The hon. Gentleman, who has studied these matters, knows perfectly well that there is a provision that the agricultural guideline will rise by 74 per cent. of the growth in Community GNP—and that is calculated to run at 2 per cent.

The hon Member for Truro (Mr. Taylor) betrayed the whole thesis of the Liberal party when, in response to an intervention from me about the Liberal party's attitude to VAT, he said that it had to have an ability to adjust. Many of us have watched the Liberal party adjusting literally between morning and afternoon.

I thank my hon. Friend the Member for Clwyd, North-West (Sir A. Meyer) for his kind words. Our noble Friend Lord Cockfield introduced the proposals on fiscal harmonisation. Where Council Ministers have not disagreed with them in principle, they have found massive disagreements in detail. If my hon. Friend is counselling us to countenance reality, he must study the reactions to these proposals throughout the Community.

My hon. Friend the Member for Skipton and Ripon, in a knowledgeable speech, drew attention to what happened under the Labour Government. Given our success in securing the abatement, it is worth remembering that the result of the 1975 financial mechanism was not a single ecu. My hon. Friend referred to VAT being capped at 55 per cent. of GNP as being to the disadvantage of the United Kingdom. It is in fact of further benefit to the United Kingdom, as is the introduction of the fourth resource based on GNP, because it reduces the contribution before abatement which we would otherwise have paid.

The hon. Member for Newham, South asked how the rate of the fourth resource would be set. The rate of GNP-related contributions required to balance the budget will reflect the expenditure decisions taken by qualified majority voting in the annual budgetary process, just as the annual rate of VAT contributions is determined under the present system.

The hon. Member for Newham, South asked how much of the new GNP-based own resource will be used up in 1988. The 1988 draft budget involves an intergovernmental agreement corresponding to the amount that would be raised this year from the new fourth resource. This implies a rate for the new fourth resource of around 0.2 per cent. of Community GNP. Total own resources in the 1988 draft budget are equivalent to around 1.1 per cent. of Community GNP. The hon. Member for Newham, South said that we might not get our abatement. There are no grounds for that belief. Our 1988 abatement is in the 1988 budget agreed yesterday. Our new abatement mechanism agreed at the Brussels European Council has not been challenged and is fairly incorporated in the proposed own resources decision.

The hon. Member for Newham, South and my hon. Friend the Member for Southend, East said that the 1988 budget was illegal. It is true that the treaty requires that the budget should balance. That was why it was agreed at the European Council that member states would make non-repayable advances, in order to balance the budget. So long as there is an IGA in place to balance the budget, the budget is valid.

My hon. Friend the Member for Southend, East asked whether there were any documents to suggest that the rate of growth of agricultural expenditure—

Mr. Teddy Taylor

When did the European Council agree the IGA?

Mr. Brooke

The European Council and the Budget Council following upon it agreed to agree in principle an IGA. It is perfectly true that an IGA must still be agreed, and the question of the 1988 budget will continue to be open until it is confirmed that an IGA has been finally agreed.

Mr. Taylor

It has not been agreed, then?

Mr. Brooke

Having regard to the enthusiasm of the House to bring these matters to a conclusion, I shall respond to my hon. Friend the Member for Southend, East at a later stage.

In conclusion, I want to refer to the speech made by the hon. Member for Carrick, Cumnock and Doon Valley (Mr. Foulkes). There is no pleasing the Opposition. I well recall Mr. Deakins, a former Member of this House—we miss him from these debates—constantly criticising Foreign Office Ministers for not allowing a Treasury Minister to take part in a debate. I thought that the speech made by the hon. Member for Carrick, Cumnock and Doon Valley was noisy—perhaps to cover the weakness of some of his arguments and to take us away from the experience of the Labour Government. I would agree with the hon. Gentleman and the Select Committee on Treasury and Civil Service that an inter-institutional agreement is not the equivalent of a legally binding instrument, but the proof of the pudding will be in the eating as we see how the arrangements secured at the Brussels Council evolve in future.

Question put, That the amendment be made:—

The House divided: Ayes 157, Noes 213.

Division No. 315]	[10.12 pm
AYES
Abbott, Ms Diane	Foster, Derek
Adams, Allen (Paisley N)	Foulkes, George
Archer, Rt Hon Peter	Fraser, John
Ashley, Rt Hon Jack	Galbraith, Sam
Ashton, Joe	Galloway, George
Banks, Tony (Newham NW)	Garrett, John (Norwich South)
Barnes, Harry (Derbyshire NE)	Garrett, Ted (Wallsend)
Barron, Kevin	George, Bruce
Battle, John	Gilbert, Rt Hon Dr John
Beckett, Margaret	Godman, Dr Norman A.
Bell, Stuart	Golding, Mrs Llin
Benn, Rt Hon Tony	Gordon, Mildred
Bermingham, Gerald	Gould, Bryan
Blair, Tony	Graham, Thomas
Blunkett, David	Grant, Bernie (Tottenham)
Boateng, Paul	Griffiths, Win (Bridgend)
Boyes, Roland	Hardy, Peter
Bradley, Keith	Healey, Rt Hon Denis
Bray, Dr Jeremy	Heffer, Eric S.
Brown, Gordon (D'mline E)	Henderson, Doug
Brown, Nicholas (Newcastle E)	Hogg, N (C'nauld & Kilsyth)
Brown, Ron (Edinburgh Leith)	Holland, Stuart
Buchan, Norman	Home Robertson, John
Buckley, George J.	Hood, Jimmy
Caborn, Richard	Howarth, George (Knowsley N)
Campbell, Ron (Blyth Valley)	Hoyle, Doug
Campbell-Savours, D. N.	Hughes, John (Coventry NE)
Canavan, Dennis	Hughes, Robert (Aberdeen N)
Clark, Dr David (S Shields)	Illsley, Eric
Clarke, Tom (Monklands W)	Ingram, Adam
Clay, Bob	John, Brynmor
Clwyd, Mrs Ann	Jones, Martyn (Clwyd S W)
Cohen, Harry	Kaufman, Rt Hon Gerald
Cook, Robin (Livingston)	Lamond, James
Corbyn, Jeremy	Leighton, Ron
Cousins, Jim	Lestor, Joan (Eccles)
Cox, Tom	Lloyd, Tony (Stretford)
Crowther, Stan	Lofthouse, Geoffrey
Cryer, Bob	Loyden, Eddie
Cummings, John	McAllion, John
Davies, Rt Hon Denzil (Llanelli)	McAvoy, Thomas
Dewar, Donald	McCartney, Ian
Dixon, Don	Macdonald, Calum A.
Doran, Frank	McFall, John
Dunnachie, Jimmy	McKelvey, William
Dunwoody, Hon Mrs Gwyneth	McLeish, Henry
Eadie, Alexander	McNamara, Kevin
Eastham, Ken	McTaggart, Bob
Fatchett, Derek	Madden, Max
Faulds, Andrew	Marek, Dr John
Field, Frank (Birkenhead)	Martin, Michael J. (Springburn)
Fields, Terry (L'pool B G'n)	Martlew, Eric
Fisher, Mark	Maxton, John
Flannery, Martin	Meale, Alan

Michie, Bill (Sheffield Heeley)	Short, Clare
Millan, Rt Hon Bruce	Skinner, Dennis
Moonie, Dr Lewis	Smith, Andrew (Oxford E)
Morgan, Rhodri	Smith, C. (lsl'ton & F'bury)
Morley, Elliott	Snape, Peter
Morris, Rt Hon A. (W'shawe)	Soley, Clive
Morris, Rt Hon J. (Aberavon)	Spearing, Nigel
Mowlam, Marjorie	Steinberg, Gerry
Nellist, Dave	Stott, Roger
O'Brien, William	Strang, Gavin
O'Neill, Martin	Straw, Jack
Parry, Robert	Turner, Dennis
Pendry, Tom	Wall, Pat
Pike, Peter L.	Walley, Joan
Powell, Ray (Ogmore)	Wardell, Gareth (Gower)
Prescott, John	Wareing, Robert N.
Quin, Ms Joyce	Welsh, Michael (Doncaster N)
Radice, Giles	Wilson, Brian
Randall, Stuart	Winnick, David
Redmond, Martin	Worthington, Tony
Rees, Rt Hon Merlyn	Wray, Jimmy
Reid, Dr John	Young, David (Bolton SE)
Richardson, Jo
Roberts, Allan (Bootle)	Tellers for the Ayes:
Ruddock, Joan	Mr. Frank Haynes and
Sheerman, Barry	Mr. Allen McKay.
Sheldon, Rt Hon Robert

NOES
Alexander, Richard	Gilmour, Rt Hon Sir Ian
Arbuthnot, James	Goodhart, Sir Philip
Arnold, Jacques (Gravesham)	Goodlad, Alastair
Baker, Nicholas (Dorset N)	Goodson-Wickes, Dr Charles
Bitten, Rt Hon John	Gorman, Mrs Teresa
Boscawen, Hon Robert	Gower, Sir Raymond
Boswell, Tim	Grant, Sir Anthony (CambsSW)
Braine, Rt Hon Sir Bernard	Greenway, John (Ryedale)
Bright, Graham	Gregory, Conal
Brooke, Rt Hon Peter	Grist, Ian
Butler, Chris	Ground, Patrick
Buttertill, John	Grylls, Michael
Campbell, Menzies (Fife NE)	Gummer, Rt Hon John Selwyn
Carlisle, John, (Luton N)	Hamilton, Hon Archie (Epsom)
Carlisle, Kenneth (Lincoln)	Hamilton, Neil (Tatton)
Carrington, Matthew	Hampson, Dr Keith
Chapman, Sydney	Hanley, Jeremy
Chope, Christopher	Hannam, John
Churchill, Mr	Hargreaves, A. (B'ham H'll Gr')
Clark, Dr Michael (Rochford)	Hargreaves, Ken (Hyndburn)
Clarke, Rt Hon K. (Rushcliffe)	Harris, David
Coombs, Anthony (Wyre F'rest)	Haselhurst, Alan
Cope, John	Hawkins, Christopher
Cran, James	Hayhoe, Rt Hon Sir Barney
Currie, Mrs Edwina	Hayward, Robert
Curry, David	Heathcoat-Amory, David
Davies, Q. (Stamf'd & Spald'g)	Heddle, John
Davis, David (Boothferry)	Heseltine, Rt Hon Michael
Devlin, Tim	Hicks, Robert (Cornwall SE)
Douglas-Hamilton, Lord James	Higgins, Rt Hon Terence L.
Dunn, Bob	Hind, Kenneth
Durant, Tony	Hogg, Hon Douglas (Gr'th'm)
Dykes, Hugh	Holt, Richard
Eggar, Tim	Howard, Michael
Evans, David (Welwyn Hatf'd)	Howarth, Alan (Strat'd-on-A)
Evennett, David	Howarth, G. (Cannock & B'wd)
Favell, Tony	Howell, Ralph (North Norfolk)
Fenner, Dame Peggy	Howells, Geraint
Field, Barry (Isle of Wight)	Hughes, Robert G. (Harrow W)
Finsberg, Sir Geoffrey	Hunt, David (Wirral W)
Fookes, Miss Janet	Hunt, John (Ravensbourne)
Forsyth, Michael (Stirling)	Hunter, Andrew
Forth, Eric	Irvine, Michael
Fowler, Rt Hon Norman	Jack, Michael
Franks, Cecil	Johnson Smith, Sir Geoffrey
Freeman, Roger	Jones, Robert B (Herts W)
French, Douglas	Jopling, Rt Hon Michael
Gale, Roger	Key, Robert
Gardiner, George	King, Roger (B'ham N'thfield)
Garel-Jones, Tristan	King, Rt Hon Tom (Bridgwater)

Kirkhope, Timothy	Renton, Tim
Knapman, Roger	Rhodes James, Robert
Knight, Greg (Derby North)	Ridley, Rt Hon Nicholas
Knowles, Michael	Ridsdale, Sir Julian
Knox, David	Rifkind, Rt Hon Malcolm
Lamont, Rt Hon Norman	Roe, Mrs Marion
Lang, Ian	Rowe, Andrew
Lawson, Rt Hon Nigel	Rumbold, Mrs Angela
Lennox-Boyd, Hon Mark	Sackville, Hon Tom
Lightbown, David	Sainsbury, Hon Tim
Lilley, Peter	Shaw, David (Dover)
Lloyd, Sir Ian (Havant)	Shaw, Sir Michael (Scarb')
Lloyd, Peter (Fareham)	Shelton, William (Streatham)
Luce, Rt Hon Richard	Shepherd, Colin (Hereford)
Lyell, Sir Nicholas	Shersby, Michael
Macfarlane, Sir Neil	Sims, Roger
MacKay, Andrew (E Berkshire)	Smith, Tim (Beaconsfield)
Maclean, David	Soames, Hon Nicholas
McLoughlin, Patrick	Speed, Keith
McNair-Wilson, M. (Newbury)	Spicer, Michael (S Worcs)
McNair-Wilson, P. (New Forest)	Squire, Robin
Major, Rt Hon John	Stanbrook, lvor
Malins, Humfrey	Stanley, Rt Hon John
Mans, Keith	Steen, Anthony
Marshall, Michael (Arundel)	Stern, Michael
Martin, David (Portsmouth S)	Stevens, Lewis
Mawhinney, Dr Brian	Stewart, Andy (Sherwood)
Mayhew, Rt Hon Sir Patrick	Stradling Thomas, Sir John
Meyer, Sir Anthony	Summerson, Hugo
Miller, Hal	Taylor, John M (Solihull)
Mills, Iain	Temple-Morris, Peter
Mitchell, Andrew (Gedling)	Thompson, D. (Calder Valley)
Monro, Sir Hector	Thompson, Patrick (Norwich N)
Montgomery, Sir Fergus	Thurnham, Peter
Moore, Rt Hon John	Townend, John (Bridlington)
Morris, M (N'hampton S)	Tracey, Richard
Morrison, Hon Sir Charles	Tredinnick, David
Morrison, Hon P (Chester)	Trippier, David
Moss, Malcolm	Vaughan, Sir Gerard
Neale, Gerrard	Waddington, Rt Hon David
Needham, Richard	Waldegrave, Hon William
Nelson, Anthony	Walker, Bill (T'side North)
Neubert, Michael	Ward, John
Nicholson, David (Taunton)	Wardle, Charles (Bexhill)
Onslow, Rt Hon Cranley	Warren, Kenneth
Oppenheim, Phillip	Watts, John
Page, Richard	Wheeler, John
Patnick, Irvine	Widdecombe, Ann
Patten, Chris (Bath)	Wiggin, Jerry
Pawsey, James	Wilkinson, John
Peacock, Mrs Elizabeth	Wilshire, David
Porter, David (Waveney)	Wood, Timothy
Portillo, Michael	Woodcock, Mike
Powell, William (Corby)	Young, Sir George (Acton)
Price, Sir David
Raison, Rt Hon Timothy	Tellers for the Noes:
Rathbone, Tim	Mr. Richard Ryder and
Redwood, John	Mr. Stephen Dorrell.

Question accordingly negatived.

Main Question put and agreed to.

Resolved, That this House takes note of European Community Documents Nos. 10552/86 and the un-numbered Explanatory Memorandum submitted by the Treasury on 18th March 1987 on the 1987 Community Budget, the un-numbered Explanatory Memorandum submitted by the Treasury on 18th March 1987 on carry-over of appropriations from 1986 to 1987, 6037/87 on the 1987 Budget situation, 6822/87 and 7552/87 on Supplementary and Amending Budget No. 1 for 1987, 6048/87, 7211/87, COM(87)240, COM(87)677 and COM(88)81 on the 1988 Preliminary Draft Budget, 4766/88 on the 1988 Draft Budget, 4051/87 on financial engineering, 5266/88 on Own Resources 5282/88 on amendments to the Financial Regulation and the un-numbered Explanatory Memorandum submitted by the Treasury on 10th May 1988 on budgetary discipline; and endorses the Government's objectives of securing effective and binding control of Community expenditure.