European Union

HC Deb 03 December 1998 vol 321 cc1081-140

[Relevant documents: Developments in the European Union, January-June 1998 (Cm. 4152); The Commission's Work Programme for 1999: the policy priorities (EU Document Number 12841/98); The Commission's Work Programme for 1999: new legislative initiatives (EU Document Number 12840/98); Minutes of Evidence taken before the Foreign Affairs Committee on 1st December, HC42-i.]

Motion made, and Question proposed, That this House do now adjourn.—[Mr. Betts.]

5.55 pm

The Secretary of State for Foreign and Commonwealth Affairs (Mr. Robin Cook)

This debate gives the House its traditional opportunity to debate the issues under discussion at the forthcoming European Council in Vienna. It may be of assistance to the House if I outline what those topics will be. Such is the commitment of the hon. Members who have stayed till this hour that I am anxious to be of as much assistance to them as I can.

On the first morning the Council will approve the employment guidelines for 1999 and discuss how Europe can pursue policies to boost jobs and tackle unemployment. In the afternoon, we will examine progress on the Agenda 2000 dossier, reform of the common agricultural policy, modernisation of the structural funds, and the maintenance of budget discipline.

There will also be discussion on the debate on the future of Europe that was launched during the British presidency. This discussion will examine how we can ensure that decisions within the European Union are taken as close as possible to the peoples of the European Union in line with the principle of subsidiarity.

In the evening, there will be a discussion on enlargement, which will focus on a review of the Commission's report on the preparations by each of the dozen candidate countries.

Chancellor Klima of Austria, who will chair the European Council, visited London last week when he outlined that agenda. At his press conference after his meeting with the Prime Minister, Chancellor Klima said, in answer to a question: We will talk maybe only one minute about tax co-ordination. Ever since he said that—or for the past two weeks—public debate about Europe in this country has been about little else but taxation. Today therefore provides the House of Commons with an excellent opportunity to demonstrate leadership of that public debate by exploding the myths and mischief that have been peddled as facts for a fortnight.

Ghost stories about bogy men can be very entertaining for children, but the electorate are entitled to be treated as adults when we debate our relations with our closest neighbours and our most important trading partners.

Mr. William Cash (Stone)

rose—

Mr. Cook

I see a bogy man.

Mr. Cash

The Foreign Secretary said that decisions, especially with regard to matters such as taxation, should be dealt with on the principle of subsidiarity, and decisions made as near to the people as possible. The Government continually say that there is no constitutional bar to economic and monetary union. Will the right hon. Gentleman explain how they can make such an assertion, given that taxation clearly lies at the heart of economic and monetary union? When all the statements made by Oskar Lafontaine and others indicate that that is on their minds, why do the Government deny that taxation is on the agenda?

Mr. Cook

Of course, fiscal policy—the degree of the Government deficit—is highly relevant to monetary union. It was the hon. Gentleman's Government who agreed at Maastricht to tight targets on fiscal policy. We see no reason why those commitments on fiscal policy, given by hon. Members on the hon. Gentleman's Front Bench, necessarily require any country in Europe to have the same rate of taxation as any other country in Europe.

The best way of helping the hon. Gentleman and others to overcome fears of bogy men is to remember that we are not alone. Not just Britain but many other member states will oppose the harmonisation of tax rates. Yesterday the Italian Finance Minister told the Financial Times that harmonisation of corporation tax would be untimely, questionable and above all hardly feasible and that it would be wrong in any event. Yesterday the Prime Minister of Spain spoke out against what he called the "dumbing down" of tax harmonisation, and opposed a single rate of direct tax because it would be a recipe for inefficiency". There is no majority for the harmonisation of tax rates in Europe, never mind the unanimity that would be required for action. Nor will the need for unanimity change. That would require all members of the European Union to agree on a change to qualified majority voting on tax, and most member states will not agree.

As so much has been made of this debate over the past week, let us look at the record on tax harmonisation in Europe. The greatest harmonisation of tax rates adopted by the European Union was under the previous Conservative Government—the harmonisation of value added tax agreed by the then Conservative Chancellor Lord Lamont. It provided that, throughout the European Union, there would need to be a minimum standard rate of 15 per cent.

If the right hon. and learned Member for Folkestone and Hythe (Mr. Howard) intends to attack tax harmonisation as wrong in principle, perhaps he would be good enough to share with the House what objections he raised in the Cabinet of which he was a member when it agreed to harmonise rates of VAT. There has been no change, and no proposals for change, in the harmonisation of VAT, since the election. Indeed, the only substantial change in VAT since the election is that the Government have cut the VAT on domestic gas and electricity bills which the last Government introduced. Those powers to vary the rates will of course continue. Only those who are out of touch with the EU would think otherwise.

So much for the past; as for the present, let me set out the Government's position. Britain will vigorously support the interests of British trade and investment throughout the single market by constructive engagement. There cannot be a Member of the House who has not been lobbied by an industry in his or her constituency about unfair tax loopholes, state aids or special tax privileges in a country with which that industry is in competition. Many of those tax breaks are now under review in a working group chaired by a British Treasury Minister. That is a good example of British leadership where we believe European co-operation on tax would benefit British industry and jobs.

Mr. Jim Marshall (Leicester, South)

I am grateful to my right hon. Friend for giving way on the point about British leadership in that particular field. I refer to British leadership in another field, which he did not mention when he referred to the agenda for the Vienna Heads of Government meeting—the common foreign and security policy.

Continental Europe is alight with views about what the Government and my right hon. Friends the Prime Minister, the Foreign Secretary and the Secretary of State for Defence mean in respect of a new EU defence policy. I quote my right hon. Friend the Secretary of State for Defence: We are not talking about a standing European army. We are not talking about removing defence from the control of national governments. And we must not do anything that would undermine NATO, which will remain the cornerstone of European defence and security". I know what we are not talking about. Perhaps—not at this moment but at some point in his speech—my right hon. Friend will tell the House and continental Europe what we are talking about.

Mr. Deputy Speaker (Sir Alan Haselhurst)

Order. Before the Foreign Secretary responds, may I say to hon. Members that we have had two very wordy interventions? The custom is that interventions should be brief, rather than mini-speeches.

Mr. Cook

I am glad that I have given my hon. Friend the opportunity to make his point, although I am not sure that it naturally arose from the passage on which I was addressing the House. He asked what we are exploring with our French partners, and with other partners throughout the EU. We are exploring how we can make decisions within the common foreign and security policy more effective and more rapid, and how we can ensure that there is a better transmission between the security policy decided by the Foreign Ministers of the EU and the defence policy that we implement through the North Atlantic Treaty Organisation.

We have been clear about the fact that we do not see that as in any way weakening NATO. On the contrary, we would hope that the initiative that we are taking on European security would strengthen the effectiveness of security policy in the EU and the European identity within NATO.

Mr. Deputy Speaker

I am sorry to interrupt the right hon. Gentleman again, but I should remind him that he should have been addressing the Chair, just as much as his hon. Friend.

Mr. Cook

I am justly rebuked, Mr. Deputy Speaker, and shall make a point of addressing the Chair. If you would allow me to return to the trend of my observations—

Mr. Oliver Letwin (West Dorset)

rose—

Mr. Cook

The hon. Gentleman will no doubt have an opportunity to intervene later.

I was outlining the fact that we would vigorously support the interests of British trade and investment, wherever they were served by co-operation on tax. Where there is that British interest, we will support it. Successive British Governments have tried to get a level playing field on excise duties so that British spirits have fairer competition in their export markets. I pay tribute to the previous Government, for once. They also pressed for more harmonisation of export duties, and they were right to do so.

Mr. Crispin Blunt (Reigate)

I am grateful to the right hon. Gentleman for giving way on the issue of harmonisation. Hans Tietmeyer has said: A European currency will lead to member nations transferring their sovereignty over financial and wages policy as well as in monetary affairs. It is an illusion to think that states can hold onto their autonomy over taxation policies. Does the right hon. Gentleman agree or disagree?

Mr. Cook

I have already made it perfectly clear that I do not accept that becoming a member of the single currency—if that were something that Britain were eventually to become—would logically involve a transfer of decision making on taxes, still less on wages policy. There would need to be harmonisation of fiscal policy and budget deficit, but that would not require us to have common tax rates. It has not required common tax rates throughout the United States, which also operates within a single currency.

Not only Britain, but many other member states, still insist that direct taxation is a matter for the nation state. There is neither any proposal, nor any prospect of a proposal, for harmonisation of income tax in the EU. Neither Britain nor many other member states believe that there is any case for a European rate of corporation tax. Even the President of the Commission, which alone can initiate any proposal, has said that income tax, corporation tax, social security … are sovereign, national matters and will remain so. We need to have a debate about tax and Europe that treats British voters as adults. Where there are limited proposals for co-ordination on tax rules which are of benefit to Britain, we should support them. Where there are proposals that would damage Britain, we will oppose them, but for the rest of my lifetime, and that of the right hon. and learned Member for Folkestone and Hythe—whoever manages to outlive the other—the member states of the EU will continue to have tax systems which remain distinctive, even sometimes eccentric.

Germany has a special tax on coffee. I cannot see the French, with their famous affection for coffee, swallowing that one. France has a special 30 per cent. tax allowance for journalists. I do not imagine that other countries will want to copy it, but it could be the one measure which, at a stroke, could convert the British press to enthusiastic support for tax harmonisation.

Mr. Letwin

In the light of his remarks about treating the British public as adults, will the Foreign Secretary explain why the Financial Secretary to the Treasury did not treat the members of European Standing Committee B as adults when she told us: We believe that our own domestic tax system is fully consistent with the principles of the code."—[Official Report, European Standing Committee B, 26 November 1997; c. 2.] The right hon. Gentleman rightly told us that the Financial Secretary chairs the group that is working on it, but 10 of the measures will involve changing our tax system.

Mr. Cook

If I may correct the hon. Gentleman, the 85 measures at the back of the report that went to the Economic and Finance Council this week are being examined by the working group. That does not imply that the working group has taken a view on any of those 85—far less on the 10 that affect Britain, and even less on the five within that 10 that concern United Kingdom, as distinct from Gibraltar, issues. We shall look carefully at those issues as the working group continues its task.

If we are serious about tackling unfair tax loopholes and tax breaks in other countries that distort the market and are to the disadvantage of our industry, we should be prepared—openly and robustly—to look at those areas where other countries may have criticisms of us and where we are confident that we can rebut those criticisms.

Mrs. Gwyneth Dunwoody (Crewe and Nantwich)

Will my right hon. Friend give way on that point?

Mr. Cook

I will give way, then I must move on.

Mrs. Dunwoody

Does not that mean that we may not always be able to maintain some rates of taxation that are radically different from those of other nations? We must occasionally assume that, as part of the negotiations, we will be required to abandon British taxation.

Mr. Cook

Perhaps I may correct my hon. Friend. The working group is not examining tax systems, tax rates or tax rules. Under examination are the special, privileged tax breaks that some countries have used unfairly to attract investment, which does not reflect the competitiveness of the general economy. We are confident that we can assert that we will not have such tax breaks in Britain.

Mr. Patrick Nicholls (Teignbridge)

Will the right hon. Gentleman give way?

Mr. Cook

If the hon. Gentleman will forgive me, I must make progress with my speech. I am sure that he will catch my eye later.

The real agenda for Vienna shows Britain's success in influencing European priorities. Last December at Luxembourg we secured employment guidelines that reflect Britain's strategy of getting people back into work by increasing their skills. We have successfully retained the broad thrust of that strategy in the new guidelines for 1999. We have also secured some improvements. In particular, we have secured a new stress on gender equality, which reflects our commitment to ensuring that opportunities for work are open to both men and women.

We shall continue to make progress on our objective of ensuring that the principle of subsidiarity is put into effect across all decisions of the European Union. We hope to reach agreement in Vienna that the protocol on subsidiarity of the Amsterdam treaty will be brought into effect early, even though the treaty as a whole has not yet been ratified by all member states. We shall receive at Vienna the first annual report on the implementation of subsidiarity. Both those steps take us further towards our goal of a Europe in which decisions are taken closer to the people.

Britain's objective in the discussion on Agenda 2000 will be to keep on track for its conclusion at a special European Council next March under the German presidency. We welcome the commitment that has been given by the new German Government to keep to that timetable. On Sunday, I shall join Foreign Ministers to discuss Agenda 2000 in advance of the Vienna Council. Progress so far on the three main elements of Agenda 2000 is in line with British interests.

On the common agricultural policy, we welcome the Commission's proposal for a cut of 30 per cent. in beef intervention prices; a cut of 20 per cent. in cereal prices; and a cut of 15 per cent. in milk prices. Collectively, the price cuts add up to a saving for the British consumer of £1 billion a year, which is a saving of £84 for the average household budget.

On structural funds, we support efforts to streamline the present seven objectives into three. Two thirds of all structural fund spending will remain concentrated under objective 1, and our success in securing new agreed regional boundaries should ensure that Britain continues to get good support from objective 1, with three new areas qualifying: South Yorkshire, Cornwall and west Wales.

On budget discipline, we welcome the broad consensus that there should be no increase in the ceiling of the European budget. We shall continue to impress on the Commission and the Council that the budget ceiling should remain a ceiling and should not become a target.

Mr. Nicholls

Does the right hon. Gentleman realise that one of the unfair tax breaks that attracts investment into this country is the comparatively low rate of corporation tax? In the light of what he said, how does he propose to resist moves from other countries that want our corporation tax to be at the same rate as the equivalent tax in their countries, so that the so-called unfair tax competition is eliminated?

Mr. Cook

I was unwise to give way to the hon. Gentleman, who plainly does not understand what is under review by the working group on the code of conduct. The rate of corporation tax has nothing whatever to do with that working group.

Mr. Nicholls

Yes, it does.

Mr. Cook

The code of conduct has nothing to do with the overall rate. It deals with those countries that provide specific, targeted exemptions to attract privileged industries to their country in unfair competition with other countries. For that reason, this country has nothing to fear from a rigorous examination of the problem. If Conservative Members were to acquaint themselves with the truth of what is actually under discussion in the European Union, they might not feel so threatened.

Before the hon. Member for Teignbridge (Mr. Nicholls) intervened, I was referring to budget discipline. I assure the House that my right hon. Friend the Chancellor of the Exchequer and I have made it plain at successive Council meetings that there can be no question of reopening negotiations on the British rebate. In its recent financial perspective, the Commission admitted that, even after the rebate, Britain continues to make a higher net contribution per head than other member states that are in a better position to pay. In those circumstances, we see no case for reopening negotiations on the British rebate.

It will, of course, not be possible to fund the enlargement of the European Union within a fixed budget unless we can reduce spending within the existing member states. It is vital that the European Union maintains its momentum on the reforms in Agenda 2000 to match the preparations that the candidate countries are making for membership.

The Vienna Council will review the Commission's report on the preparations in each of the dozen candidate countries. The Commission identifies two or three candidates whose progress on preparation has been disappointing, but the overall picture is positive. For the first candidate countries, screening has now been completed in 17 chapters of European law, and substantive negotiations have been opened in seven. If we can maintain that momentum, by the end of the German presidency we shall have commenced negotiations in half the chapters of European law. That would be good progress, and would demonstrate the strength of the arrangements for enlargement that Britain established during our presidency.

Britain continues to be the firmest ally of the candidate countries in the debates on enlargement. I was the only Foreign Minister of any of the major member states to attend last month's accession process with the candidate countries. That strong support is warmly acknowledged whenever I visit any of the candidate countries. Their good will for Britain is in our national interest, because they will soon be full voting members of the European Union.

I do not underestimate the real difficulties in securing the biggest ever enlargement of the European Union. Nevertheless, I firmly believe that the problems of enlargement are much less important than the benefits. There could be no more valuable prize than a united, stable, democratic and prosperous Europe.

Britain has left its mark on the major issues that will be on the agenda at Vienna.

Mr. Roger Casale (Wimbledon)

My right hon. Friend rightly says that we should not lose sight of the fact that the enlargement of the European Union is an historic opportunity for Europe. Does he accept that it is also an historic opportunity for Britain to show clear leadership in Europe by ensuring that countries that want to accede to the EU are ready to join, and that the EU is itself ready for accession to take place? This is the moment for British leadership to come strongly to the fore.

Mr. Cook

I entirely agree with my hon. Friend. I believe that Britain has shown that leadership in the past 18 months. We have pressed for the successful launch of the accession process, and at all the Council meetings we have constantly spoken in support of enlargement. We are keen to ensure that the Agenda 2000 dossier is completed by next spring, so that we can match the real efforts that are being made by many of the candidate countries. All around central and eastern Europe, there are improvements in good governance, changes to the market economy and improvements on trade. That is a direct reflection of the commitment of those countries to achieving membership of the European Union. We should respond to that action within Europe.

Britain is, of course, demonstrating leadership. Our leadership is shown in the step-change that the Government have made in our relations with our European partners. A key part of that step-change is a much greater partnership between Ministers and their opposite numbers throughout the European Union. It is now routine in European business for Britain to take the initiative along with one or more of our partners.

My right hon. Friend the Prime Minister has just made a declaration on employment jointly with Prime Minister Aznar of Spain, and early next year we will hold the first of our new regular summits with Spain. My noble Friend Lord Simon has launched an initiative on boosting enterprise with his French opposite number. My right hon. Friend the Secretary of State for Trade and Industry is engaged with the Minister for the Chancellery in Gerhard Schröder's office to promote a common approach to a broad range of policy issues.

I have agreed with Joschke Fischer on a structure of regular meetings between ourselves, and between our European Ministers. We are nearing completion on a British-German initiative on human rights. Yesterday, my right hon. Friend the Secretary of State for Defence and I travelled to Paris to meet our counterparts jointly, to explore how we can work together more closely on our ideas for the security of Europe.

In parallel with that increased partnership with Ministers in European countries, we are demonstrating the step-change in our relations with Europe by strengthening our diplomatic team throughout Europe. Last week, I announced that there would be 33 more staff at our embassies in the European Union. That will mean more commercial attachés to promote British trade, more labour attachés to promote our dialogue with social partners throughout Europe, and more desk officers to support them in the European command in the Foreign Office. That constitutes a new investment in our relations in Europe—a good investment, because this Government are determined to make those relations work.

In the past week, we have seen an example of our success in making those relations work for Britain: both the Agriculture Council and the European Commission voted to lift the ban on the export of British beef. We were, of course, able to achieve that result only because of the majority voting that the Conservative party insists on regarding as merely a threat to Britain. Nothing illustrates more effectively than that success the contrast between the present Government and their predecessor. The last Conservative Government launched a war on Europe over the beef ban; they lost that war. They surrendered without securing the sale of a single sausage.

The consequences of that war, however, were worse than mere failure. It provoked the maximum resentment of Britain, and produced the minimum respect for it. Britain is now respected as a leading partner in Europe. Even before we go to Vienna, the agenda for that summit demonstrates Britain's influence. My right hon. Friend the Prime Minister and I will travel to Vienna confident that we shall be able to secure conclusions that are in Britain's interests.

In any other European country. the strength of that country's government in Europe would be a matter of national pride. An eve-of-summit debate in any other European country's Parliament would express unity in support of the nation's interest in a successful summit.

Mr. Michael Howard (Folkestone and Hythe)

Paradise!

Mr. Cook

The right hon. and learned Gentleman may say "Paradise", but I do not expect what I have described to happen tonight. I fear that, if this debate runs true to form, we are doomed to a succession of speeches demonstrating the maximum division over our European policy from Opposition Members who, I suspect, would secretly prefer seeing the European summit to end in disarray that was bad for Europe to seeing an agreement that was good for Britain.

I do not really expect the Government to secure agreement from the Opposition on our European policy tonight. That would be too much to hope, given that the last Conservative Government could not secure agreement either. But, as long as the Conservative party insists on regarding Europe only as a threat, it will be unable to offer Britain a Government who can seize the opportunities of membership of the European Union.

Europe is our largest market, and buys half our exports. Europe's strength means that we have more clout in trade talks than Britain could ever have on its own—and the more we are seen to have influence in the capitals of Europe, the more respect Britain has in capitals throughout the world.

This Government recognise the tremendous opportunity that Europe represents for Britain, and in Vienna we will again demonstrate that we are a Government who can take full advantage of that opportunity.

6.25 pm

Mr. Michael Howard (Folkestone and Hythe)

This is a significant debate, and the Vienna summit will be a particularly significant summit.

It has become crystal clear in recent days, even to the most blinkered observer, that the European Union is at a crossroads. We now face pressure on all fronts to move towards the goal that the German Foreign Minister has declared to be his objective: a single European state. One currency, one tax policy, one employment policy, one defence policy, one legal area, one state.

There is a great march towards a single European state, and the British Government will have to respond to it. It is not something that the Government can fudge. This is the moment when the new Labour project collides with the real world. The time has come at last for the Government to stop talking about hard choices and start making some.

The omens are far from encouraging. At the recent summit in PÖrtschach, the Prime Minister had an opportunity to say no; instead—in the words of an authoritative British source—he decided to go with the flow. If he continues to go with the flow in Vienna, it will be disastrous for Britain and disastrous for Europe.

The decisions made in Vienna during the Germany presidency in the first half of next year will set Europe's course for the early part of the next century.

This should constitute an historic opportunity to ensure that Europe responds to the needs and wishes of its peoples. With nearly 20 million people out of work across Europe. job creation should be the number one priority. With the institutions of Europe being seen as ever more remote from the people of Europe, genuine subsidiarity should be high on the agenda. With the countries of central and eastern Europe desperate to cement their political and economic freedoms by joining the European Union, the requirements of enlargement should inform every decision that Europe now makes.

By their actions in Vienna, Europe's leaders will be able to provide answers to some fundamental questions. Are we to have a Europe of nation states, or will the process of European integration continue indefinitely? Will we be part of an outward-looking, free-trade Europe, or part of a fortress Europe? Will Europe take the route of genuine subsidiarity, or will it move yet further from its citizens? Will it be a high-tax or a low-tax Europe, a competitive or an uncompetitive Europe, a job creator or a job destroyer?

Since their election, all too many of Europe's left-wing Governments have already provided the answers to those questions. The tragedy for Britain is that, so far, the British Government have been content to go with the flow. It is now time for British Ministers to tell the British public where they stand.

Britain is, after all, in an ideal position to take a principled stance. Ministers should know what policies are best for Europe, because they have seen them work in Britain. Ministers in a country that, during the last Parliament, witnessed stronger growth than took place in any other major European Union country should know which economic policies are required to foster prosperity, because they saw them work in practice. Ministers in a country that, by 1997, had a lower unemployment rate than any other major European Union country, and a higher proportion of the working-age population in work than any such country, should know what policies are required for job creation, because they saw them work in practice. Ministers representing a country whose citizens believe in co-operation and free trade, but who are proud of their nation and do not wish it to be submerged in a single European state, should know precisely when to call a halt to further integration.

The British Government should therefore be putting a case for British principles—British Conservative principles—the free market, low taxes and less interference from Brussels. Alas, they are not doing so. Indeed, they are not arguing for any principles at all. Time and again, they are content to nod through whatever suggestions are put before them by other countries. When it comes to proposals from Europe, new Labour just goes with the flow.

That process has continued long enough. It is time for the Government to be straight with the British public. Before Ministers travel to Vienna, there are at least six key areas on which they need to explain where they stand.

First, Europe's agenda on the harmonisation of taxes is becoming increasingly plain. Finance Ministers of the countries holding this European Union presidency and the next have made it clear that tax harmonisation follows directly from the introduction of the single currency. The German Finance Minister has said that it is a primary objective of Bonn's EU presidency.

We are already aware of plans to harmonise corporate taxation. Now the Commission is preparing to publish suggestions for a common VAT regime. It has made it clear that, as an intermediate step, it wants to extend its scope and to review exemptions, which would clearly put the UK's zero rates at risk.

According to Commissioner de Silguy, that could "logically" lead to the introduction of VAT on food. The same commissioner has called for the extension of qualified majority voting on taxation issues. When asked recently whether harmonisation could include personal taxation, he replied, "Why not?"

At the very moment the Foreign Secretary was making reassuring noises to the Select Committee on Foreign Affairs on Tuesday morning, there was a call from Germany and France for the abolition of the veto on taxation.

Mr. Casale

Will the right hon. and learned Gentleman make clear which type of tax he is objecting to—indirect taxes such as VAT, which are part and parcel of completing the single market and on which his Government introduced harmonisation to complete the single market; or direct taxation, which is not on the negotiating table now, or for the foreseeable future? Which is he talking about—indirect or direct taxes?

Mr. Howard

If the hon. Gentleman wants to intervene, he should at least do me the courtesy of listening to the speech because, as I have said, those taxes are indeed on the agenda; Commissioner de Silguy has said so in recent days.

Mr. Robin Cook

If the right hon. and learned Gentleman is objecting to VAT being, as he puts it, on the agenda, could he clear up what he said in the Cabinet in 1993, when the then Chancellor of the Exchequer agreed to harmonise VAT rates throughout Europe?

Mr. Howard

The Foreign Secretary knows full well that it is country of origin-based VAT that is objectionable. That was effectively put off the agenda under the previous Government. It has come back on to the agenda under the present Government. That is what is objectionable and what the present Government's position is unclear about.

Mr. Cook

I am very sorry: I do not know whether the right hon. and learned Gentleman was at the Cabinet the day it discussed that matter in 1993. The previous Government agreed that there would be a minimum standard rate of 15 per cent. throughout the European Union, and that there should be no more than two lower rates, of which the bottom one would be at least 5 per cent. That is the only agreement that has ever been made on harmonisation of tax rates in the history of the European Union. Did the right hon. and learned Gentleman object to it, and if he did not, would he please spare us this humbug?

Mr. Howard

The right hon. Gentleman knows full well that that agreement did not in any sense put the zero VAT rates in this country at risk. It is the country of origin-based regime on VAT that puts zero tax rates at risk, and we are entitled to know what the Government's position is on that and those other issues.

The Government claim that tax harmonisation is "not the way forward" and that no-one is proposing any change in VAT', but when we examine the small print in their documents, we find that their commitment to resist tax harmonisation is limited to personal tax rates. There is no commitment to resist harmonisation of the range of taxation that does not fall within that narrowly defined category.

When they are behind closed doors, the Government's actions belie their words. First, they sign a code of conduct on business taxation, under which they undertake not to engage in so-called "harmful tax competition". Then they endorse a socialist manifesto—indeed, they apparently drafted it—that calls for further efforts to avoid so-called harmful tax competition. Finally, this week, we have been told that Ministers will not be vetoing plans for a withholding tax, despite the damage that they would do to the City of London, and that they will be signing up to measures forbidding tax breaks for industries, including tax breaks that they themselves have introduced during the relatively short period that they have been in government. So Ministers say one thing in Britain and do another in Europe.

Mr. Giles Radice (North Durham)

The right hon. and learned Gentleman mentioned zero rating of VAT. Has he noted that there are six member states with zero rating and that, for it to be removed, there has to be unanimous voting? It does not seem likely that there will be unanimous voting when six countries have zero rating, so the point that he is making is not really serious.

Mr. Howard

It is an extremely serious point when the Foreign Secretary assures the Select Committee on Foreign Affairs that matters are not on the agenda and, as he speaks, the Finance Ministers of France and Germany indicate that they are on the agenda. As we have seen in the past, when Germany and France agree on something within the European Union, they tend to get their way.

With such behaviour in mind, is it any wonder that the French Finance Minister confidently predicts that Britain will be won round to tax harmonisation by the end of the German presidency", that the Commission President says that Britain has already accepted the principle of co-operation on tax rates, and that European Commissioner Monti says that the UK is "fully on board" on the issue?

Let the Government answer clearly: why have they already signed up to the principle of tax harmonisation? Precisely which "non-personal" taxes are they prepared to see harmonised? Is it true that they intend to refuse to veto measures on withholding taxes; and will they propose new measures to outlaw tax breaks for particular industries?

The second issue is no less crucial to Britain's future. It was raised by the hon. Member for Leicester, South (Mr. Marshall). The Foreign Secretary indicated that he was going to deal with it in his speech. We are still waiting for a comprehensive reply.

The House was not given the courtesy of a statement on the outcome of the informal summit at Pörtschach, but following the usual off-the-record briefings, the press reported that, to prove their Euro-credentials, the Government were planning to table new proposals on the future of Europe's defences.

The German Foreign Minister has made his view on that issue clear. He thinks that one day, foreign and defence policy will … have to become community tasks", so he thinks that the European Commission should decide whether and when British forces should be committed to combat.

The Conservative party has an equally clear view. We believe that the British Government should continue to decide whether and when British forces are committed to combat. We believe that NATO should remain the bedrock of our security and that any European defence identity should operate within NATO.

What is the Government's view? When addressing a British audience through their mission statement, they promised to base Britain's security on NATO, but when abroad, they sing a different tune. The Prime Minister told the New York Times that the European Union needed to be able to act militarily "on its own" when the United States was not so engaged, and he told the North Atlantic Assembly that Europe needed "genuine military operational capability".

When the issue was raised with the Secretary of State for Defence last week, he refused to clarify it, so Ministers have a second chance today. Do they support the idea of a European Union military capability—yes or no? Would they support the abolition of the Western European Union, or its merging into the EU—yes or no? If the WEU is to be abolished and a European military capability is to be based on the European Union, where does that leave Norway, Turkey and Iceland, which are members of NATO but not of the European Union? Where does it leave the new members of NATO, who will become members in April, but who are not yet members of the European Union—Hungary, Poland and the Czech Republic?

Ms Claire Ward (Watford)

Will the right hon. and learned Gentleman explain how the views that he has just mentioned can sit comfortably with the views he expressed some time ago in the 40th anniversary special supplement of Crossbow. In that magazine, when he was a practising barrister rather than a Member of the House, he said: Eventually, indeed, the aim might be a European air force and joint units could be a first step towards that objective. Does he agree with that statement now?

Mr. Howard

The hon. Lady has gone back a long way. I am delighted that she is such an assiduous reader of Crossbow. The previous Government made it clear that we had no objection to a European defence identity within NATO, but that is what the Western European Union is there to provide. It is the future of the WEU which is at the heart of this debate.

Ministers are playing an extraordinary game. After Pörtschach one senior civil servant remarked that it was refreshing but a bit unnerving to have a Prime Minister launching a major policy debate without knowing where it's going to end up. When that debate concerns Britain's future security, such an approach might be considered rather more unnerving than refreshing. The North Atlantic Treaty Organisation has been extremely effective in keeping the peace over the past 50 years. It is disgraceful that Ministers are now prepared to put that at risk, not because they think that there is anything wrong with it but simply because they want to curry favour with some of our European partners.

Thirdly, we now learn that the European Commission is working on proposals for a unified criminal system with a European public prosecutor to whom each state's prosecution chiefs would ultimately be answerable. Initially, the proposals have been concerned with the fight against fraud in the European Union. The Conservative party has been at the forefront of calls for Europe to deal with such misuse of taxpayers' money. However, we would not support any extension of that work in the direction of a unified criminal system across the EU.

Ministers claim that such proposals are merely part of a discussion paper. They used to make similar claims about tax harmonisation until we discovered that they had apparently already signed up to the idea. The Conservative party can today give a categoric assurance that we will not support further moves towards a unified criminal system in Europe. Can the Government give that assurance too?

Fourthly, both France and Germany have made it clear that they support much higher public spending in Europe. What is the view of the British Government? When addressing British audiences they claim to support fiscal control in Europe. Once again, there is a yawning gap between their rhetoric at home and the reality of what they endorse while abroad. At Pörtschach, the Prime Minister was reported to have signed up in principle to a multi-million pound spending package. The Euro-socialist manifesto that Labour endorsed, and indeed claims to have drafted, contained similar plans and called for a "new culture of regulation".

Is it any wonder that many observers are claiming that the differences between the German SPD—the Social Democratic party—and the Labour party are far smaller than is often assumed in public debate.

Fifthly, Europe is facing vital decisions on the extent of future integration. The German Foreign Minister believes that the creation of a single European state is the decisive task of our time. He wants to turn the European Union into one entity under international law with a common constitution. The Conservative party believes that Britain should be in Europe, but not run by Europe. What is the Government's view? When giving interviews to the New Statesman the Foreign Secretary informs us that Maastricht was a high water mark of integrationism". When seated round the discussion tables of Europe at Amsterdam, his party signed up to an extension of majority voting in 15 areas and a year later it endorsed a Euro-socialist manifesto calling for "increased international integration". Which of the Government's two contrasting faces—for domestic consumption or for presenting to our European partners—is the real face of the British Government?

Mrs. Dunwoody

I understand the right hon. and learned Gentleman's worries. As someone who negotiated the Labour party's involvement in the Euro-socialist manifesto over four different European parliamentary elections, I can assure him that such was the magnificent and careful use of language that all those documents contained no commitment to anything of any kind.

Mr. Howard

I am sure that the hon. Lady is absolutely right. In the days when she drafted the documents for European parliamentary elections, what they contained mattered very little because there were few left-wing Governments in the European Union. The trouble now is that the document matters greatly because 13 of the 15 Governments are left wing. That is why we have to take the document seriously and that is why its content is so alarming.

Ms Ward

Perhaps the right hon. and learned Gentleman should take some lessons from the statistic that he has just quoted. The fact that 13 members of the European Union have what might be described as left or left-of-centre Governments might suggest that that is the right way forward.

Mr. Howard

The trouble is that in the past this country has seen the effect of the policies that those Governments are now pursuing so actively and vigorously. Those are the very policies with which the present British Government are prepared to go along, moving with the flow.

I want to talk about the extent to which the moves to a deeper Europe put a brake on enlargement. On 10 November substantive negotiations were opened at ministerial level through the accession conferences, involving the six first-wave applicants. We now learn that European Commission officials are stating "in private" that the target date for the first wave of EU enlargement is slipping to "after 2005". Hungary and Poland in particular have expressed concern at the continuing delays. The Polish President is reported to have strongly criticised the European Union for spreading myths and stereotypes about candidate countries as an excuse to delay their entry into the EU.

What is the Government's view? Publicly, the Government have given their support to the enlargement of the EU—we heard that from the Foreign Secretary a few minutes ago. In Europe, they continue to support further integration which will set back the process of enlargement still further.

The Government have not been open with the British public on any of those issues, but nowhere has Labour's unprincipled stance been as stark as on the single currency. Almost alone in Europe, the Labour Government have simply refused to explain exactly what the single currency will entail. The other countries of Europe do not share those inhibitions. The German Chancellor refers to the euro as an important step on the way to European integration. The Austrian Foreign Minister says that it represents a major step in the political process of European integration. Commissioner de Silguy says that the single currency should be the driving force of closer political union. In Britain, the Government make no such claims. With the vast majority of British people opposed to such integration it is not hard to see why.

As on tax harmonisation, on steps towards a European Union army and on the proposals for further integration, the Government are simply unwilling to tell the British people the truth. Instead, they seek to divorce the constitutional impact of the single currency from its effect on the economy. They refuse to admit that the two are inextricably linked and that a policy of abandoning our control of economic and monetary policy has significant and constitutional implications. They are scarcely prepared to admit that the EMU project is about economic and monetary union, not simply about a single currency, momentous a question though that is.

Mr. Tam Dalyell (Linlithgow)

Does the right hon. and learned Gentleman feel the slightest bit uneasy at having sat for all those years in the same Cabinet as the right hon. and learned Member for Rushcliffe (Mr. Clarke)?

Mr. Howard

Not at all. My right hon. and learned Friend and I go back a very long way. We have been friends for a very long time and we agreed on far more things than we disagreed about.

Nations control their economic and monetary policy because it is in the interest of their citizens that those decisions be taken according to national needs. By saying that it is a question of when, not whether, we join economic and monetary union, the Government are intent on signing away in perpetuity our right to decide those vital matters for ourselves. Ministers claim that the constitutional implications are irrelevant. How will they explain that to British workers thrown out of work because European interest rates, set with the needs of all of Europe in mind, are too high for Britain; or to households facing an inflationary boom if interest rates are too low? How will they explain to British voters that their votes will be powerless to change those policies because the decisions will no longer be made in Britain?

It is, of course, easy to understand why the Government, given their record, are tempted entirely to remove matters of economic management from the domestic political arena. After 19 months in office, they have already generated the headlines produced by every previous Labour Government: interest rates up; taxes up; unemployment up. It is therefore easy to understand why they no longer want such questions to feature in our general elections. But what would be the point of having general elections if the parties were unable to stand on differing economic programmes?

Mr. John Cryer (Hornchurch)

If, as the right hon. and learned Gentleman seems to think, EMU is wrong in principle, why does not the Conservative party rule it out for ever?

Mr. Howard

I am saying that those are relevant questions to be taken into account. They are not matters completely to be put to one side, as the Government pretend, by uttering the mantra that there is "no constitutional bar", as though that were enough to make any further discussion totally irrelevant.

The truth is that the management of our economy is not some side issue for Ministers to ponder in their spare time, but the primary function of a modern Government. How can removal of control of economic decision making from the House not be a weighty matter to consider in the context of economic and monetary union?

The fact is that—on the single currency, on tax harmonisation, on defence matters, on European economic policy, on judicial co-operation, on European integration and on enlargement—new Labour is trying to be all things to all men. It tells the British people what it thinks the British people want to hear, and then signs what the other countries of Europe want it to sign.

As Europe lurches to the left, Labour's only goal is not to be left out. Instead of standing up for Britain's interests, it goes with the flow. Labour is unwilling to express clear views on the matters because its views are not fixed. It is unwilling to explain its principles because it has no principles to explain. Instead, for the sake of a quiet life, it intends to avoid debate in Britain, while being carried on the left-wing tide in Europe.

There is an alternative agenda. We could have a Government who fought for the Europe in which we believe—who fought for free trade, low taxes, deregulation, job creation and a Europe that truly works in the interests of its citizens. Alas, all the signs are that the Government are not prepared to do any of those things. Instead they will go with the flow. Britain and Europe will be the poorer in consequence.

6.53 pm

Mrs. Gwyneth Dunwoody (Crewe and Nantwich)

When I listen to debates on Europe in the House, I sometimes feel that one should call down Chinese curses on both Front Benches. The reason is terribly simple: I believe that the United Kingdom electorate really do have the right to know exactly what is happening within the European institutions.

Unfortunately, our debates on Europe have now become almost set pieces, in which one side is prepared to say, "Your Government did everything wrong" in response to the other side, which is busily saying, "Our side intends to do everything right." I have been an hon. Member long enough to understand that such an approach to an important subject is not unusual. However, we have now reached such a stage in discussions on development, particularly of a monetary control system which will determine the United Kingdom's future for many generations to come, that we might be able to put before our constituents a rather clearer picture of what is involved.

I have just returned from Brussels where—following the dictates of my Ministers, who assured me that I would have a completely different attitude once I had gone—I returned to the haunts of my youth. I should say that, occasionally, I did actually live and work in Holland, in Belgium and in France. I am one of those strange people who do occasionally speak foreign languages. I also do not find that my physical presence in Brussels affects my political view one small iota. Perhaps it makes my view even worse, but it certainly does not change my attitude.

I think that we should now be saying that we have sufficient evidence to put before the British people about the implications of what is being proposed. We should say to them, "Talk about the report of the Court of Auditors", which, for the third time, has been unable to approve the accounts. The report describes in considerable detail straightforward fraud, although we have enough crooks in this country to understand the implications of that. People will be attracted where there are large sums, and it is not really surprising to discover that large institutions are unable adequately to control the amounts of money flowing through them.

We should, however, at least be saying openly now what we think of as subsidiarity and what we accept as central control. Ultimately, those are the only things that really matter. If we do not have a clear view of what policies are to be moved from the House and dealt with in European legislation, we shall never explain the political implications of doing so. The move towards a common currency must inevitably take with it a very clear commitment to a common taxation policy. I do not understand how anyone can pretend that that is not so. Some people would say that that consequence is not only sensible, but normal and, indeed, desirable. At least let us be reasonably outspoken about it. Let us say very clearly what the implications will be.

If we agree to measures, as we have done in the past, that bring with them a very considerable transfer of resources, let us say, "Fine; but that does not mean that we accept that there must be a common tax base or a common attitude towards taxation of particular industries. There will also be instances in which, for one reason or another, we wish to retain total freedom of action." The debate is not being framed in those terms. Too many people are already being given the idea that the debate can be thought of in highly superficial terms: "It would be nice if we had a common currency, because you won't have any difficulty changing your money when you want to go on holiday." I see some artificiality in that argument.

Do we really want a situation in which decisions are taken about major industries in a way that we cannot control? Let us take a small instance, involving an industry that I happen to know about, although it is certainly not one of the most important. If the British authorities decide to give specific taxation advantages to the film industry to encourage a local industry—to attract to Britain those who write and who act in British film productions that normally would have been made elsewhere, sometimes in Ireland but most usually in the United States—are they to be told in future that doing so is unfair discrimination because it is an industry that must have an absolutely flat taxation base right across the European Union? If so, fine; let us argue it out. However, let us not pretend that that is not the ultimate aim of many of the proposed changes.

Mr. Tony Baldry (Banbury)

Has not the hon. Lady received an equal number of representations from United Kingdom industries concerned that there should be a "level playing field" with other member states, but complaining about the ways in which other member states subsidise their industries? Does it not logically follow that, if one has a single market, one has to ensure that there are rules of fairness that apply throughout that market, which otherwise will become distorted, often to the disadvantage of UK companies?

Mrs. Dunwoody

That is exactly the theory on which many people have operated for many years. That was why we were told that there had to be the changes that we have already accepted. My experience of business, unlike the hon. Gentleman's, is that it will come and moan when it thinks that it can get some taxpayers' money, and will proceed in the manner that it thinks will benefit shareholders when it can operate without any constraints on its behaviour. I am, therefore, not entirely surprised when people complain to me about alternative industries and alternative countries.

I am saying something different—that the United Kingdom Parliament has a duty to tell the electors that when we talk about Euro money, we are also talking about Euro taxation and the ultimate aim of common bases. It does not matter whether it is taxation, industry aid or a long-term commitment to specific budgets; we are talking about common aims. I hope on some occasion to raise the inequities, absurdities and hypocrisies of the transport policies that we have been discussing this week in Brussels, because it is clear that there is a dichotomy in many institutions. The European Commission claims to be concerned about CO₂, emissions, yet it pushes hard for ever larger lorries to be allowed free access throughout the European Community. We should not allow that to go unobserved.

Both Front-Bench teams are failing to serve the populace well. They should tell the people in simple terms that within the next year and a half, there will be a concentrated campaign, funded largely by European Community money—of which we pay a large part—to try to persuade us that our future inevitably lies in a Euro monetary system that will have its final decisions made in another country and another system, which is not answerable, does not respond to its own monetary controls and does not meet with the agreement of its auditors.

That will have considerable implications for the British people. The major car firm in my constituency is owned by a large German company that has not only failed to give my constituents undertakings that there will be jobs well into the new century, but has said that it intends to move those jobs elsewhere. One of my rail freight firms has considerable difficulties. It wants to use freight paths across Europe and before long, it will face large national monopolies that are anxious to keep out competition.

I know what the problems are. I want a counter—I do not think that it will happen in the next two years—to the sophisticated, expensive and one-sided debate that we shall have about monetary control. I am sad that the House of Commons does not appear to be leading that.

7.3 pm

Mr. David Davis (Haltemprice and Howden)

This is the first time that I have spoken in the House about Europe since I stood down as Front Bencher on the subject. I am a great admirer of the hon. Member for Crewe and Nantwich (Mrs. Dunwoody). I suppose that I was taking her advice early about trying to bring a cool, analytical approach to examining the Government's policies and strategies of the past year. I suspect that I ought to take that advice more than most, because I was probably a recipient of one of her Chinese curses when I was on the Front Bench.

Mrs. Dunwoody

Not just one.

Mr. Davis

Many Chinese curses.

Having watched the Government at work for 18 months, I am reminded of the old adage that the easiest way to create a Euro-sceptic is to find a Europhile and send him to the Council of Ministers. That is what happens to Governments during their time in office. In 1979, the incoming Conservative Government were broadly more tolerant towards Europe than the outgoing Labour Government. Something similar happened in 1997. The situation did not last in 1979; I doubt that it will last in 1999.

The Foreign Secretary has told us that Labour's strategy in the past 18 months has been to distinguish itself from the openly tough-minded approach of the previous Conservative Government by adopting an overtly Europhile approach. The present Government's strategy appears to be to demonstrate a willingness to make concessions up front in the hope of gaining more in return. I do not think that that is a misrepresentation.

During my three years as a European Minister, I attended 100 or more negotiating meetings, from small meetings of junior Ministers up to European Councils. I watched the other European countries play against each other as well as against us. My comments relate not just to our relationship with Europe. I saw a fierce competition of national interests wrapped up in communautaire language. I also watched the institutions continually promote a rising tide of European federalism, supported by a shifting alliance of the various member states. I never saw a concession given with no attempt to get something in return.

I started by doubting the strategy of volunteering concessions in the hope of eventual reward, but I waited to see whether I was wrong. I am afraid that I was not. Since the election, we have seen the ineffectiveness of the strategy, with concession after concession on our part, but gains that were non-existent, long overdue or trivial.

At Amsterdam, there were concessions on the social chapter, the giving up of our veto in 15 areas, the Schengen agreement, and new powers to the European Parliament and to Strasbourg. There was nothing new in return.

Mr. Desmond Swayne (New Forest, West)

My right hon. Friend should be aware that at Amsterdam, a new protocol on subsidiarity was secured, but a careful reading of it shows that it means only that subsidiarity applies in those areas in which we have ceded no control to the European Union. When I pointed that out to the Minister, he did not demur, but merely replied that we should enjoy it while we still have it.

Mr. Davis

My hon. Friend makes my point more dramatically than perhaps I would.

I continued to wait after Amsterdam in the hope that perhaps there would be later concessions—in vain. We did not even get a seat on Euro X, despite the Chancellor's legendary commitment to the euro.

I obviously disagree with the Government's policy aims, but I am as disappointed as many others that their negotiating strategy, which was different from ours, has failed. I did not expect anything more, but I was disappointed, because that failure affects the national interest.

This week, we have heard more about monetary union and threats of tax harmonisation. We have already heard some robust exchanges between Front-Bench Members today. It is not so long since Labour was claiming that monetary union did not imply any tax harmonisation or even pressure for it. Now we see proposals not just for tax harmonisation, but to remove our veto on tax law at the next intergovernmental conference.

Arguments about economic and monetary union as a solely economic project in Britain were always somewhat Alice in Wonderland. At meetings that I attended, nobody on the continent talked about monetary union except as a political project. The strongest debate was not about whether it was a political project, but about which should come first—political union or monetary union. All the exponents accepted that one implied the other. None of the Foreign Ministers or Prime Ministers I spoke to was in any doubt that monetary union was an integral component of political union.

It is no surprise that monetary union has brought with it the other trappings of centralisation of economic management. As the hon. Member for Crewe and Nantwich said, the corollary is a requirement for a large central budget to deal with the consequences. I should be surprised if we did not see that from our European colleagues in the near future. Anatole Kaletsky writes about that in The Times today.

The Chancellor would respond that he has a veto. That is correct and it is an important strength in his argument. Under no circumstances should he give it up. However, to imagine that the problems created by the start of monetary union can be resolved simply by the muscular use of the veto is at best simplistic.

Without the veto, Britain will face a catastrophic loss of sovereignty. Even with the veto, it will face serious difficulties; it will face many assaults and many pressures. Let us imagine that the United Kingdom Government manage to resist what will undoubtedly be increasing demands for tax harmonisation and other centralising economic changes, which are designed to eliminate what others regard as unfair tax competition that is destroying their jobs—we should remember that one man's tax competition is another man's unfair tax advantage. If that happens, the perception of unfair competition will go wider than tax issues; the Government's strategy will give rise to a more immediate threat to Britain's national interest.

The Foreign Secretary talked about European Union employment strategy. I fear that the Government may have created, without realising it, an economic doomsday machine that will do serious damage to the British economy in the medium to long term. For three reasons, monetary union will undoubtedly cause localised unemployment hot spots throughout Europe, even if it is successful.

First, the one-size-fits-all interest rate policy will cause unemployment in countries whose economies are on the down cycle when the rest of Europe is on the up. Secondly, countries that suffer badly from external shocks, such as collapsing markets in Russia or commodity price rises, will not have at their beck and call the fastest and most responsive economic mechanisms—exchange rates and interest rates—to prevent localised unemployment. Thirdly, the principal benefit of monetary union—the transparency of pricing across the Union—will mean stronger competitive pressures, which will lead more transnational companies to move production from the least efficient to the most efficient areas of Europe, taking jobs with them. The result of that will be high unemployment in some countries, irrespective of whether monetary union succeeds.

Mr. Baldry

My right hon. Friend paints a picture of Britain being locked into permanent conflict with the rest of the European Union and reaping no benefit from its membership. If that is the reality as he and others see it, a time may come when we should debate whether our continuing membership is in our interests or even Europe's interests. It may be difficult for us to continue to be part of the European Union if we constantly attack our own membership.

Mr. Davis

My hon. Friend takes the wrong end of what I am saying, which may be my fault. I was arguing that Europe, at its best and at its worse, is a marketplace of argument. There is clash and sometimes co-operation between the interests of member states. We should not be in any way blinkered about that.

We should determine what the mechanism that we are creating produces as a result of that interaction of nation states' interests.Over the past 50 years, the mechanism has encouraged growth in trade and enabled us to have half our trade with Europe. It has helped us to avoid military conflict between the various countries and has, no doubt, given us a range of advantages in other policy areas, such as home affairs.

Mr. Nicholls

Will my right hon. Friend give way?

Mr. Davis

Let me answer one intervention at a time, especially when I have been taken completely off the line of my speech. I am arguing that we should debate the structures that are to be built into the European Union with open eyes. We should see what we are creating and what the consequences will be.

Mr. Nicholls

I am grateful to my right hon. Friend for giving way. He seems to have come to the crux of the matter. If one reads the treaty of Rome—which I did rather late in the day—it becomes obvious that it is in the business of setting up a common market not as an end in itself, but as one of a series of steps in the creation a new nation state. My hon. Friend the Member for Banbury (Mr. Baldry) asks whether we shall ultimately have to ask ourselves whether we can go on like this. Whatever conclusion we draw, that is a fair question.

Mr. Davis

Of course it is a fair question. I am not sure whether it is an advantage, but I have read all the relevant treaties, including the Amsterdam treaty, more than once—three times in most cases. Almost all of them contain a multiplicity of objectives, which should be no surprise—they amount to the wills of 15 countries now, not to mention institutions such as the Commission, which operates virtually as a 16th nation state.

All member states must have asked themselves that question. I put the question to myself and discussed it during my three years in the Foreign Office, as my hon. Friend the Member for Banbury (Mr. Baldry) probably remembers. I always concluded that Britain's membership of the Union was not only to our advantage, but to the Union's advantage. We fill an important ecological niche—if there is such a thing—in the Union.

There were occasions in the run-up to the Amsterdam negotiations—I am being tempted to talk for much longer than I had intended—when Ministers from other countries told me, as Minister of State with responsibility for Europe, to veto the flexibility clause, for example. I said to them, not unnaturally, "You've got a veto. Veto it yourself." The response would be, "No, you must understand that some of us can't stand up to Franco-German pressure. Britain is the only country that can."

Regardless of whether that is true, the other countries collapsed on that issue and that was not the only time when Britain brought to bear in European negotiations a point of view that was unique, but very important to the European Union and its continued traditions of democracy. I shall now attempt to get back to the argument that I was making.

Mr. Blunt

Will my right hon. Friend give way?

Mr. Davis

This will have to be the last time.

Mr. Blunt

My right hon. Friend is on a most interesting tack, so it would be a pity to leave it immediately. Surely a point comes at which the British national interest must be considered in the light of the role that we are being invited to play in Europe. The Government are already in that position. After 18 months, they are now almost completely isolated on tax harmonisation and have to look to the Spanish Conservatives for assistance. It will not be long before they are absolutely on their own—a traditional British position. The question that must be answered is whether that will always be worth it for the United Kingdom.

Mr. Davis

The issue must always be in front of anyone who is representing our country or making these decisions for it. I am perhaps a little kinder to the Government than my hon. Friend is; I take the view that they are still learning.

The history of the European Union shows that, on almost every contentious issue, there is first an argument about a matter on which the veto applies. Then, if it is at all possible, the European majority tries to make that subject a qualified majority voting article, as happened with the working time directive, the pregnancy directive and a number of other directives. If that does not work, the matter ends up in the European Court. Most recently, we have lost zero ratings on industrial construction for commercial purposes, which I suppose is understandable, and, rather disgracefully, on spectacles and contact lenses—I cannot imagine on what basis the court found against us in that matter, but it did. If that process does not work, there is a Schengen outcome—the 13, 14 or 15 go another way, set up a caucus and organise things to their own advantage so that one finds oneself at a disadvantage.

In the next decade, we shall have to face such problems over tax harmonisation. There will be the perennial attempt to remove the veto at the IGC—I predict that that will be on every IGC agenda until the attempt is successful or until the nature of the Union changes. None the less, our membership is worth while, as we continue to benefit from it. However, we must always ask the question, as my hon. Friend the Member for Banbury said.

Before that minor diversion, I was making the point that the system that monetary union creates will lead to localised hot-spots of unemployment throughout Europe. What will be the reaction of the countries that face those hot-spots? Will they decide suddenly to pursue Thatcherite policies? Will they deregulate their labour markets, cut on-costs and create employment, as the previous Conservative Government did? Is that the probable future of the new socialist Europe? I hardly think so.

We do not need to guess. We already have an example—we can read the book. About two years ago, Renault closed its factory in Vervoerde in Belgium—near the constituency of Jean-Luc Dehaene, the Belgian Prime Minister—and moved the production to France. What did Jean-Luc Dehaene do? Did he say that Belgian workers should cut their costs; that Belgian managers should become more efficient; that his Government would cut the burden of regulation and taxation on industry?

Certainly not—of course not. That is ridiculous. He called for an end to social dumping. He called for more regulation and harmonisation, and for more rules to stop the free operation of markets within and between the nations of Europe. That happened last time, and it will happen more and more often under the pressure of monetary union-created hot-spots of unemployment.

The difference this time is that there will be a mechanism for that call for more regulation to be turned into action. That mechanism, I am afraid, is the social chapter—not just the social chapter, but most specifically. The social chapter was created to allow harmonisation of labour law, and the Government have explicitly signed up to legislation under the chapter.

The harmonisation that we face that is most immediate is not tax harmonisation, but labour law harmonisation. We know from our history that that can cripple flexibility and growth, and can destroy jobs. It is not just the Opposition who know that—the Government commissioned the McKinsey report on the determinants of growth and the restraints on growth in this country. What was among the top three? Education and investment were not there, but competition and deregulation were. We know that the harmonisation of regulation will be very dangerous to our ability to create jobs. I want the Minister to say how the employment strategy of Europe will deal with this very real threat to British well-being and to British people's jobs.

7.23 pm

Ms Rachel Squire (Dunfermline, West)

I agree with the right hon. Member for Haltemprice and Howden (Mr. Davis) that there is an advantage for Britain to remain as a member of the EU. When the right hon. Gentleman was a Minister, the Select Committee on European Legislation—of which I was a member—always appreciated his detailed knowledge of the issues on which we questioned him.

In common with my hon. Friend the Member for Crewe and Nantwich (Mrs. Dunwoody), I want an open and informed debate on all the issues of concern to us in Europe. However, the speech by the shadow Foreign Secretary, the right hon. and learned Member for Folkestone and Hythe (Mr. Howard), and some of the interventions from Opposition Back Benchers have demonstrated how difficult it is in this so-called mother of Parliaments to have informed and balanced debate on such issues of importance.

Many Conservative Members and the tabloid press consider it incompatible for someone to be both pro-British and pro-Europe. The reaction of some of the media to anything to do with Europe—not least this week—seems at times to verge on encouraging xenophobia. The reaction is one-sided—they see Europe as the enemy, bent on invading our glorious island. They ignore some of the advantages and benefits that our membership of the EU has given to us and to our constituents.

The right hon. Member for Haltemprice and Howden mentioned some of those benefits, and my constituents certainly appreciate the ease of travel, the access to goods and markets of the EU, and European funding. Many constituencies, such as mine, have seen their traditional industries and areas of employment destroyed, and European funding has assisted in their efforts to create new jobs and economic regeneration.

If we are to deal effectively with many of the issues of concern, we must recognise that that can most effectively be done on a European and an international basis. One example of that—on which the majority of Britons would agree—is that tackling effectively the drugs industry and international crime must be done internationally.

I recognise that a number of hon. Members want to speak, and that the EU is a large subject to try to cover. I have decided to focus my remarks on two areas, both of which provide big challenges for the EU—first, the common foreign and security policy, and secondly, the challenge of making Europe seem more relevant and accountable to the lives of the people whom we represent.

Britain's relationship with Europe has been one of constant development and change, as those who are familiar with our history will know. It may help to remind ourselves that the very concept of the nation state is a fairly recent development in terms of European history. We must disentangle ourselves from the views of those hon. Members who still seem to cling and hark back to the days of the glorious British empire.

By virtue of our history and geography, Europe is where we are now, and it is where we must have a leadership presence in the 21st century. I am keen for us to have more debates on a common foreign and security policy for Europe, and what that would entail. Because of our geography, history and international reputation—and our high standing among nation states in many parts of the world—we in Britain are in a key place to take a lead. The process of European enlargement means that we must engage in a constructive dialogue on foreign and security policy.

If we are to succeed on the social and economic fronts, we need a stable and peaceful Europe—one where there is a good understanding of the different perspectives, of which there are many, due to the different locations of current member states and those states seeking to join. It is only by communication that we can try to break down some of the years of hostility, distrust and suspicion that have existed between some of those countries, develop a dialogue of trust and share a common agenda.

The "Partnership for Peace" process has demonstrated the success of that communication and joint working. It has brought together nations which, not so long ago, were clear enemies, and it has helped to break down quickly some old attitudes and prejudices.

The European Union has a role to play in that, and it cannot be left entirely to NATO, although I fully agree that NATO is the bedrock of our defence in Europe. Only through a close and constructive relationship with our European partners on common foreign and security interests can we seek to make an even greater positive contribution on the world stage.

I want more debate on the common foreign and security policy. We have a real mix and match of categories of countries in Europe that are involved or interested in our foreign policy, security and defence. There are countries that are in both the EU and NATO; those that are in the EU only; those that are in NATO only, and want it to stay that way; those that want to be in both; those that have been promised membership of one or the other; those that want to join both but are feeling rebuffed; and those that want to stay outside but somehow have a special relationship with Europe.

We need to focus more on the subject. As they would say in Scotland, we have the auld alliance with France, which wants to remain semi-detached from NATO but to raise its profile in European security issues. As we have seen all too clearly, that mix and match has made it extremely difficult for us and our European partners to agree and stick with a common approach when facing an international crisis, whether in Kosovo or in Iraq. Many hon. Members are keen to have a more rapid and effective European response to such crises, which affect the peace and stability of Europe.

I welcome the way in which my right hon. Friends the Prime Minister, the Foreign Secretary and the Secretary of State for Defence are trying to open up the debate on the EU' s defence role and the future role of the Western European Union.

We also need to consider the future of the industries that give a technological lead in the EU, many of which are strongly associated with the defence industry. Those industries have been telling me that they want the EU to be more active in helping them effectively to rationalise into a strong and effective competitor of our close and special ally, the United States.

Most of our constituents do not regard Europe as affecting their everyday lives or as being interesting or accountable to them. It is seen as remote and bureaucratic, and as providing a convenient gravy train for unaccountable officials. It is in our interests as a country to challenge that view and to promote greater openness and accountability, not only in our own system of government—as the Government have done with the creation of the Scottish Parliament and Assemblies for Wales and Northern Ireland—but in Europe.

Anyone who has been an election agent in a European election, as I have, will know how difficult it is to persuade members of the public that the matter is one of key concern to them.

Mr. Blunt

The hon. Lady is inviting us to have the proper debate for which the hon. Member for Crewe and Nantwich (Mrs. Dunwoody) called. There is a substantial political implication behind economic and monetary union. Does she agree that we should now consider the political and democratic accountability that will have to be built around the single currency and the single economy to make the European institutions accountable to her constituents and mine?

Ms Squire

I would certainly welcome a far more open and informed debate on all issues of concern in the European Union, be they economic, social or foreign policy-based. It is depressing how difficult it seems to be to have that debate without getting a tabloid reaction from some of the media: they do not give us information on or arguments for and against the various aspects of our approach to Europe.

My right hon. Friend the Foreign Secretary suggested that we should identify clearly those areas that should come under subsidiarity and those, such as the drugs trade, on which an international or common approach can be of mutual benefit.

I welcomed the fact that, at the end of our presidency, one of the conclusions reached at Cardiff was that a sustained effort is needed to bring Europe closer to the people. That is even more important now, when countries without our long tradition of parliamentary democracy and debate are joining the European Union. I welcome the ideas coming from independent groups such as the Centre for European Reform about how we can make the Commission more accountable. I do not know whether that should happen through elections, but I would like to hear people's views on the subject.

Mrs. Dunwoody

Does my hon. Friend really think that there will be any move towards electing the Commission? It is a hybrid organisation in which jobs are reserved according to nationality. Its very rigidity makes it impossible for it to become accountable, and that is what occasions the grave reservations that many people in the United Kingdom have about it.

Ms Squire

I am by no means advocating any particular approach. I entirely agree that the Commission is seen as remote and unaccountable, producing endless reams of paper that no one can understand. I would like the Commission to be introduced immediately to the Plain English Campaign so that it produces stuff that is readable. I would like the House to have more open debate on how we can make the Commission and other European institutions accountable and help our constituents to feel that there is a direct link between those institutions and the reality of their everyday lives.

There is no future or comfort in adopting a British isolationist approach. We know only too well from the history of this century what a high price Europe has paid for isolationist approaches in individual countries. They have fed territorial instincts, prejudice and ethnic conflict. The best tribute that we can pay to those who have sacrificed so much for our peace and freedom is to seek co-operation, partnership and communication with fellow member countries in the European Union.

7.40 pm

Mr. David Heath (Somerton and Frome)

In my brief experience of the House, I have noticed that the only thing that stops foreign affairs debates being timetabled for Friday mornings is if the House is not sitting. In that case, they are held on Thursday evenings, but it would be a pleasure at some time in the future to attend a foreign affairs debate in parliamentary prime time. Nevertheless, we have had a valuable debate with some interesting contributions.

In many ways, we have had an interesting political week and the crisis—one might say disaster—that has befallen the Conservative party in the past day or so has been fortunate in many ways, not least because it drew the press's attention away from their unremitting campaign of questioning the direction of British European policy. The crisis even brought The Sun back from expressing itself in inadequate German to its normal practice of expressing itself in inadequate English.

When the Foreign Secretary appeared before the Foreign Affairs Select Committee earlier this week, I asked him whether he felt that there had been a change in attitude to the principle of subsidiarity in the European Union. He was more sanguine than I believe was justified in the circumstances. In the past few months, a renewed climate of indecision, even hostility, has developed around some basic tenets, which I am sure I share with the Minister, behind the development of the European Union.

Everything must have seemed very different only a few months ago when we watched the election of the new German Government, which joined other socialist Governments—at least nominally—across Europe. It must have been with some glee that the spin doctors from No. 10 and the Treasury visited continental Europe to talk to Mr. Jospin's médicins de rotation and Mr. Schröder's Drehungdoktoren. Together they would be able to form a miasma of European spin to create the new European way, as it was described, which may be a continental version of the third way. However, it seems that all that effort was in vain, because it has all gone wrong in the past week. We may draw a couple of morals from that. First, do not let the Treasury try to run foreign affairs, because it is not equipped to do so. Secondly, there is still a real debate about the direction of the European Union and the arguments have not yet been won. The difference between this Government and the previous Government is that we are all now at least engaged in the arguments and can contribute to them. I hope that is what will happen in Vienna.

Earlier in the debate, the Foreign Secretary quoted Chancellor Klima as saying that tax harmonisation would take up one minute of the time in Vienna. I sincerely hope that he is wrong, because that crucial question should be addressed by the heads of state and foreign secretaries. The controversy we have seen in the newspapers in the past week has been somewhat synthetic. Mr. Lafontaine has conveniently been portrayed as the new bogy man—the new thing of the night—to replace Jacques Delors, in his time, and Jacques Santer, although the latter never had a sufficiently exciting persona to cut the mustard as a bogy man. Mr. Lafontaine has some potential in that area. We have seen proposals from 1996 dredged up and displayed as a real and current danger of standardisation across the European Union.

It would be offensive if I were to appear patronising to a senior politician of a partner Government, but Mr. Lafontaine has not been helpful to the European debate in the past week, for a couple of reasons. One is that, after a long period in opposition, he is a member of a newly elected Government. As we have seen, that sometimes causes people to speak in haste and then repent at leisure that they were not quite as diplomatic as they should have been. Another reason is that Mr. Lafontaine is a Saarlander—that is an important factor. He looks out of the window in Saarbrücken and sees people coming across the bridge every morning from the villages around Sarreguemines on the other side of the border. In that part of Europe, harmonisation is a real factor, because people live in France and work in Germany and vice versa. The border is very porous and the effects of that are a factor in his political make-up.

In recent days, the British Government have gone some way to addressing the issue, although not as plainly as I would wish. I am disappointed that the rebuttal of the proposals for tax harmonisation has been couched in a chimeric expression of sovereignty, because there are strong arguments against harmonisation that have nothing to do with sovereignty, important though that is. First, it removes the only element of flexibility within the rigid framework of tax policy that the Maastricht treaty laid out. Secondly, tax harmonisation cannot be reconciled with subsidiarity. The two do not go together. If one is genuine about subsidiarity, national Governments must have the freedom to set tax levels. Thirdly, tax competition is a useful mechanism. Genuine tax competition—I do not mean tax evasion or the abuse of the tax system that we see in some of the tax havens dotted around Europe—helps to establish economic parity between nations. Although harmonisation of tax levels across international borders may sometimes be a good thing, compulsion is not. The argument is the same as for compulsory competitive tendering in the domestic sphere. There is nothing wrong with competitive tendering, but if it is made compulsory it is wrong because it forces distortions on local choice and on the end result. We must also point out to partner states in Europe that tax harmonisation could also prove painful to their national interests—the President of the Commission may recognise that from his national background.

My second point concerns the protocol on subsidiarity. I was pleased to hear the Foreign Secretary say that some of the mechanisms of that protocol may be put in place before the eventual ratification of the Amsterdam treaty. The tragedy is that that has not happened already. If the nations of Europe were agreed that subsidiarity had to be made a reality, why was not the European Commission required from day one to justify any proposals it made in subsidiarity terms? There is no reason to wait for ratification. It is essential to see whether the protocol produces the right results. I would go further. We should seek codification across Europe, not just of treaties, but to establish the basic principle of subsidiarity—devolution of power to the lowest available level. We simply do not have that now.

I know that it is unhelpful to talk of a constitution for Europe, because others use that phrase in different ways, and it carries implications of a superstate, which I certainly would not support. However, we need something that says that some things are best done locally, regionally or nationally. Only matters better dealt with at the European level should be dealt with at that point. Such change should be retrospective, going into the acquis communautaire. We cannot leave aside all that has been done to date, saying that it was right just because it has been agreed. Times change, and matters ought to change with time.

I hope that the Vienna council will address the management of the EU and how the Commission organises its affairs. The Court of Auditors report on the mismanagement of international aid was so damning, not just of the small element of fraud, but of the much bigger element of mismanagement and simple incompetence that it cannot be left to the scrutiny committees of the European Parliament to put matters right. The Governments of the member states must call the Commission to account, and must say that that state of affairs cannot continue. We must have better management.

The British Government have exactly the right attitude towards budgetary control, and they should work with those who take an equally well defined view of how that control can be implemented. I mention with approbation, because I have spoken to him a number of times and I like what he says, the Finnish Commissioner, Mr. Liikanen, who has done a good job in putting forward proper suggestions for control of the European budget.

The proposals on EU co-operation on justice and home affairs are an important area for further development. We have seen initiatives on combating the drug trade, or international crime. However, a degree of—dare I use the word harmonisation; probably I dare not—co-operation across Europe is important to make sure that internal security measures are compatible and effective.

The Government will have to reconsider their position on asylum and immigration to ensure that our policy is compatible. The same is true of the future of the Schengen agreement, because we shall eventually find that it is in our national interest to have a degree of association with it. We must, of course, recognise our particular position as an island state, with all that that implies, but we must, nevertheless, consider the Schengen agreement anew.

The common foreign and security policy will be crucial. I wish the Prime Minister well on his day trip today to St. Malo, as I wished him well in Pörtschach. I wish, however, that he would occasionally share with the House the thoughts that he is so willing to share everywhere else in the world about the future of the common defence and foreign policy. He is exploring new areas of crucial importance, and the House ought to be able to express an opinion. As the right hon. and learned Member for Folkestone and Hythe (Mr. Howard) said, we received no statement after Pörtschach, despite the best endeavours of Conservative and Liberal Democrat Front-Bench spokesmen to encourage the Prime Minister to give us one. I hope that he will explain his thinking to the House in the very near future.

We must maintain a commitment to NATO, an organisation of desperate importance to us. No one argues with our maintaining the inalienable right of the British Government to be the only body that can send British troops into danger. Anyone who feels that that can be short-circuited is quite wrong. Even so, it must be good to increase co-operation, and to increase the capacity to integrate the armed forces of Europe, particularly those of Britain and France, the real players who have strong armed forces in the European theatre.

In foreign policy, it is time that a senior diplomatic representative was appointed. It has taken too long to reach that point. Many Members are simply unaware of the scale of the European Union's diplomatic corps across the world, which is enormous, but undirected. We must fix its direction, and we must, in whichever areas we can, agree a common policy. That is particularly true in continental Europe, on the fringes of central and eastern Europe and in the Mediterranean area. One of the great negatives of the past year has been our complete inability to do anything effective in Algeria, on our doorstep. That failure speaks volumes for the need for a better integrated foreign policy.

EU states have already done quite well at integrating efforts at the United Nations, but I hope that we can do more. There is a high degree of interplay between the permanent representatives of the EU states at the United Nations. However, we heard in the Gracious Speech about the Government's commitment to UN reform, an area on which Europe has something important to say. I hope that we shall not consider only Security Council reform, because that may prove to be a dead end up which it is impossible to secure the agreement of other member states. Other areas are in desperate need of reform, and of new investment that can come only if we reduce overheads in areas in which money is being mis-spent because of a lack of will to look seriously at the distribution of funds. In particular, some agencies no longer perform a useful function, and their time, frankly, is up.

As a European entity, we should put real pressure on the United States of America to pay its arrears to the UN—it is scandalous that it is $1.5 billion in arrears. The Administration's arguments about difficulties with Congress will not wash. Insufficient effort has been made to ensure payment of those arrears, and we must pressure the USA, not least because we are the main creditors. Britain, France and the other countries that contribute to peacekeeping operations are not being paid because America will not pay its bills.

On Agenda 2000, the Cardiff timetable is desperately important if we are to see proper reform of the institutions. The Germans say that they are committed to it, and I ask the Government to ensure that that commitment is made explicit at the Vienna council.

Progress has been made on enlargement, even among some countries not in the first phase, such as Latvia, Lithuania and Slovakia, with its change of Government, and I hope that they will catch up rapidly. The Government should continue to adopt the principle of inclusiveness. We must make sure that everyone who is potentially in the running is encouraged to stay in the running.

The same applies to those countries in the first wave that are not making the necessary reforms. Having visited Prague recently, I am frankly disappointed with how the Czech Republic is meeting the demands of accession. We must tell such countries that they must ensure that they do what is necessary.

I shall finish by referring to two areas of current attention that the Vienna Council will probably touch on. The first is the crisis in Russia. It is desperately important for the European Union to do something effective to ensure stability there during the present economic crisis. We must also think of the countries that are still dependent on Russia irrespective of the changes of recent years, such as Belarus, which is not an easy country to like, but which we nevertheless need to embrace and Ukraine, which we often forget. Ukraine is a country the size of France and it will be on the borders of the European Union if Hungary accedes, yet we forget about it. We cannot afford to do so.

Finally, I hope that Kosovo will still be on the agenda at the Vienna Council and that we will ensure that we make a concerted effort on humanitarian aid. A few months ago, I visited the former Yugoslav Republic of Macedonia. I went to the border, although not to Kosovo, and could see to some extent what was happening there. One problem is the almost complete lack of building materials. It is difficult to get them in peaceful Macedonia. How much more difficult it must be in Kosovo, given its devastation and the non-co-operation of the Serbian Government. We must tackle that problem and contribute positively to the extraction force, as we have been doing, to ensure that it is integrated into the Kumanovo area and does not cause any further difficulties for the Macedonians, who have gone through a difficult period.

I hope that we will also consider the interests of other neighbouring states. We cannot afford to forget Albania and Montenegro, which is the forgotten part of the former Yugoslavia, but has the capacity for destabilisation, which is a serious matter.

In conclusion, I must simply say that there was an attempt to form an Anglo-German axis a month or so ago. I suspect that it has not succeeded. Nevertheless, we must maintain our engagement, our interest and our persuasion, if the European Union is to develop as we want and, by we, I mean not only Opposition Members but those on the Treasury Bench, who share that view, I think. If we are to make sensible developments and to achieve reform, we need friends to do that. We need to work to form a creative coalition within the EU, which recognises the dangers of carrying on as it has done and the deficiencies in the present structure. It should work hard to reform the EU, bring it closer to the people and make it answerable, responsive and democratic—all those things that, in many ways, it fails to do at present. If the Government can achieve that at the Vienna Council, I wish them well.

Several hon. Members

rose—

Mr. Deputy Speaker (Mr. Michael Lord)

Order. Before I call the next hon. Member to speak I must remind the House that a number of hon. Members still want to catch my eye and, unless speeches are considerably shorter than they have been, some of them will be disappointed.

8.3 pm

Mr. Alan Simpson (Nottingham, South)

I am an unashamed admirer of my right hon. Friend the Foreign Secretary. When Labour came to power in May 1997, I thought that one of the greatest contributions that we could make as a Government would be the intellectual ability and clarity of mind that he would bring to the European dialogue. I continue to hold that belief, so I hope that he will not mind if tonight I expand the area of my admiration a little.

It is important to break away from some of the caricatures that have appeared in the press in the past week, which have verged on the xenophobic and which do not do justice to the contributions that two people, Oskar Lafontaine and Dominique Strauss-Kahn, are making, which we should recognise. Their contributions to the document, "The New European Way", move us into the arena that many of my colleagues have sought to occupy, which is a thoughtful discussion of the future of Europe and the practicalities of that future. I have many and various disagreements with the document that they helped to produce, but its importance—I would recommend it to the whole House—is that it forces us all to think about the practicalities of a common European future. It is not riddled with slogans and soundbites; it attempts to tackle the serious preconditions that will have to be in place if we are to provide a stable European future.

In the document, the authors recognise that fiscal stability is not the same as social stability. Europe has had fiscal stability in a single currency before—at the end of the 19th century, under the gold standard. The only problem was that it left deep scars in the social landscape of Europe. Because there were no mechanisms for social cohesion, that standard left people in deep troughs of famine and starvation. They were pushed into large-scale migration and social upheavals, which in turn caused deep disruptions in society.

In revisiting the agenda for a Europe that is united within a single currency, the architects of that paper recognised that other mechanisms must be in place to underpin a single currency and make it sustainable. I confess that I am not a believer in a single currency and do not think that it can work in the circumstances in which we are trying to construct a common European future. There are many better ways to construct that common future.

However, the authors of the paper force us to recognise what measures must be in place. The reality is that, both in the world as it is now and in the history of single currency zones, there is no record of any system that has been stable and secure without two things being in place. The first is a consensus about how to raise taxes, and the second is a credible mechanism for redistributing them to provide social cohesion.

Those who say that the single currency will not require us to harmonise income taxes, pensions and benefits and who look to the United States because of the flexibilities that exist there—different income tax rates in different states, for example—must take a step back and recognise that the underpinning of that system has a set of consequences to which we may or may not want to subscribe.

I was fortunate to obtain from the Library some of the figures to show how the US single currency zone is different from our own. At the moment, the contribution of US taxes as a proportion of gross domestic product is as follows: 12.3 per cent. go directly in federal taxes; 5.6 per cent. go in state taxation; and 3.6 per cent. in local taxes. We do not have an equivalent to US state taxes. The current position in the United Kingdom is that 27.5 per cent. of our taxation, as a proportion of gross domestic product, is national and 1.4 per cent. is local. If we wanted a system with the same income tax flexibilities as the US system, we would have to recognise that it underpins its system through that shift in the collection of tax revenues to the federal level. If we were to apply that system in Europe, it would mean the direct transfer of taxation—of some 20 per cent. of our GDP—to a European federal level.

I remind the House that the United Kingdom's contribution to European structural funds will be 1.27 per cent. of GDP at the beginning of next year. I have not heard anyone argue the case for retaining within the nation state the flexibilities of variable and differing income tax levels, by underpinning those with a 20p in the pound shift in taxation to European federal structures. I should like to be with any Member of Parliament who tried to explain that on the doorstep. I suspect that the only thing it would prove is that, under conditions of extreme pressure, all Members of Parliament can run the 100 metres in an extremely short space of time, because we would get short shrift from the electorate were we to make that case. We must be careful about saying that tax-varying flexibility can currently be found in the United States of America. It is not the same and it is dishonest to suggest that it could exist here without there being a substantial shift of direct tax contributions from member state level to European federal level.

Mr. Letwin

The hon. Gentleman is making a most interesting and thoughtful speech—indeed, the point he has just made is seminal. However, does he agree that a further point goes with it—that for all sorts of obvious cultural reasons, mobility of labour within the United States is vastly greater than can be expected within the European Union; and that, therefore, the need to adjust to those flexibilities through central funding is paradoxically less in the United States than it will be in the European Union?

Mr. Simpson

That is an important point. Most serious analyses of conditions in Europe, both positive and negative, recognise that language and culture make the people of Europe far less mobile than the population of the United States of America. In addition, the greater the levels of that forced internal mobility, the greater the social conflict that arises between local communities and those who are defined as outsiders, so I am cautious about where that would take us.

On the other hand, we could argue that it would be possible to have internal redistribution mechanisms of the sort in which Germany gave an inspirational lead. When Germany was reunified, one of the commitments that the west made to the east took the form of a solidarity tax, which recognised that huge transfers of resources were needed to end the poverty and build the basis of social inclusion in a united Germany. The equivalent of an extra 7p in the pound in taxation was voted by the German people in order to build that basis of social inclusion. I have nothing but admiration for the Germans for doing that.

Is that immediately translatable to a European Union level? Sadly, the answer is no. As was demonstrated by the Court of Auditors report—which was rightly raised by my hon. Friend the Member for Crewe and Nantwich (Mrs. Dunwoody) in relation to democratic accountability—the problem affecting European institutions as they stand is that there are huge weaknesses in the way in which Europe is able to manage and account for money, with £3 billion unaccounted for and up to 5 per cent. of funds lost to fraud. It is not acceptable for any of us to apportion blame for that, because we are all caught up in it. This country is no holier than any other member state in terms of the misuse of funds and the abuse of European structures in our own interests.

The problem is that, if there was a shift in funding into European structural coffers and the amount was multiplied by five, fraud would be multiplied by 50. That is the consequence of trying to put more resources into a framework that is clearly deeply and seriously flawed. Those who believe in a single currency and want it to work must acknowledge that the institutional and financial structures of Europe would have to undergo a massive sea change in order to make it possible.

The document I referred to earlier sets out the key challenges that must be addressed if social cohesion is to be built in a future European context. I shall quickly deal with the key points. The first is found where the authors, in a lovely little sentence, call for better coordination between monetary policy and employment and wage-policies", and also a dialogue between the institutions responsible for economic policy, including the ECB and the European Social Partners". That is wonderful for those accustomed to attempting to decode the contents of European documents. The authors want there to be democratic political control of the European central bank. For those of us who never really believed that Steady Eddie should have been allowed out on his own, it is welcome to hear that our social partners in Europe want democratic control of the ECB so as to deliver full employment policies and social inclusion policies, which are at the centre of their social, political and economic agenda. That would, of course, require a certain renegotiation of the Maastricht treaty, but between consenting adult member states, that strikes me as a perfectly legitimate objective because it is an essential underpinning of how to deliver social stability in Europe.

The second key point the authors make is: In the last decade evidence from the EU has shown a disproportionate increase in the fiscal burden on immobile factors, especially labour, coupled with a reduction in the burden on mobile factors, especially capital. The partnership between socialists and social-democratic partners in the European Union has at last recognised that there has to be a shift in the burden of taxation on to feckless and footloose capital; that we cannot continue to ask the poor and those who are in work to carry the tax burden for an increasingly reckless and deregulated global economy that is driving us all to ruin. I welcome the fact that the authors of the document have put that point so clearly on the agenda.

The third point is to observe that EMU will intensify the potential for tax competition. Therefore, further efforts have to be undertaken to avoid harmful tax competition among the member states. That is absolutely clear and absolutely right, if we are to avoid the flight to tax havens, eliminate hidden subsidies and avoid a game of beggar my neighbour in which we all try to undercut each other or to set up systems of corporate welfare, whereby we offer bigger bribes to lone-parent companies to come and live with us for a time based on an enduring love for which we are to pay good money. If we are to avoid all that, we have to find other ways of developing a sense of coherence and cohesion in the systems of taxation of corporate earnings. It is essential that we do that, whether within a single currency zone or not. The authors make the point that that effort is essential, if we are to make further progress in tax and benefit reform. There has to be a sense in which that inclusive Europe allows us to enjoy the security and benefits that are present in the best economic arrangements, instead of being pulled down to the levels of the worst.

In that revisiting of a common view of Europe's tax arrangements, the authors say that there has to be a greening of the tax system and a co-ordination of savings and corporate taxation, not only within Europe but at the level of the Organisation for Economic Co-operation and Development. They want that to be the basis for the introduction of new Europe-wide regulations which use Europe as a lever to compel the institutions of the global economy to re-regulate global forces.

I hope that hon. Members on this side of the House at least will address that agenda seriously. I hope that we will applaud the initiative taken by our sister parties in Germany and France and by the coalition of parties that contributed to this document. I hope that the Government will agree to take forward several practical suggestions from this debate. I think that the document has serious shortcomings, but we could substantially improve the dialogue and the direction in which it is heading.

I shall conclude by making four suggestions. First, in the discussions about how best to harness footloose capital it would be helpful to consider the devastating destruction of tidal speculation movements against countries and currencies globally. A European-wide lobby must change the international financial architecture so that we can introduce a transactions tax on speculative capital. That is commonly referred to as the Tobin tax, as Professor James Tobin of Harvard university was the first to suggest it. It involves imposing a tax rate of 0.5 per cent. on speculative capital movements. That would be sufficient to raise the reserves that could underpin and support countries that are subject to speculative ventures against them and act as a disincentive to speculative, but not serious, investment.

My second suggestion concerns our treatment of other forms of footloose capital. We are currently bombarded by reports in our daily newspapers about factories closing in order to rationalise production elsewhere. The scale of job losses is sometimes breathtaking. As I entered the Chamber tonight, I picked up a letter about my constituency, where Marconi Communications has announced that a review of the Group's facilities has shown the potential for a reorganisation that would reduce costs and increase efficiency. Unfortunately, the review requires the group to make 1,000 people redundant in order to continue its policy of production based on "high growth" and "high margins". That means that it will no longer operate in my constituency.

America takes an interesting approach to that problem. It is already exploring the idea of "A" code taxation based on the "site here to sell here" presumption. America believes that companies cannot reserve the right to sell into the US economy goods that they are unwilling to pay to produce in that economy, or because they are unwilling to sustain wage rates in production and contribute to tax revenues that would begin to relocate or retrain those whose labour they have abandoned. The Americans are toying with the idea not of ending the notion of public subsidies for industry and essential manufacturing, but of trying to build a stakeholder component into that process. We must tell the corporate sector that there are no free handouts: we are talking about obligations that accompany entitlements. Those obligations are based on public stakeholdings rather than unconditional public subsidies.

My third suggestion is that we should expand on the document's ideas about green taxation. We have yet to have a serious debate about the different types of green taxation and the difference between progressive and regressive green taxation. I remind hon. Members of our clear slogan and principle in relation to the environment that we must pursue policies that make the polluter pay. We should also ensure that the footloose polluter pays more.

Earlier today, I referred to the Raleigh bicycle company in my constituency, which has spent about £28 million on a new production line with extremely high levels of environmental responsibility. It has reduced by a factor of 10 both in-plant pollution—the health and safety contributions—and end-of-line pollution. It has introduced wonderful through-put technology. However, the company complains that it is forced to compete on a price-only basis with Chinese or Taiwanese manufacturers who never accept any responsibility for reducing pollution in the production process.

We cannot pursue a common European policy that rewards the environmentally profligate and penalises those who operate within our domestic and European economies producing the environmental standards that we wish to see and share in. If we adopt that approach, we shall be able to take a lead in defining the economics of the 21st century and give practical form to the pledges that we made in Kyoto. If we do not have sustainable economics in the next century, we are likely not to have any economics worth talking about. We have done so much damage to our global climate and biodiversity this century that we will have to spend a large part of the next century undoing that damage and restabilising.

Finally, the document poses a clear challenge to define what a system of redistributive taxation would look like at a European level. In many ways, the closest that we have come to responding to that challenge in this country is the recent Acheson report on health. Acheson sets down a benchmark for measuring the necessary redistribution of resources and explains where we need to begin in a health and environmental context. If we were to take up those ideas and throw our responses to them into a European dialogue, I am certain that we would take a lead in Europe that many of our European partners would gladly follow.

I believe that that is the basis upon which we can define a stable, secure and inclusive Europe. It will be the case whether or not we have a single currency. I believe that the divides around the single currency issue are seriously flawed and misguided. At times, it is like trying to get our towels on to the deckchairs before our German or French competitors when the boat is the Titanic and we would be better off advising people to look for the lifeboats. That is the danger inherent in limiting the single currency debate.

"The New European Way" sets out the pillars from which socialists and social democrats across the whole of Europe should be able to find a common agenda to provide a secure common future. I hope that Ministers, especially my right hon. Friend the Foreign Secretary, will have the courage to take that lead.

8.29 pm

Mr. Patrick Nicholls (Teignbridge)

I congratulate the hon. Member for Nottingham, South (Mr. Simpson) on that magnificent speech. I remember meeting him many years ago when I was a Minister and travelled to Nottingham. I think that he has worn rather better than I have—but that is the way of things. He made a masterly assessment and analysis of the lessons to be learned from the American experience in so far as it has implications for us. I should like to think that the speech will commend him to those on the Labour Front Bench, but I am not sure that it will.

This is my first opportunity since the general election to contribute to a debate about the European Union. In fact, the issue of Europe dominated my election campaign. I found that the only thing that people wanted to talk to me about when they saw me in the street was the European dimension. I attribute my somewhat thinner majority in the election to the fact that because we have not closed down the argument by answering the question that people asked—"Where do you stand on a single currency, one way or the other?"—the subjects that the vast majority of people wanted to discuss with a Conservative candidate were never raised.

The conclusion that I drew was that we should never find ourselves in that situation again. That I why I am delighted that my right hon. Friend the Leader of the Opposition has adopted a position on the single currency which strikes me as being right and intellectually honest, and which commands the widest support among the people who spoke to me in the election campaign.

The single currency is sometimes spoken about as an end in itself, as though it was a new phenomenon that has suddenly darkened our horizons. I came to the issue somewhat late in the day. As I recall, I voted against entry into the Common Market, but that was probably very much on the balance of probabilities. I cannot honestly say that, cheerful and young as I was at the time, I gave it a huge amount of thought. The first time I gave the matter serious thought was in 1988. I was a Minister in the Department of Employment, where I was responsible for trade union reform. One day the Minister of State who used to deal with matters European found that he had a tummy upset or some such indisposition and could not go to Europe. I was told, "Minister, you are going to Europe. The car is downstairs, the Red Box is on the seat, and you can read the papers on the way over."

On the way over I read the papers, which were straightforward. At the bottom of my Box was an extra document, a copy of the treaty of Rome. I read it for the first time, and was both appalled and shamed by it. I had always accepted that the treaty of Rome was about establishing a common market. I had believed what I had been told. In the White Paper that preceded our entry into the Common Market, we were assured that decisions are only made if all members agree". We were also told: There is no question of Britain losing essential national sovereignty. There was no question at all—it was inevitable.

When I read the treaty of Rome, I realised that it was about establishing not a common market, but a new nation state, and that the establishment of a common market was merely a step down that road. Anyone who reads the treaty of Rome realises that the common market, the single currency and so on are deliberate stepping stones to a federal destiny. Members of my party should recognise with contrition that our European partners realised that throughout. We did not, because we accepted the assurances that we were given that federalism was not on the agenda.

My hon. Friend the Member for Reigate (Mr. Blunt) quoted Hans Tietmeyer, the president of the Bundesbank. One of his predecessors, Karl Blessing, said: The final goal of the Commission is a European Monetary Union… A common currency … is feasible only if, apart from a common trade policy, there is also a common finance and budgetary policy, a common social and wage policy—a common policy all round. In brief, this would only happen if there was a federal state. The hon. Member for Crewe and Nantwich (Mrs. Dunwoody) got it right when she said that it was so plainly obvious that tax harmonisation is absolutely necessary if we are to enter a single European state that it was barely worth arguing about.

The blueprint for the single European state, which can be created only if our nation state is extinguished, was laid down long ago in the treaty of Rome. We are at the 11th hour in the setting up of that new, independent state. It already has many of the attributes of such a state: an anthem, a flag, a Parliament, its own civil service, a common citizenship, its own overseas embassies, a common passport and, within days, it will have its own common currency.

Tax harmonisation is not a big surprise and has not just come on to the scene. It is inevitable. I shall not go through the documentation, as time is short. Far from standing up fearlessly against tax harmonisation, the Government are actively promoting it. That is the reality behind the rhetoric.

In addition to all the other attributes of a single state, we have discovered in recent days that we are to have a common legal system. Anyone who doubts that and fancies some bedtime reading should try reading "Corpus Juris" and what its apologists say. Stephen Woodward, the director of the European Movement, described the notion that "Corpus Juris" could ever be adopted as "ridiculous." He said that it was a report drawn up by a "group of experts" with no official status. He said that it goes nowhere near the creation of a system of European criminal law. What does "Corpus Juris" do? I shall tell the House. It is a plan that envisages a European public prosecutor, the EPP—not much room for signwriters there—to whom each state's prosecution chiefs would ultimately be responsible. The Brussels-based EPP would be independent of national authorities and have a delegate in each capital city. The prosecutor would have the power to instruct a national judge to issue a European arrest warrant that would be valid across the whole European Union.

"Corpus Juris" states: For the purposes of investigation, prosecution, trial and execution of sentences concerning the offences set out above … the territory of the Member States of the Union constitutes a single legal area. It continues: If an investigation conducted by a national authority reveals that an offence has been committed the dossier must be immediately submitted to the EPP. There is to be a new judicial figure called the judge of freedoms. That should amuse anyone who has a ghost of a sense of humour. He is to give authority for suspects to be held for up to nine months under European jurisdiction and to be transferred to the country where the crime took place without extradition proceedings. "Corpus Juris" states that courts must consist of professional judges, specialising where possible in financial and economic matters, and not simple jurors or lay magistrates". Goodbye habeas corpus.

The document does indeed have official status. It is an official European document, produced under the aegis of Francesco De Angelis of Directorate-General XX. In the report that introduced and commended the document, the rapporteur, Mr. Rinaldo Bontempi, points out in sections IV and V that there is no need to worry about the national veto. He suggests that rather than using the third pillar, the basis for such action is to be found in the EC Treaty, with particular regard to Article 209a, whose provisions were strengthened by the Amsterdam Treaty". The report goes on to say that that article makes cooperation between the Member States and with the Commission an obligation… the Amsterdam Treaty extends it to all the competent authorities including the judicial authorities. Mr. Woodward describes such a document as having no official status. Sooner rather than later, it will simply be introduced. There are always three stages in such cases in Europe. First we are told that it does not exist. Then we are told that it will not happen. Finally, we are told that it is inevitable.

I have one of the only copies of "Corpus Juris" around. The journalist Graham Danton, who got it for me, had to telephone Brussels and Luxembourg three times each. First, officials there denied that the document existed. Finally, they asked, "Why do you want it? You don't need it." Only when he said that he had heard that it was a really super book that would take forward the course of European integration did they say, "OK, that's fine—you can have it," and send him a copy.

I make no criticism of our European partners for behaving in that way. What they want is a single European state. That has been obvious from the inception of the treaty of Rome. It is not up to us to criticise them for what they want, but it is up to us to ask ourselves whether that would be right for us. Could we feel comfortable with such a relationship in Europe?

Back in March 1995 my right hon. Friend the Member for Huntingdon (Mr. Major) said in a debate in the House: The often unspoken fear of many people—we should address it honestly and clearly and examine it—is that Europe might develop into a super-state, an overarching Government with no national veto, no control over our own borders, prescriptive decisions, a single currency imposed and the nation state retreating to a wholly subordinate role. That fear exists out there … and we should recognise the fact that it exists. He concluded, and it seems so long ago: I for one would find such a Europe wholly unacceptable for this country. I do not believe that it is remotely likely, but, if that were to be the future, it would not be a future that would be suitable for this country."—[Official Report, 1 March 1995; Vol. 255, c. 1062.] We are there. We are in the presence of a new created state which requires our own nation state to be extinguished. We cannot go on being the bad man of Europe and standing in the way of our European partners because we do not believe that their destiny is right for us. It is not a question of coming out of Europe. Europe is there. It is our own continent. Our nationality may be British, but our culture is European. Europe will always be there, which is why it is legitimate and right to say that we must be in Europe but not ruled by Europe.

We have to ask ourselves, "Can we go on like this?" We have to say honestly that, if we cannot get our European partners to abandon a project on which they have been embarked these 30 or even 40 years, and in fairness to everyone, we must ultimately have a relationship with which we feel comfortable. There is a great deal more that I could say, and I hope that there will be occasions on which I can do so, but I am conscious that other hon. Members want to speak. We must face up to what we are about, and the Foreign Secretary did not begin to do that.

8.40 pm

Ms Claire Ward (Watford)

First, I apologise to the House for being unable to remain for the winding-up speeches.

Let me take up the point made by the hon. Member for Teignbridge (Mr. Nicholls) about the referendum in the 1970s. Unlike many hon. Members, I do not remember the great debate and the referendum on entry into what was then called the European Community. For me and many of my generation, Europe, and our co-operation with our European counterparts, has been very much part of our lives. We have studied European languages and adopted many aspects of European culture. We frequently travel to Europe and we have friendships with people in other European states. I stress, however, that my pro-European stance in no way suggests any less support for my own nation state and for the right of its people to determine the best future for this country.

Many hon. Members on both sides of the House have found it difficult to be both a citizen of a nation state and a European. The two have not sat comfortably together, but the advantage of being a full, proactive member of the European Union is that we maximise the benefits of our membership through co-operation. We enhance the opportunities for trade, and we increase rather than restrict competition. We agree on changes where they are in our interests. In our dealings and relationship with Europe, that fundamental principle must always remain: we agree where that is in the interests of Britain and its people. What can be wrong with that?

We have heard a lot of scare stories lately. There has been a lot of scaremongering on the euro and on tax harmonisation. I accept that fear is often the result of change or of the unknown. I can accept that many people find it difficult to believe that those who have proposed the euro, and those who will enter it next year, can be acting in the interests of more than their own nation states. Such panic and scaremongering is certainly not in the interests of Britain. A sensible, well-informed debate weighing all the pros and cons of the euro certainly would be. The euro is in the interests of Britain and of business.

Although I have the utmost respect for my hon. Friend the Member for Nottingham, South (Mr. Simpson)—and, as a colleague and fellow team player in the all-party parliamentary football group, I have no wish to offend him, because he may make sure that I end up with a few bruises in the next game—I do not completely agree with him.

Let us consider the example of the United States. My hon. Friend's arguments were clearly thought out and well constructed, but the history and culture of the United States are different from the history and culture of the European Union. What we create in the European Union, with Britain a part of it, will be unique. We will be able to look to America to consider some of the issues that my hon. Friend rightly raised, but we should do so for information and knowledge only.

Last Monday, more than 100 business leaders signed a statement in the Financial Times, saying that Britain should aim to join the single currency as soon as the conditions for successful entry are in place". In their view, that is likely to be soon after economic and monetary union is established. Since the publication of the business statement, a further 150 business people, from companies large and small, have rushed to sign up.

That is perfectly understandable. Those business leaders signed in personal capacities, but they include the chairmen and chief executive officers of more than 20 FTSE 100 companies, as well as many small and medium businesses and entrepreneurs from every region of Britain.

Companies such as Marks and Spencer are making the necessary changes to their business and to their tills to adapt to the euro, because they believe that the euro will be part of Britain's dealings with the EU. A company in my constituency, which supplies electronic health equipment to health services in this country and in Europe, has decided—much to my regret—to close a significant part of its operation and move to Europe. It will be dealing in euros to a much greater degree and believes that it should be based in one of the member states.

Some 63 per cent. of businesses say that it is in their best interests that we join the single currency as soon as possible or after the next general election. My right hon. Friends the Prime Minister and the Chancellor have made it clear that, although we support the principle of the single currency, such fundamental change must come only with the support of the people of this country and at a time that is appropriate for Britain. That is a clear position, which I fully support.

Business in this country needs the euro. Almost one in four firms doing business with Europe have been asked to deal in the euro from January 1999. If we do not take a serious interest in the euro, we will be left behind. Some 65 per cent. of United Kingdom exporters want a single currency in the EU, and we will continue to let them down if we do not take a clear view on movement towards the euro.

The right hon. and learned Member for Folkestone and Hythe (Mr. Howard) suggested that there is one all powerful person in the EU—the German Finance Minister. He also suggested that if the German Finance Minister makes a statement, the rest of us should be very concerned that it represents a development of the policy of the EU. Are we to believe that, when the German Finance Minister states a view, we should assume that it is a fait accompli? That must be absolute nonsense. We should bring some reality to our discussions.

The German Finance Minister is but one member of the German Government, and the German Government are but one member of a 15-state body. They will not get their own way; of that, I am absolutely confident. There is no sense in greater harmonisation of tax. It would not benefit Britain. As the overriding principle must be that we adopt changes only if they are in Britain's interests, there should be no great move towards the harmonisation of taxation.

It is nonsense to suggest that joining the euro will inevitably lead to tax harmonisation. For a start, we would be absolutely mad to allow harmonisation, because we know that it would result in much higher costs for all. We do not have to accept such moves. That is the great advantage and the purpose of having a national veto. Any change to EU taxation policy must be agreed unanimously by member states. Britain has the right to veto any proposals that it opposes. Furthermore, the abolition of the national veto in any area of policy requires a treaty change, which must first be agreed unanimously. Britain's right to veto any proposed EU taxation policy cannot be removed without our consent. So long as we oppose the harmonisation of taxation, we will remain without it.

Our future is in Europe. We should be a part of it and lead it, and not be led by it. We must not stand on the sidelines shouting advice, but should be on the pitch scoring the goals and winning for our team. My right hon. Friend the Foreign Secretary has made it clear that he wants to lead our nation in our discussions with Europe. The policy that we are pursuing is the right one for Britain, and I hope that we shall continue to pursue it.

8.52 pm

Mr. Crispin Blunt (Reigate)

It is a great pleasure to follow the hon. Member for Watford (Ms Ward). Soon after she and I arrived in the House, we were on a radio show together. It was a great pleasure to take part in that show with her. She has helped to illustrate some of the points that I want to make.

At the beginning of the debate, the Foreign Secretary said that the British people should be treated like adults. We have had some extremely adult and intelligent contributions to the debate, and there has been some terrific analysis. I commend the hon. Members for Crewe and Nantwich (Mrs. Dunwoody) and for Nottingham, South (Mr. Simpson) for their contributions and analysis, which I thoroughly enjoyed. I experienced the usual frustration when I listened to the Foreign Secretary, and I felt the same frustration when I heard the hon. Member for Watford loyally follow his line.

The problem is a lack of honesty in the debate about Europe. We are not treated as adults. The Foreign Secretary and the hon. Member for Watford sought to escape behind statements about the current legal position on what measures can be imposed on the United Kingdom. We heard a terrific analysis from my right hon. Friend the Member for Haltemprice and Howden (Mr. Davis), with his experience as a former Minister for Europe, of how the United Kingdom, under a Conservative Government who were prepared to be isolated in Europe—to some extent they had to make a virtue of it after 18 years in government—was out-manoeuvred. Changes were made so that policies were decided by qualified majority voting, and we no longer had a veto. Judgments of the European Court of Justice went against the United Kingdom. The court referred to the introduction to the treaty of Rome, and said that it had made its judgment in the interests of integration.

It is frustrating to hear the Foreign Secretary hide behind the current legal position, when the tide of opinion about the future development of the European Union will overwhelm that legal position in the near or medium-term future. The logic of the Government's position on negotiation leaves them even weaker. We were dug out of our position after years of having to battle against changes to the rules. There was disappointment in the Conservative party because of the bad faith shown by the European Union when it changed the rules on which decisions were based.

The Government's problem is that they are committed to the language of constructive and positive engagement in Europe. However, 18 months after coming into office, they are already talking the language of isolation on tax harmonisation.

I object to the conduct of the European debate. This morning, I listened to the Chancellor of the Exchequer talking about the social chapter. He said, "We were told the social chapter would lose us 500,000 jobs. Well, that hasn't happened, so it is all right." That is a trite way of dealing with the issue. The social chapter is a mechanism for the introduction of social regulation in the future. We have no idea what laws, regulations and directives will be introduced through the social chapter in the years to come, because we have given away the UK's capacity to prevent their introduction.

The Secretary of State for Trade and Industry is slugging it out in Europe and trying to find a suitable compromise, so that he can avoid using the veto to prevent the introduction of measures that we do not like. That is precisely the position that the Conservative Government were in on other areas of policy. We have a hideous sense of deja vu. We watched the Government approach Europe with enthusiasm in 1997, but 18 months later we see that their attitudes have started to change as they come face to face with the problem of defending our national interests and the natural British position, which is the same whether under a Labour or a Conservative Government. Their language is beginning to change.

The British Government put at the top of their list of priorities the timetable for enlargement. The Foreign Secretary joined the Foreign Ministers of the applicant countries. He was the only senior Foreign Minister at that meeting. He did not find time to join his colleagues in the European Union at the first Foreign Ministers' meeting under the Austrian presidency—but never mind. That shows where the British Government's priority lies. The Government have supposedly created credibility, but under the British and the Austrian presidency the date for enlargement has changed—from 2003, which Commission officials were talking about, to 2005. In private, Austrian politicians say that it will be 2015 before enlargement takes place. The Polish President has accused the European Union of bad faith and of creating myths to prevent Polish entry to the EU. In Britain, enlargement—widening the European Union—is our main interest but we are seeing it disappear over the horizon. The timetable seems to have slipped by almost exactly five years.

Earlier, I asked the Foreign Secretary whether he agreed with Hans Tietmeyer about the inevitability of taxation as a method of control in Europe following the introduction of a single currency. The Foreign Secretary said that he disagreed with Hans Tietmeyer, but who are we to believe? Are we to believe a central banker who has been in the finance business throughout his career—a distinguished career—or are we to accept the judgment of a Foreign Secretary who, like his party, has flip-flopped over the issue of European Union membership throughout his own career? The Foreign Secretary, at this stage in his career, is trying to bring about a wave of Euro-enthusiasm, but I predict that the position may well change if the Government fail to engage in economic and monetary union, as its consequences become increasingly apparent.

The hon. Member for Crewe and Nantwich delivered an amusing aside about the way in which socialist European documents had been drafted. There is an example in "The European Way". We now see that the British Government are trying to interpret matters in a certain way. There is reference to further measures to be taken to "avoid harmful tax competition". The Prime Minister has told us that tax competition is terrific, because it drives taxes down, and encourages tax regimes in the European Union to compete with each other. However, I understand that Mr. Lafontaine and Mr. Strauss-Kahn think that tax competition is harmful, and that tax harmonisation is required for that reason. Let us see who will win the argument.

The Government know perfectly well in what direction the European Union is heading. They cannot and should not pretend that the legal position as provided by the treaties will not change in the years to come. We have seen the result of their attitude. Already, after 18 months, they are isolated from their main socialist partners in Europe. They are having to rely on the conservative party in Spain to be an ally, and to try to protect the British interest.

My right hon. Friend the Member for Haltemprice and Howden said that it was worth paying the price for Britain to have a key role in Europe, enabling it to pull the Europeans back from the brink and to act as a control, vetoing further changes in the European Union. My right hon. Friend has an appetite for a scrap. Perhaps he envisages becoming Minister for Europe again, and having to take part in the process. That would, of course, be in the interests of the United Kingdom.

According to my observations of Britain's role in the European Union, the problem is about the price that we will pay—isolation—for trying to defend the British interest. Another price that we will pay is the reputation that we have won among our partners. We have always been seen as the "drag anchor", but that will no longer be worth the candle. We must ask whether we want to continue with the current process, or to lift the drag anchor, go full tilt into Europe and become positive contributors to Europe in an honest way, accepting the implications for the politics of the nation state. If we do that, we shall have to accept that there will be a new polity at the European level, and that we should think about building democratic European institutions around the euro. That is the choice that we face, but the Government are still not facing it.

9.3 pm

Miss Anne McIntosh (Vale of York)

I welcome the debate. I recognise that the European Union now permeates every aspect of domestic as well as foreign policy. I have a particular interest in transport, and I note that the Amsterdam treaty will extend co-decisions to transport matters. There will be exceptions in regard to competition rules and negotiations with third countries. Can the Minister explain the Government's position on state aid? Will the Government press for the ending of any further state aid, especially for airlines—Air France, Iberia, Olympic Airways and a catalogue of other carriers that continue to enjoy state aid?

Ports also enjoy state funding in certain member countries. Horticulture even makes possible the provision of cheap energy, particularly in one member state. Pork production is currently enjoying a subsidy in France and Germany. Government intervention would be very welcome.

The highlight of 1999 will be the revision of structural funds, and the balancing of those receiving such funds with applicant countries. It is generally agreed that the population level in respect of receipt of structural funds will be lowered. The impact on the United Kingdom and, particularly, on my constituency will be substantial. The Vale of York enjoys farm subsidies on a generous scale, Konver funding to train those with defence industry skills for civilian employment, 5b funding for poor farming areas in the hills and general training funds under objective 3.

The hon. Member for Nottingham, South (Mr. Simpson) struck a chord. Not only will his area suffer job losses through the loss in the defence industry; other areas, such as Chelmsford, will suffer heavy loss as well.

The objectives are being reduced from 7 to 3 and the Community initiatives such as Konver are set to disappear, but it is not clear what will replace them. I am a little concerned that responsibility for the negotiations is being shared between two Departments: the Department of Trade and Industry and the Ministry of Agriculture, Fisheries and Food. We need to ensure a co-ordinated approach in those negotiations.

The length of the transitional period for the various programmes is not yet clear. Whether other member states will agree to set key criteria as a percentage of gross domestic product, rather than just unemployment, which would penalise us, is not yet known. Some guidance on those negotiations would be helpful.

The Department of Trade and Industry is minded to identify "pockets of rural deprivation". Again, it would be helpful to have more details. I accept that we are in the middle of a farming crisis that is unprecedented in my lifetime, affecting every sector of farming. The loss of income from subsidies will be compensated for by direct payments to farmers under common agricultural policy reform, where appropriate, and by compensation for environmentally friendly schemes.

Rural development is a theme that will loom large, bearing in mind the impact that the farming community has on the whole rural economy, including contributing to market towns and local prosperity. I hope that, in their regulations, the Government will bear in mind the impact that the reform of CAP and structural funds will have on areas such as North Yorkshire. Traditionally, farming in that area attracts low incomes, increasing the difficulty of finding homes for farm workers; they also face travelling further to work.

Agenda 2000 is a top priority for 1999. With the agreement of our European partners, the Government have set a deadline of March. I am sure that the Minister will appreciate that the European Parliament has agreed First Reading and, as the Commission refused to support a number of key amendments, the reports have been referred back to the relevant committee. The European Parliament will find it hard to meet the March 1999 deadline.

Clearly, that timetable has implications for the timetable for enlargement. I welcome moves towards enlargement, particularly for the former communist countries and Baltic states. Earlier in the week, I raised the threat of higher duties on pork with the Minister of State, Foreign and Commonwealth Office. I wonder whether she has had time to examine that matter and to find out whether it is true that the Czechs, Poles and Hungarians are threatening to break the Europe agreement. That would be worrying. I hope that the Government will do everything in their power to prevent such a move.

A particular interest of mine and, I am sure, of many others is duty on wines, beers and spirits. Duty-paid goods and their import for other than private, individual use is becoming a huge embarrassment to the Government. Bootlegging not only denies the Treasury of income, but damages the trade and employment opportunities of our wine merchants, brewers and distillers. That is unacceptable.

Rather than increase the number of Customs and Excise agents to apprehend culprits, it would be far better to lower the duty that is paid in this country and to raise the level of tax earned in that way. Better still, does the Minister think that she can persuade her European partners such as France, Spain, Belgium and Greece to raise the duty charged on their home-produced wines, beers and spirits? So much for tax harmonisation.

Duty free sales are scheduled to stop on 30 June 1999. Mario Monti, the commissioner responsible, claims that duty free sales have no future in a single market. I entirely agree—if the single market were complete, there would be no place for duty free sales.

When there is no harmonised rate of tax and duty charged, nor any prospect of harmonisation, with rates varying from 3 per cent. in one country to 33 per cent. in another, there are strong grounds for a reprieve, allowing duty free sales to continue for the foreseeable future. The outlook in that regard is bleak. The Commission has announced that the present rules on duty free will apply to duty free sales after 1 July 1999, leading to the bizarre situation of a bottle of whisky attracting different prices on the same route from, say, London to Corfu, depending on which country's airspace the plane is flying in and on the duty charged in that airspace. That is nonsense and I hope that the Government will help to deal with it.

The European Union continues to hold many challenges for the Government and for our relationship with our EU partners. There is real scope for tax harmonisation, which the Foreign Secretary assured us would normally be within the national remit alone. I believe that the scope lies in social security taxation. The extremely high rate charged in some EU countries amounts to a tax on jobs.

If our partners really wanted to create an employment strategy for Europe, they would amend their social security provisions. Businesses, not Governments, create jobs, but Governments do tempt businesses to create more jobs by lowering social costs. I urge them to do so.

The Vienna summit will address a number of those issues, including employment guidelines, the financial perspective and trans-European networks. I hope that the Government can rise to and meet the challenge.

9.11 pm

Mr. Oliver Letwin (West Dorset)

I want to make just two points in what is unremarkably—those of us who have attended many of these debates know the familiar pattern—a very thinly attended House. That is despite the fact that what we are debating is probably the most important issue to face this country, not just at present but for 300-odd years. Such is the nature of parliamentary democracy.

I want to comment on the character of the debate and the character of the Government in relation to the debate. The Government pride themselves on being modern. That is probably the single greatest thing on which they pride themselves. Yet, in an odd way, in this, the most important of all the debates facing the Government in the coming years, they are very ancient rather than very modern. They are out of date, not with the trend. That is because, unlike most hon. Members who have contributed to the debate—probably in private and unknown to the greater public—the Government have failed to recognise the fact that, as has been alluded to by many of my hon. Friends and many Labour Members who have now departed, we are on the verge of a United States of Europe.

That is not something that the Government will be able to stop. They can decide whether or not to be part of it, or rather, they can put that choice to the British people, but they cannot stop our partners moving in that direction. It would be a vain attempt and the Government will not make it. The Government are old fashioned in attempting to deny that that is the fact. It is also dishonest to attempt to deny that, but I shall dwell on it less because it is not an attack that would carry much weight. However, the fact of being old fashioned may, conceivably, strike a chord in the mind of some Ministers.

That is not my main point. I want to move the debate on a stage. I am bored with the period of prophecy. The period of prophecy is over. We know the facts and we know what is happening. We have a decision to make. The remarkable thing is that, because for so long—I regret that this has occurred within my party and firmly betwixt my party and others—we have debated the question of prophecy, we have forgotten to debate what decision we want to make. As one of my hon. Friends pointed out, the rhythm of the dialectic has been that we start by hearing that something will never happen and that it will be resisted to the ultimate, and then we hear that it is inevitable. In that rhythm of dialectic, there is no discussion of whether it is a good or bad thing. As a nation, that is what we now have to face. We have to confront the question to which we were brought face to face by my hon. Friend the Member for Reigate (Mr. Blunt), which is whether we think that the United States of Europe is something to which we want to belong.

I do not suppose that, in seven minutes, I can give the final answer to that question, but I hope that I might prod those few hon. Members in the Chamber, and those perhaps two or three recondite journalists who occasionally read our debates in their spare evening hours, into thinking about their response to the question. It is a poor outlook for the country if we do not have a response. It is a very poor prospect for the United Kingdom if those engaged in the debate in Parliament have not yet even begun to consider the question—which way the decision should be made—and no arguments are heard from either side of the House.

For myself, having thought about the matter a good deal—although not well enough yet—there are really two strands of argument that persuade me one way rather than the other in deciding whether we should want to join the United States of Europe, which will come about. The first is a negative type of argument, and the second is a positive one. The negative type of argument is that I think that there is something characteristically weak about the case for a United States of Europe. I do not mean there is not a case; there manifestly is a case. We have to face that fact.

There is a vision, which can best be described as a geopolitical vision of a world consisting of large players who rule the roost and of tiny players who are caught in forces that they cannot control. I hope that the Minister will forgive me if I describe that as the Chatham house or Foreign Office version. It has been the doctrine of the Foreign and Commonwealth Office for, roughly speaking, 400 years, and of its predecessors.

Mr. David Heath

The Cecils.

Mr. Letwin

Indeed, of every Cecil—the vision goes back a very long way in our history. Palmerston was perhaps its greatest exponent, but it is a very long-running theme.

The theory and reality of the United States of Europe are based on the vision, and that theory and reality are meant to convey to Europe its ability to be a great power—with the United States, possibly Japan, probably China, and, militarily, Russia. The case for being part of the United States of Europe is characteristically weak for a reason—which obviously needs vastly more expansion than I can give it today, and perhaps than I am capable of giving it—that perhaps resides in the strange historical fact that there is no evidence whatsoever that the citizens inhabiting great powers have led more pleasant, more fulfilled, culturally richer or economically more prosperous lives than citizens inhabiting very tiny powers.

Today and for most of my adult life, Switzerland has had the highest per capita gross domestic product, the strongest social cohesion and the greatest stability. It is a very tiny power, and almost gave up being a power at all. It is not a unique example; on the contrary. Throughout history and around the world, there have been large powers of which it has been unpleasant to be a citizen and small powers of which it has been pleasant to be one, and vice versa. I do not think that there is any evidence that being part of a great power or a small power is material to how its citizens live.

I do not personally—others may differ—buy the thesis that the fact that there will be a great power means that it will be to the advantage of the citizens of a small power to join it. Therefore, I think that the geopolitical argument—which is meant to be the positive argument for joining the United States of Europe—is weak.I do not think that, by itself, that would be enough to decide to answer in the negative, because there is also a positive strand.

I should characterise the positive case as one of risk. The question that we have to ask ourselves as we face the choice of whether to obliterate the United Kingdom and absorb it within a United States of Europe is: what will be the character of the United States of Europe? Like other hon. Members, I do not have a crystal ball and cannot say for sure whether the United States of Europe will be a flourishing great power, beneficial to its citizens. However, there is a risk—I put it no higher than that; it is extremely important not to overstate it—and it is difficult for other people to challenge the existence of that risk. I describe it as the risk of the United States of Europe becoming an Ottoman empire.

There are three parts to that; I do not have time to elaborate them. The first is an institutional risk. Those who have the vision must admit that the United States of Europe will be created against the background of institutions that are at best immature. They will have some difficulty establishing themselves with the democratic legitimacy and universal acceptance that is required of a stable Government.

Secondly there are cultural problems. I do not rate them too highly. I am not saying that people of different cultures cannot get on in a single state. Belgium proves that they can, as do Switzerland and the United States. However, it is difficult. It is more difficult when the political, legal and other cultures are particularly rich and strong. The great glory of Europe is that the individual cultures of the nation states are stronger and richer than those in any other part of the world. That creates a particular difficulty in forging a United States of Europe.

Thirdly, there are economic and social risks, many of which have been mentioned this evening, including the creation of what one of my hon. Friends called an economic hot spot problem. I doubt that anyone can honestly deny that there is a danger that in the course of forging a United States of Europe, it would be difficult to produce sufficient economic and social homogeneity—or, in the jargon, cohesion—to avoid severe tension.

Because my argument is very weak, it seems to me the stronger. On those three grounds of institutional immaturity, real and profound cultural difference and serious economic tension, there is a risk that a United States of Europe would turn into an Ottoman empire rather than a successful parallel of the United States of America. I accept that some might think that unlikely, but I wonder whether even the Minister, who, we hear, is a great proponent, can argue that there is no risk. If there is a risk, we, the citizens of the state that beyond all other states has delivered to its citizens across hundreds of years economic, social and cultural stability and freedom under the rule of law, must ask: if the positive case for the United States of Europe from the point of view of the effect of the geopolitical argument on its citizens is weak, why take the risk? We ought to have the courage to admit that we face a question of whether to become part of a United States of Europe by sublimating and obliterating the United Kingdom. I am persuaded that we should not.

I do not mind which way people feel about the decision. I want us to stop debating as if there were a question of prophesy left to us and start the real debate, which is about that decision.

9.23 pm

Mr. Howard Flight (Arundel and South Downs)

This country will have to face reality in the next 15 months. There is a practical issue of a common European withholding tax. Europe desperately needs that from its own perspective. People do not pay tax on some interest. There is a need for a new source of taxation for transfer payments, which will need to be increased with a single currency.

This country's interests are clear. Harold Wilson and Governor Richardson of the Bank of England spotted that the interest equalisation tax in New York was driving away international deposits, enabling them to be taken in London. That prompted the growth of the European markets and the recovery of London as an international financial centre over the past 30 years.

The issue is not just about bonds, but about deposit taking, foreign exchange dealing, derivatives and all that goes with being the world's leading international banking centre. If a withholding tax is stopped, all that business will go to New York and Hong Kong. That is not a small matter. At least 100,000 of 600,000 jobs are at risk, and 3 or 4 per cent. of gross national product and 6 per cent. of our total exports are involved.

The Prime Minister has pledged to veto the proposal, but Europe has made it clear—rightly, from its perspective—that Britain is being arrogant. Europe wants the proposal to be implemented. I believe that the issue will boil over next year. Europe will not allow us to use our veto to stop its first major tax harmonisation programme. It will, as Schröder has warned, move to end the power of veto for individual countries. The reality will hit the hypocritical nonsense of pretending that Europe will do whatever we want it to in our interests.

9.26 pm

Mr. Michael Trend (Windsor)

The Foreign Secretary patronisingly urged us all to behave like adults. That was as uncalled for as it was discourteous. We have heard many excellent speeches this evening. My hon. Friend the Member for Arundel and South Downs (Mr. Flight) has just made a brief but cogently argued point about the withholding tax, and the various speeches from hon. Members on both sides of the House have shown a that a great deal of thought is being given to the European question.

My hon. Friend the Member for West Dorset (Mr. Letwin) kept his eye on the rhythm of dialectic and the big questions that may one day be asked about the European Union. My hon. Friend the Member for Teignbridge (Mr. Nicholls), in a characteristically ebullient contribution, rightly said that if others want to create a supranational state, that is their business. At the moment, the evidence is strong that that is the direction in which many senior politicians in Europe want to go.

My hon. Friend the Member for Reigate (Mr. Blunt) also spoke on that theme. He described the overwhelming tide that is sweeping through the European argument, leading member states to ever closer integration. My hon. Friend the Member for Vale of York (Miss McIntosh) has a different experience of the European Union from that of the rest of Conservative Members. She made an important and detailed speech, raising a number of questions that I am sure the Minister will want to follow up.

Especially welcome was the speech of my right hon. Friend the Member for Haltemprice and Howden (Mr. Davis). He spoke from his experience in government of the difficult realities of negotiating in the European Union. The Government are now learning about those hard realities at first hand.

The contributions from Labour Members were 50:50. Of the four speeches, two were on message—one of them alarmingly so—whereas the other two expressed anxieties about the Government's position, although for different reasons: at least I think that they were different reasons. The hon. Member for Crewe and Nantwich (Mrs. Dunwoody) was right to say that we should explain the implications of where the European Union is going. We shall soon have that opportunity; in the referendum on the single currency, we shall be able to put the case to the country, as my hon. Friend the Member for West Dorset also said.

At the start of the debate, my right hon. and learned Friend the Member for Folkestone and Hythe (Mr. Howard) made a most telling contribution. He characterised the Government's position as one that faced in two directions at the same time—one for our European partners and the other for the domestic market. We have heard much this evening about the yawning gulf between the Government's rhetoric at home and what they endorse abroad.

We have heard how the Government are getting into difficulties on both fronts. They draw up carefully crafted positions but, especially on tax harmonisation, their proposals are being rejected both at home and abroad. Oskar Lafontaine will not put up with the British Government trying to have it both ways any more than will the Conservative party, the British press or the British public.

The Labour party hopes that the phrases in the Party of European Socialists' beloved document, "The New European Way", will also strike its different audiences—the left-of-centre Governments in Europe and the voters at home—differently. However, that did not seem to please the hon. Member for Nottingham, South (Mr. Simpson), for curious reasons entirely of his own. Many hon. Members have spoken about tax harmonisation, and it would be tedious and unnecessary to go over the issue again.

I have enjoyed one particular moment in the last few days, which makes the point, raised by my hon. Friend the Member for Reigate, that there is a great sense of deja vu about the Government's position. I had a fantasy—I do not pretend that it is the truth—about the scene in the Foreign Office yesterday. Ministers and their civil servants were trying to decide what to do after the Chancellor had come back, having been mugged at ECOFIN. How best were they to give the impression that the Foreign Office was not trying to lie low—although, of course, that was what it was trying to do?

No. 10, meanwhile, had been rampaging around the Government system, getting the line straight for Prime Minister's questions. A false move at the Foreign Office would spell disaster for somebody's career. "Shall we send the Foreign Secretary?" "No, Minister." "Should it be a Minister of State, or another Front Bencher?" "No, Minister." "What shall we do?" "I know, Minister" said an experienced civil servant. "Let us send the Parliamentary Private Secretary." So it was that the hon. Member for Rotherham (Mr. MacShane)—I told him I was going to mention him—found himself on the radio yesterday, defending the Government single-handedly. No Minister was available, according to the rather sinister announcement.

The Minister of State, Foreign and Commonwealth Office (Ms Joyce Quin)

Will the hon. Gentleman give way?

Mr. Trend

May I finish my fantasy? The hon. Member for Rotherham did his job very well. He read the headlines from the German newspapers—to, I suspect, a rather bemused audience—and seemed to suggest that the whole sorry business had been got up as a scare story by the British press. Various other Labour Members have suggested that. He seemed to say that they did these things better in Germany. He has a very promising career. However, the point of sending Parliamentary Private Secretaries is that they can sink or swim on their own without damaging the Government's reputation—although they may do tremendous damage to their own. However, the hon. Gentleman acquitted himself, and I hope his career is progressing nicely.

Ms Quin

I was interested to listen to the hon. Gentleman's fantasy—but it was just fantasy. If he had listened to other interviews yesterday, he would have heard me and other Ministers being interviewed. Sadly, a lot of my weekends seem to be disrupted by interviews on tax harmonisation and other European issues.

Mr. Trend

I have no reason to doubt the Minister, but I thought it curious that, a few hours before Prime Minister's questions, no Minister was available on the BBC lunchtime news on Radio 4. I may be wrong about those things.

The hon. Member for Rotherham, in a spirited interview, suggested that they do these things better on the continent. The evidence of the past six months does not suggest that. The informal summit was billed as an opportunity to debate subsidiarity—it had been prepared for months as a chance to investigate that subject closely. Only a few months ago, it was thought that the question of how to close the ever-growing gulf between the politicians and peoples of Europe was a matter of central importance.

The Foreign Secretary—like other senior European politicians—still airs the language of subsidiarity. He told us today that he was anxious that decisions should be taken as close as possible to the citizen, and we agree. However, what does that mean in practice? When the Foreign Secretary spoke to the Select Committee, it turned out to mean, mainly, a proposal for next year's vision statement for the European Union. If one has no plans for action, I suppose a vision statement will have to do.

Despite the continued use of such language, something fundamental has changed in the past few months. The Euro-land Governments—especially after the general elections—picked up a new confidence. They could see that the euro would definitely be launched in 1999—that business was over, at least for the moment. The voices saying that it was best now to address the other side of the precarious balance between Governments and the governed were swept aside. Jacques Santer' s carefully crafted—and good—paper was put back in the filing cabinet.

Governments surged ahead with their next business. There has been greatly increased pressure in the past few weeks for further and quicker integration in taxation, employment, social affairs, internal policies, foreign policy, immigration and asylum policies. In recent weeks, I have talked to lots of senior European politicians—some of whom I have known for a considerable time. Many are, for the first time, saying in public what they actually believe.

I was told that subsidiarity and accountability would have to wait, as they were yesterday's arguments. The vital principles that we believe should be the very foundation of the European Union are being passed over by the architects of a much more tightly integrated Union.

Does anyone now seriously believe that the architects of the new Europe are building their ever more ambitious edifice on the secure foundations of popular understanding and consent? No. Bigger, not better, government is the order of the day and of tomorrow.

My hon. Friend the Member for Reigate spoke very well on enlargement. Great progress was hoped for on enlargement, and of course the Minister will tell us of meetings attended and timetables agreed to, but nobody involved in the application process believes any of that. With attention now so focused on deeper integration, European Union enlargement is being seriously delayed. European Commission officials were reported in The Guardian to be stating in private that the target date for the first wave of enlargement was slipping to after 2005.

One senior politician said to me, "The European Union has been holding out a carrot to us: we begin to move towards it and get close, but then we find that it has moved it on ahead of us again. How can we ever catch up if these are the rules of the game?"

The Foreign Secretary told the House in June that the speed at which applicant countries enter the European Union now depends entirely on the urgency with which they make the necessary reforms. That is not the view that is taken in Poland, the Czech Republic or Hungary. The amount of legislation that they, and especially Poland, have passed—hundreds of laws—beggars belief, but no amount of new laws will catch up with a European Union determined to make new, far-reaching legislation of its own.

As my right hon. and learned Friend the Member for Folkestone and Hythe said, the Government did not do the House the courtesy of telling us what had been discussed and agreed at the recent informal summit. A few days after it, however, I was again in continental Europe and met many people who were less retiring. They were happy enough to tell me what the Prime Minister had said. Their impression was that he meant that there had been a true reversal of the British position on defence. Some, I am afraid, cynically thought that that was because he was unable any longer to gain the limelight on economic matters, but others genuinely believed that there had been a fundamental shift in the British position.

Was that impression correct? Back at Westminster, Conservative Members asked the simple questions that we can ask in the ways that the House allows, and it soon became apparent that the Government were in a glorious muddle. The Secretary of State for Defence recently tried hard to explain at the Dispatch Box—I am charitably assuming that he had something coherent to explain—the complex theology that his officials had kindly developed to try to bring the Government's two faces on the matter back into better focus.

It is no longer possible for the Government to say one thing on the continent and another here and pretend that they can keep the House out of the process. The Government are going to Vienna in a muddle of their own making. There is a muddle on taxation, on defence, on enlargement, on reform of the European Union institutions, on internal matters, on subsidiarity and on accountability.

If the Foreign Secretary hopes that other left-of-centre European politicians will provide him with a welcome break from his problems back home, let me remind him once more of what his Euro-allies have been saying recently.

The German Chancellor expressed support for an "ever-integrated Europe". The German Foreign Minister said that turning the EU into an entity under international law, with a common constitution, was the decisive task of our time". Our friend Oskar Lafontaine said: It is necessary to harmonise tax policy and the Austrian Finance Minister agreed. He said: The single currency will speed up the need for tax harmonisation. On the veto, good old Oskar was unequivocal. He said: I believe the unanimity rule cannot be maintained. The French Finance Minister said: Either you want fiscal harmonisation or you don't. These are all matters that should be subject to majority voting. The German Foreign Minister said: If it is going to turn into a full union, then one day foreign and defence policy will also have to become community tasks. We are told that sometimes those statesmen speak for themselves and sometimes for their Governments, but that is spin doctor nonsense. They are speaking their minds and we should note carefully what is in their minds, because their views expressed today—on the record or off the record, officially or unofficially—will surely appear on tomorrow's agenda.

The coming summit will be difficult for Britain. The Government should say more clearly where they stand on all the issues raised in the debate, because it is becoming increasingly clear that an agenda is emerging to which no British Government could subscribe. No amount of warm words about being at the heart of Europe, or boasting about playing it tough in the Councils of Europe, will work much longer. The electorate are getting wise to the Government's two faces. In the end, it is results that count.

In one way, I sympathise with the Government. Some press commentators have said that this Government's position is as bad as that of the previous Government. There is something in that, but there is also one big difference. The Conservatives tortured themselves on European policy, but they did so on matters of principle. This Government have made their muddle not on the firm rock of principle, but on the shifting sands of propaganda and presentation. The big trouble with looking both ways at once is that, sooner or later, one fails to look in either direction with a steady eye and the inevitable accident occurs.

9.41 pm

The Minister of State, Foreign and Commonwealth Office (Ms Joyce Quin)

This is the first debate of this kind that I have taken part in since becoming a Minister in the Foreign and Commonwealth Office. However, I count myself as a veteran—perhaps happily, perhaps unhappily—of these debates, having taken part in many while in opposition, from the Back Benches and the Front Bench. One common aspect of the debates—not surprisingly, given the many issues with a European dimension—is that they are always wide ranging.

I begin with an apology on behalf of my right hon. Friend the Foreign Secretary who is not able to be in his place for the winding-up speeches because he has left to attend the British-French summit at St. Malo, which I shall also attend later. At that summit, many of the issues that have exercised hon. Members on both sides of the House today will be raised.

Many of the speeches in the debate contained effective calls for an informed debate on European issues and I echo those calls. Many of my hon. Friends, especially my hon. Friends the Members for Dunfermline, West (Ms Squire) and for Nottingham, South (Mr. Simpson), made the point about accurate information very tellingly. I join with those who have deplored the hysteria that has disfigured the debate about Europe, especially in the past few weeks, with irresponsible scare stories that alarm people unnecessarily. That does not do the people or democracy a service.

We want a debate in which people have access to information and we have a duty, which we take seriously, through our parliamentary proceedings to try to have as much discussion as possible on the issues. The speech by the right hon. and learned Member for Folkestone and Hythe (Mr. Howard) fuelled many of the scare stories, instead of considering them realistically and damping them down. I was surprised, if not astonished, when the right hon. and learned Gentleman was revealed as an arch-federalist of yesteryear in the extraordinary quotation from the magazine Crossbow in which he called for a united European defence policy. That was fascinating, and I have now been given the article so I will be able to read it from beginning to end.

One purpose of our debate is to review developments as we prepare for the European summit in Vienna. I hope that hon. Members will find it useful if I outline some of the topics that are likely to be raised on which we hope to make progress. A principal issue is Agenda 2000, on which the hon. Member for Vale of York (Miss McIntosh) spoke in detail and about which she asked me many detailed questions. I am happy to respond to some of those questions, but if I answered them all, I could deal only with her speech, and not with those of other hon. Members. Even then, I probably would not have enough time. I am happy to write to the hon. Lady if she feels that I have not dealt with any of her questions.

Some of the issues that the hon. Lady raised can, as she will know, be more appropriately dealt with by ministerial colleagues who attend specialist councils. One of the down sides of being Minister for Europe is that I tend to be asked about every policy under the sun from wide-ranging issues about the future of Europe to the marketing of aubergines in the French Antilles. It is sometimes something of a challenge to answer all those points.

Agenda 2000 is an important package of issues that the EU must confront if it is to move the process of enlargement forward. The issues involved include the budget, agriculture and the structural funds. Much common ground has been established, particularly on structural funds and on the problems that should be addressed by objective 1, objective 2 and so on funding. None the less, a lot of work remains to be done, both on future EU financing and on common agricultural policy reform. Many comments have been made about the new German Government, but no one has said that that Government, much more than their predecessor, share our ideas on CAP reform. We hope to make important progress on that reform through the Agenda 2000 proposals.

As my right hon. Friend the Foreign Secretary pointed out, although the Commission's proposals on agriculture do not go as far as we would like, they would reduce support prices for a variety of products and would mean real gains for our consumers. My right hon. Friend quoted revealing figures on that. We believe that the Commission's proposals would allow us to work with like-minded Governments to increase pressure to make such reforms even better in future.

Many hon. Members have referred to the timetable of the Agenda 2000 negotiations. I agree that it is important to respect that timetable, particularly if we are to make a success of early enlargement. The hon. Member for Vale of York spoke of the European Parliament's deliberations on the timetable. There is some concern that the Parliament may not meet the deadline, as well as concern that the Council of Ministers might not. I urge the hon. Lady to try to pressure her colleagues in the European Parliament. If agreement is not reached in the present Parliament, we risk considerable delay because of the coming elections and the subsequent need for the Parliament to appoint new officers and set up new committees and procedures.

The hon. Lady expressed concern about the future of structural funds in her own part of the country, and she will know that delay to the timetable, with resulting delays in budgetary decisions, could affect structural fund allocations to areas in which many hon. Members on both sides of the House have an interest. Self interest gives us a strong reason to respect the timetable.

Many hon. Members referred to the importance of enlargement and I certainly strongly endorse those comments. However, I must point out to those on the Opposition Front Bench that, far from any weakening of our commitment, we are as firm a supporter of enlargement as ever. We were proud to support and launch the enlargement process during our presidency.

The hon. Member for Somerton and Frome (Mr. Heath) urged us to be inclusive in our approach, and we most certainly are. We believe that the countries involved need to be treated on their merits. Some of them have made dramatic progress, as has been pointed out, and that must be fully recognised.

Mr. Letwin

In that case, will the Minister confirm—as one of her colleagues, the Financial Secretary, did not do so in the European Standing Committee—that the Government will oppose the Commission's proposal that countries should have to enter both stage 1 and stage 2 of European monetary union before they can accede?

Ms Quin

Those are issues to be discussed with the applicant countries. I will certainly not lay down rules in advance of the accession negotiations. Indeed, I know from speaking to Ministers in the applicant countries that different countries view those issues differently.

We need to ensure that the European Union is in a good position to welcome those new countries. I think that it was my hon. Friend the Member for Wimbledon (Mr. Casale) who strongly argued that, although we are understandably asking applicants to accept many of the rules and arrangements that exist within the EU, at the same time we have a responsibility to organise ourselves to become more enlargement friendly.

One aspect of Agenda 2000 and the Commission's proposals that greatly concerns me and on which we are arguing against the Commission line, is that farmers in the new member countries should receive much less favourable compensation than those within existing EU countries. We have argued for compensation to existing farmers to be reduced progressively, so that we do not create such a two-tier system, which would unfairly discriminate against applicant countries.

Despite some of the claims made tonight about our rolling over and agreeing with everything that is put forward in Europe, I can assure the hon. Member for West Dorset (Mr. Letwin) and his hon. Friends that that is simply not the case. We are putting forward strong and distinctive views on many of the issues in the Agenda 2000 timetable. In no way are we simply sitting back and accepting what others propose.

If enlargement is to be inclusive, it also means that it should not create new boundaries further east. Referring to a point made by the hon. Member for Somerton and Frome, the European Union has a clear responsibility to look outwards. There are debates within the EU, and there are protectionist and anti-protectionist forces. We want to ensure that the EU operates openly, so that it helps the economic reform and progress that is being made in countries further east, as well as helping developing countries in the world market, particularly in the agricultural sector.

Mr. Flight

Is there any support from our fellow members of the EU for the position that the right hon. Lady has described on Agenda 2000 and enlargement?

Ms Quin

Yes, indeed. The pattern is mixed on the issues that I described, but a variety of members support our position and we have received support from the Commission itself on many of the agricultural issues. I do not feel at all defeatist as regards the issues that we are discussing, nor do I recognise the description of Britain's position or of Ministers' meetings that has been offered by some Members, in particular those on the Opposition Benches. On most issues, we find ourselves working in partnership with our colleagues, not in isolation. There are issues on which decisions must be made by unanimity where it is theoretically possible to become isolated and end up voting against the rest. However, in practice, in the meetings that I have attended as a Foreign Office Minister acting as a Justice and Home Affairs Minister, in which almost all decisions are taken by unanimity, the pattern of agreement, support and alliances that we have been able to build up with our European Union partners is impressive.

Hon. Members referred to the importance of the European Union remaining firmly engaged with Russia, of doing what we can to support change there and of helping it in the immediate future. We have been trying to ascertain how much food aid and support is needed, although I must admit that we have been getting different versions of what those needs are. We also want to examine trading arrangements with Russia, and consider how EU programmes such as TACIS—technical aid to the Commonwealth of Independent States—can be refocused to make them more effective, especially in reshaping Russia's banking system and installing proper financial controls, the absence of which has caused many of its recent problems.

Mr. Letwin

I apologise for interrupting the Minister again—she has been exceptionally courteous. However, as one who has worked long and hard with TACIS, I have to tell her that, if she is suffering from the illusion that it will ever make the slightest difference to the Russian banking system, she really should talk to those who have worked on it, because there is not the slightest chance.

Ms Quin

I simply do not accept that, because I have been involved in discussions on how to take that work forward. However, I would not commend TACIS without reservations, because many British firms working within it have been frustrated by the slowness of procedures and the way in which payments are made. Those problems must be sorted out.

The right hon. Member for Haltemprice and Howden (Mr. Davis), a former Minister for Europe, took the Government to task over various issues, saying that we had failed to achieve agreements with our partners. That struck me as odd coining the week after our success in the lifting of the beef ban. Some of what he presented as a complete failure, I would regard as a success, for example, our decision to sign the social chapter. It was always a matter of great regret to me that the Conservative Government refused to sign that or the social charter which preceded it, and were never prepared to make even a basic commitment to decent treatment for the people who work in the single European market.

Many hon. Members referred to tax harmonisation. I believe that the press articles of the past couple of weeks are scare stories, because nobody is proposing the harmonisation of income tax, which is one of the claims; nor is there a specific proposal to harmonise corporation tax. In the European Union, it is important not only to see what is happening within it, but to see the position of the European market within the Organisation for Economic Co-operation and Development and in the wider world. One of my European counterparts told me of her worry that, if there were moves to harmonise tax within the European Union, we would take our eye off the ball—the position of the EU within the world market. My hon. Friend the Member for Watford (Ms Ward) referred to the need for us to be competitive in both the world market and the EU market. My right hon. Friend the Chancellor has made it clear that the UK will not support any action that will damage competitiveness, or our employment creation policies in the UK. That is extremely important.

The speech of the hon. Member for Teignbridge (Mr. Nicholls) contained several references to "Corpus Juris". He said that he had read the treaty of Rome, but if he supplements his reading with the treaty of Amsterdam he will see that the articles—

It being Ten o'clock, the motion for the Adjournment of the House lapsed, without Question put