EUROPEAN COMMUNITIES COMMITTEE THIRTY-FOURTH REPORT

HL Deb 07 November 1975 vol 365 cc1479-519

11.15 a.m.

Lord MAIS

My Lords, I rise to move that this House takes note of the Thirty-fourth Report of the European Communities Committee on the draft EEC Budget for 1976. Your Lordships will have received a copy of the Report but I doubt whether you will have received it in time to have been able to consider it in any detail. Therefore, if I may, I should like to bring to your notice a number of points which your Committee considered to be important and to which they have devoted some considerable time. First, it should be noted that the approach to the 1976 Community Budget has, to some extent, been conditioned by the climate of public expenditure generally. As your Lordships will know, the position of the United Kingdom is that we consider there is a compelling need to contain the growth of public expenditure. Since our contribution to the Community Budget is part of that public expenditure, it is thus necessary for us to look with particular care at any proposals for increasing Community expenditure. Such additions to it naturally increase pressure on our own commitments.

However, we consider that the outcome of the Council's discussions have been, in general, in our favour. It has been possible to contain the growth in the Budget to an acceptable level; it has been possible to prune the Commission's proposals in most of the areas which are of less importanese to this country, and in the areas which are important to us I think it can be assumed that we have secured agreement to what is in our interests, except possibly the Social Fund.

My Lords, turning to the breakdown of the Community Budget, your Lordships will notice that the draft Budget for 1975 was originally 6,265 million units of account; but it is expected that the final outcome will be approximately 6,865 million units of account, an excess of 600 million units of account. The preliminary draft Budget for 1976 was estimated originally to be 8,059 million units of account. That represented a 29 per cent. increase on the first, original Budget for 1975 and a 17 per cent. increase over what the final outcome is expected to be for 1975. However, the Budget Council subsequently reduced the 1976 Budget from the 8,059 million units of account to 7,456 million units of account.

My Lords, some 71 million units of account of the expenditure in this proposed draft Budget would be financed from various miscellaneous receipts. The remainder would be financed by Member-States in accordance with the Council's decision of 21st April 1970, known as "our own resources decision". The United Kingdom's share would be approximately 16.3 per cent. or some 1,204 million units of account. In our own currency, that is £502 million, working on the basis of £1 equalling 2.4 units of account. It is, however, anticipated that the United Kingdom's gross contribution will be very significantly offset by our receipts from the Budget.

My Lords, the Commission's proposed credits of 501 million units of account for the Social Fund in 1976 were cut by the Council to 401 million units of account. With regard to the Regional Development Fund, the Council made no change in the Commission's proposals for appropriations of 500 million units of account. This is the maximum which is available under the decision setting up the Fund. The Council, however, reduced the appropriations for the Regional Development Fund from 450 million units of account to 300 million units of account because it was considered that there would be surpluses left over from the 1975 Budget. What your Lordships may be somewhat concerned about is that the provision in the preliminary draft Budget for aid to non-associates was deleted. It was deleted because there were no specific Council decisions taken as to the extent of such aid.

May I now turn to the question of control. It is this which has caused your Committee more concern than anything else. There are two areas where it is necessary: first, the control of the planned expenditure; and, secondly, the control of the expenditure itself after the Budget has been approved. The question we have had to consider is: where does the responsibility for control of expenditure lie? Is it with the Budget Council? The preliminary draft Budget is basically not a policy-making document; it represents the Commission's estimates of the financial consequences of the Community's policies that have been agreed to earlier by the Council of Ministers. The Budget Council is therefore considering whether the figures put before it are reasonable and acceptable estimates of the financial implications of such policies.

once approved, it must however be appreciated that the Budget is far from being a limit, or even a close estimate, of the ultimate outcome for the year. This of course is to some extent inevitable bearing in mind that 70 per cent. of the expenditure is for agriculture, or agricultural support, and it is, as many of your Lordships will know from practical experience, somewhat difficult to forecast the outcome of the harvest for the ensuing year. In addition, there are of course world prices in general to consider. Should the Budget Council take upon itself the responsibility to reduce the Budget, as it did this year, then these cuts can easily be restored by supplementary Budgets. During 1975 there have so far been five supplementary Budgets. Therefore we can naturally assume the Budget Council is not an effective agent of restraint.

So let us turn to the Council of Ministers, other than the Budget Council, and consider what control they have. If the draft Budget represents no more than the financial consequences of Community policies already approved by the Council of Ministers, then the control of the Community expenditure is exercised not by the Budget Council but earlier, when the individual policies were originally formulated. These individual policies will be approved by the appropriate Ministers from each Member-State, all of whom will, naturally, have a vested interest in pressing for large disbursements in their particular fields and to meet their own requirements. If, as is probable, this occurs in each category of the Community expenditure, then who is responsible for exercising restraint and taking an overall view of the Budget? This question has caused us considerable concern, and I am sure it is one which your Lordships will wish to consider in detail.

It has been suggested that Ministers attending the Council will have a general brief from their own Cabinets, and that these Cabinets will have the overall expenditure of their respective countries in mind. But, here again, one must remember that any restraint will probably come only from those countries which are in deficit, or may expect to be in deficit, on the Community Budget, not those which expect to benefit there from. Thus we can assume the Council of Ministers cannot be expected to exercise overall control. So we must then ask ourselves: is there any control exercised by the European Parliament? In my opinion, they can control only a small part of the Budget, for only over a small part can they make amendments; over the majority, they can propose only modifications. But, here again, we must consider whether it is reasonable to suppose that they can be expected to restrict expenditure, for the larger the Budget, the greater the influence of the European Parliament, and an indication of this can be found in the strong reaction by the Assembly to the latest Budget cuts.

Let us now look a little nearer home, to see whether the national Parliaments can exercise any control, should they desire to restrict Budget expenditure. In considering this, one must bear in mind that, first, they do not always get enough information to do this or receive it in time. Secondly, their power of influence is only indirect; namely, through the influence of their own Government Ministers in the Council of Ministers and their representation in the Assembly. Parliamentary scrutiny of expenditure can be truly effective only should it be undertaken at the time the policy proposals are made and are forwarded to the Council.

However, it is only recently that the Commission has begun to provide on a regular basis information about the financial implications of the proposed policies, referred to as fiches financieres, and even now not in every case are they provided, nor are they provided in great detail. Nevertheless, one must look upon this as a step in the right direction.

May we now come to ex-post control of expenditure. Up to now, we have been considering the control of expenditure before it is incurred. There are, however, three aspects of ex-post budgetary control. They are, first, the need to check actual expenditure by the Community against expenditure forecast in the budget; secondly, the need to evaluate whether the funds have been put to the most efficient use; thirdly, the need to ensure the prevention and detection of fraudulent use of funds. Safeguards for the Community in these respects appear to fall far short of the safeguards built into the United Kingdom system. It is understood that the European Parliament are giving consideration to the possibility of setting up a committee on the lines of the United Kingdom Public Accounts Committee. This committee would presumably be concerned with those matters to which I referred; namely, the need to check expenditure, the need to evaluate whether the funds have been properly used and the need to take necessary steps to prevent fraud or misuse of funds.

With respect to the need to ensure prevention and detection of this fraudulent use, it is proposed that the Audit Court will replace the Audit Board. Unlike its predecessor, the Audit Court will be comprised of full-time members engaged in a continuous audit, although the problem remains that a large part of the Budget expenditure is handled by agencies in Member-States and the control over them can be only tenuous to say the least.

May I now come to the recommendations of your Committee. I believe that effective national Parliamentary scrutiny and control of Community expenditure is conditional upon an improvement in an extension of the fiches finacieres. These, it is felt, should accompany all policy proposals and be in greater detail than they are at present. They should most certainly include the anticipated cost of a policy, the time-scale over which the expenditure would be incurred, and some indication of the risk element by which the actual costs may differ from the forecast and, where appropriate, some indication of the cost of the alternative options from which the proposed policy was selected. Your Committee would strongly recommend the formation by the European Parliament of a committee which will perform a similar role to that incorruptible and efficient body in this country; namely, the Public Accounts Committee. I firmly believe that the United Kingdom delegation are in a particularly strong position to assist in establishing such a committee and to advise on the manner in which it should operate.

It goes without saying that should such a Committee be established they must be given the fullest possible powers of investigation. It may seem to your Lordships, with some justification, that this has been a somewhat critical Report and even, you may feel, a slightly gloomy one. That was not my intention nor that of the Committee. I feel that the weaknesses which have come to light during our investigation should be made absolutely clear to your Lordships' House, for now is the time to make our influence felt and to correct some of the shortcomings, if that be possible, rather than leaving them to continue in the hope that ultimately they will solve themselves. I have always found that problems seldom solve themselves unless someone gives them a helping hand. Nor would I wish your Lordships to feel that this Report is in any way critical of our representatives in the various bodies of the Community. In fact, it is obvious that already they have made their influence felt to the benefit of this country in particular and the Community as a whole. I should like to express my appreciation and that of the Committee to all those people who came before us to give evidence, without whose help we should not have been able to produce this Report, certainly not such a comprehensive report. I should also pay tribute to the Parliamentary staff, and particularly to the Parliamentary secretariat and the specialist advisers we had at our disposal. They made a difficult task a great deal easier to cope with.

I am very glad to see in your Lordships' House the noble Earl, Lord Dudley. He took charge of a Sub-Committee A, which was responsible for this Report, right from its inception, and I had the great privilege and pleasure of serving under him. Indeed, I took over the "hot seat" only a few weeks ago. I should like to say that the foundations he laid during the period of his chairmanship of that Sub-Committee have stood us in good stead and will continue to do so as long as we exist.

May I end on a note of warning? We all know from personal experience how national and local expenditure has a tendency to increase. We have had ample evidence of this through the past decade. So far as I am concerned, I seem to remember this has happened as long as I have been taking an interest in such matters, and I am quite sure that all Members of your Lordships' House feel as I do, that we have lived with this all our lives. However, we must now take note of the fact that we are faced with a third tier of public expenditure, and one with the same characteristics as our problems. With our experience in such matters, I trust we shall make our influence felt, particularly with regard to regulation and control. I beg to move that the House takes note of the Thirty-fourth Report of the European Communities Committee on the draft EEC Budget for 1976.

Moved, that this House takes note of the Thirty-fourth Report of the European Communities Committee on the draft EEC Budget for 1976.—(Lord Mais.)

Lord HOME of the HIRSEL

My Lords, I wonder whether I could ask the noble Lord, Lord Mais, one question, which might help us in our future discussions this afternoon? It is about the important matter of the Regional Development Fund. I think I am right in saying that the noble Lord mentioned that the amount available was to be reduced from 400 million to 300 million units of account. I think he added that this was because there was a surplus left over from last year. It would be interesting to know whether that surplus existed because there were no projects from this country or any other country put forward in a form sufficiently advanced for funds to be committed. I have been interested for some time as to whether our industry was putting forward proposals for development in the regional areas and I wonder whether the noble Lord could enlighten us as to why the surplus is there.

Lord MAIS

My Lords, I wish I could enlighten the noble Lord on this point, but unfortunately it does not come within the ambit of our Committee. It is something which has concerned us and we have tried to ascertain why the 1975 Budget was increased by 600 million units of account and at the same time will finish up, or seems likely to finish up, with a surplus. I regret that I cannot tell the noble Lord the reason for that, but I shall do what I can to ascertain the reason and perhaps I might inform him outside the House of the answer.

11.36 a.m.

The Earl of BESSBOROUGH

My Lords, I believe that the Government will be able to give the answer to my noble friend's question and therefore I leave it to them, as the noble Lord, Lord Mais, has done. My noble friend Lord Amory has asked me to go into bat before him, for the very curious reason that he says he has nothing to say—which I cannot possibly believe. At all events, I shall try not to stay in too long, although perhaps the noble Earl will think that I should stay in as long as possible if I am any good as a batsman!

It is impossible to do justice, in one short speech, to a subject with which I have been almost continuously involved in the European Parliament since September. However, I hope that my few remarks will be helpful. If I am a little critical here and there of the Report of the noble Lord, Lord Mais, I should him him to know that overall I think he has done a very good job indeed on a subject of the greatest possible complexity. Therefore, I should like to congratulate him on having seen his way through this maze—my Lords, that word was used quite unintentionally—and I am grateful to the noble Lord for giving us this opportunity of discussing the Report. I am particularly grateful since I had the honour of leading the European Parliament's delegation at its meetings with the Budget Council of Ministers, especially on 22nd September, which is one of the meetings referred to in the last paragraph on page 3 of the Report. Also, I have since been deeply involved in Plenary and Committee discussions, almost continuously, as I have said. It has been something of a nightmare, but it is well worth doing, and indeed, it has to be done.

I must say at the outset that I am a little surprised that no reference is made in the Report to these exchanges of view between the Council and Parliament. There will be a further meeting between a delegation of the Parliament and the Council following our debates next week in Luxembourg, and I am glad that we are having our debate here today, before we have our debate on all the amendments to the Budget which are going forward next week. We shall be discussing some 100 amendments, both to the 1976 Budget and to the 1975 Supplementary Budget, which are being taken together and which Parliament may wish to adopt in Plenary. At all events, I feel that the timetable given at the top of page 4 might have included some reference to these meetings which have become part of the negotiating procedure. I recognise that they are not specified in the Treaty and are not well documented, so the omission is perfectly understandable.

As your Lordships know, meetings of the Parliament's Committees, and indeed meetings of the Committees with the Council, take place in private. There are, of course, advantages and disadvantages of meetings in private. Undoubtedly, Ministers and members of the Parliament speak more freely in private, and in that sense perhaps that is an advantage. On the other hand, the public are in consequence very ill-informed of the proceedings—much less well informed than they are of the proceedings of the Committees of another place or of your Lordships' House. The public simply do not know what is going on in Europe and what these procedures are which the noble Lord. Lord Ma is, has described so clearly. Nor do they know what a tremendous burden the dual mandate is on those of us who have to try to serve in two places at the same time. All the work which we do in those Committees of the Parliament, as the noble Lord, Lord Gordon-Walker, knows, is not reported. It is not known when we have spoken in Committees of that Parliament. Therefore, how can anyone know what is going on?

None the less, as I say, these meetings have become very important in the budgetary negotiations. The meeting on 22nd September, when I led the Parliament's delegation, was in fact confined to questions of general principle such as Parliament's margin of manœuvre, which the noble Lord has mentioned, in regard to compulsory and non-compulsory expenditure. We also discussed the obscure question of classification as between these two types of expenditure and also, I need hardly add, the undesirability of too many supplementary Budgets. On the question of the margin of manœuvre the President of the Parliament and, indeed, other Members of the Parliament considered that my delegation had made a breakthrough in so far as the Council—thatis to say, all the Ministers present—agreed that, whatever the figures established by the Council in the draft Budget, Parliament would have some 66 million to 78 million units of account as its margin for manœuvre, and I may say that the Budget Committee of Parliament hopes that 78 million will be the minimum sum.

As your Lordships know, in the case of non-compulsory expenditure it is Parliament, not the Council, which has the final word. The Council has now cut the overall Budget as proposed by the Commission from 8,000 million units of account to some 7,500 million units of account, a reduction of about 600 million. In these circumstances, it will be seen that it will not be possible, as the noble Lord indicated, with a margin of manœuvre of only 78 million, to reinstate on their own authority more than a small percentage of the total cuts of 600 million made by the Council. On the other hand, of course, Parliament may suggest to the Council that in the case of compulsory expenditure—which is almost entirely, as we have heard, agricultural spending, on which the Council are the final arbiter—the Council should make cuts; and one may hope that even in this compulsory expenditure they might go along with the views of the Parliament.

The amendments which will be debated in Plenary next week have to be discussed by the Parliamentary delegation and the Council when they meet again, probably during the following week. Then the whole question of priorities will have to be threshed out and decisions taken as to where cuts can best be partially restored. I was very glad to hear the Chief Secretary to the Treasury say last night in another place that he hoped the European Parliament would indeed exercise its powers and put back a part into the Social Fund. I was glad to hear that said by a Minister in another place. None the less, I feel I should take this opportunity to say what many of us have said in debates in the European Parliament; that the distinction between compulsory and non-compulsory expenditure is a nonsense which must be removed; and until it is removed we shall not have a sane and rational discussion on the Budgets.

In regard to what I can only describe as the indiscriminate cuts made by the Council, the result in my view has been a muddle. If one starts by saying that one is going to cut so many millions out, and then agrees that the major part of the Budget, over 70 per cent. of it, consisting of the agricultural appropriations, is to remain untouched—the"sacred cow", as we call it—there are bound to be injustices. I may say that in the course of protracted meetings of specialist Committees and the Budget Committee in the last fortnight, efforts have been made to reinstate some of the appropriations that have been cut. I hope that Parliament will adopt at least a reasonable proportion of these next week in Luxembourg, and that the Council will ultimately come to accept some of our modifications and reinstate at least part, not only of the Social Fund, but of the Research and Development Fund, the Regional Fund and the overseas development monies.

Despite these unsatisfactory aspects of Council decisions, I should emphasise that Parliament's relations with Council seem generally to have improved considerably. The meeting on 22nd September was especially friendly. All the Ministers recognise the increasingly important role which Parliament must play in the elaboration of the Budget, and on this occasion for the first time—it was an honour—the Parliamentary delegation, rather than being received somewhat cursorily by the Council, making their comments and observations on the Commission's proposals and then leaving the Ministers to take their own decisions, were invited, at my suggestion and that of the Rapporteur, M. Cointat, French Member of the DEP group, the Gaullist Group, to remain to discuss these matters of principle with all the Ministers. All the Ministers in turn gave their views which, by and large, fitted in quite well with those expressed by the Parliamentary delegation.

I should like particularly to say to the noble Lord, Lord Jacques, that his col- the Chief Secretary to the Treasury was especially co-operative and sympathetic with Parliament's views, especially in regard to the margin of manœuvre. If the timetable would permit it, I should like to see more frequent meetings between Council and Parliament. On 22nd September we were not, for example, consulted about all the proposed cuts. It is true that the Council will be present to reply to us in Luxembourg next week, but only the Chairman of the Council and not the other eight Ministers. It is very difficult for the Chairman of the Council to speak for nine Governments in a Parliament.

To return to the noble Lord's Report, although I am entitled to attend Sub-Committee A, I was able to do so only after this Report had appeared in proof form. I might otherwise have made certain remarks, which perhaps your Lordships will allow me to make now. First, I feel I should refer to the title page of the Report in which it is stated that it is the EEC draft Budget for 1976. The letters EEC stand for the European Economic Community, whereas this 1976 Budget covers all three Communities: not only the European Economic Community, but the European Atomic Energy Community and the European Coal and Steel Community.

Secondly, the document deals only with the preliminary draft Budget except for the last sentence on page 3. Thirdly, much of the document is taken up with general matters other than the 1976 Budget. I do not object to that, but I just remark on it. There are a number of other minor comments I might make, but will confine myself to very few. The fact that both the Council and the Parliament's Budget Committee needed extra meetings to go through the draft Budget shows the difficulty caused by the present timetable. The Select Committee rightly mention later in the document the corresponding difficulty in estimating for the year ahead, if the timetable is extended by beginning the budgetary procedure earlier in the year. There are difficulties both ways. Then, I would also point out that the first paragraph of the section, Background to Budget, on page 4, could have distinguished, perhaps, between the preliminary draft Budget; secondly, the draft Budget and then the Budget itself. The Commission's preliminary draft for 1976 was in many respects a policy-making document: the Council's draft Budget was not. Moreover, Volume 7 of the preliminary draft contains an attempt at forecasting up to 1978. Later, on page 5 the Select Committee take the opportunity to make a critical remark upon the working methods of the Council. There is, indeed, very little co-ordination between, say, the Aid Ministers and the Agriculture Council of Ministers.

Another point is that the last sentence of the first paragraph of "Background to Budget" states that the draft budget does not normally contain financial provisions for policies that are as yet unadopted. As has already been pointed out, this is correct for the draft Budget as established by the Council but not for the preliminary draft Budget. It should be added that the draft Budget does not necessarily contain provisions for all policies, especially when specific implementation of a general policy is concerned.

Perhaps the most important point that I wish to make relates to the section headed "Control of Expenditure". It begins with the sentence: If the budget represents no more than the financial consequences of Community policies already approved by the Council of Ministers…". My only comment can be: if only it did. So often a specific Council of Ministers agree on a regional or an aid policy, only for no specific funds to be made available in the ensuing draft Budget. The first four paragraphs of "Control of Expenditure" certainly make this a very valuable document which has been drawn up by the noble Lord, Lord Mais. I will certainly take the opportunity to discuss with the noble Lord one or two other minor points with which I do not wish to detain your Lordships this morning.

I hope that the noble Lord will forgive me for making one final remark. The Committee believes that the interests of the European parliament are unlikely to lead it to act as a restraining influence on total Budget expenditure. To my mind, it ill-behoves a Committee of the United Kingdom Parliament to make such a comment when public expenditure in the United Kingdom has increased from 45 per cent. to nearly 60 per cent. of the gross national product in the last 10 years. This year's borrowing requirement is at least £10,000 million sterling. To show that the European Parliament can act responsibly it is worth pointing out that last year Parliament deliberately chose not to spend all of its margin of mua. May I say that this year the same will apply; we shall not try to reinstate the whole of the 600 million. Under the audit of the Budget, the Committee might have mentioned that the Treaty setting up the Court of Auditors is currently being ratified, and we hope that the European Parliament's Public Accounts Committee will direct the detailed work of the court. When the noble Lord, Lord Jacques, replies to the debate I shall be very interested to know when he expects the court to be set up.

In the section dealing with the United Kingdom contribution, it is odd that there is no reference to the famous correcting mechanism which was one of the bargains we came to before the Referendum campaign. In my view, it was a condition of our entry at that time. I consider that all Governments must be committed to this correcting mechanism, although a number of them do not like it very much and think that another kind of compensation should be substituted for it if a country is in a particularly difficult economic situation. But that is also a complex matter which I shall not go into this morning.

Finally, if I may be so bold as to say so a committee of a national Parliament might be better advised to comment on the general direction of Community spending rather than to involve itself in budgetary procedures. These are, I believe, better handled by the European Parliament which I hope will make amendments to them. That said, as I said at the beginning I think that the noble Lord has found his way through the maze remarkably well.

11.55 a.m.

Viscount AMORY

My Lords, in addition to the reason given by my noble friend Lord Bessborough for my reluctance to rush into a speech on this subject, there may have been another one. It is the habit that I developed over two or three years in another place some years ago of extreme reluctance to speak about a Budget unless I had a glass of stimulating drink on the Dispatch Box in front of me. There is no liquid within my reach. As for the only drink that I can see on the table there, my lethargy has not reached the point where it would usefully stimulate me!

The noble Lord, Lord Mais, has delivered an exposition on the main problems that appear to arise from the present stage which the management of the Community budgeting has reached, and a very clear and lucid explanation it was. My noble friend Lord Bessborough has given us a most interesting account of how the problems look to a member of the British delegation to the European Parliament. Your Lordships will know the very leading part that my noble friend Lord Bessborough plays in that Parliament. I am very glad that my noble friend Lord Dudley is to speak because I so much agree with what the noble Lord, Lord Mais, said about the excellent chairman that the noble Earl made when he presided over our Sub-Committee.

As a member of the Sub-Committee who is not otherwise in touch with Community affairs I wish only to underline two or three points that have already been so well made. On this particular day I must not attempt to start too many hares. Your Lordships now know why my speech will not be a very important one! From the Report which we have been discussing it will be clear to noble Lords that your Committee are concerned that Community budgeting has not yet reached a stage which can be considered in the least satisfactory. Although continuous efforts obviously are being made to improve the system, as yet there is little evidence of any overall Budget control. Even in this country where we have been grappling with Budget problems for a very long time, few of us will maintain that we have yet got the measure of some of the problems which arise, particularly in times of rapid inflation. In the Community these problems are still at a much earlier stage of development and the imperfections stand out starkly.

One dominating question seems to be who is responsible for what one might call the policy aspects of the Budget and for overall control. Since the European Parliament has control over only non-obligatory expenditure—currently, as my noble friend Lord Bessborough said, a very small percentage, and even then only within limits—the most responsible body of overall control at present must be the Council, perhaps acting through its Budget Committee. As the noble Lord, Lord Mais, said, the members of that Council are national Ministers who individually have interests as spenders and in practice that may not prove to be very effective control. The Council is rather like a Cabinet with no Minister of Finance or Chancellor of the Exchequer present. May I say from my limited experience that when the Chancellor of the Exchequer was not present in Cabinet sheer disaster inevitably and invariably ensued. As has been said already, with its currently accepted responsibilities the Budget Committee seems to be limited almost entirely to ensuring the financial consequences of known policy commitments which have already been accepted by the Council and setting them out.

One must question, therefore, who exercises effective control over financial policies as a whole. Nor can one feel that as at present advised the Budget can be in the least an accurate forecast of what in fact will be spent. A number of factors, including the timetable, which I imagine is likely to prove a permanent headache to the Community; the nature of most of the obligatory expenditure and in particular agricultural support (I think 70 per cent. of the total Budget at the moment) make it certain that supplementary Budgets will be a regular feature, Again, if I may mention it as a former Minister of Agriculture, I have painful recollections of the difficulty of forecasting the cost of agricultural support. With the best will in the world something unpredictable occurred—generally it was something to do with pigs, but I do not think that would necessarily be so in the present case. Today grain might be more important.

There have been four supplementary Budgets already this year. In our own Parliamentary procedure, supplementary estimates are a continuing problem and, I think, a great weakness in the way of our system of control. Incidentally, I always thought that the Ministers in the other place got away with their supplementary estimates with astonishing ease —probably with greater case than they should have done—but they are a great handicap to Parliamentary control, and in the context of the EEC system they are likely to be a very great and continuing problem.

Obviously the ideal time, the right time and perhaps the only time, at which expenditure can be controlled is at the time when the policies giving rise to expenditure are adopted. There is never another opportunity anything like as hopeful as that, and that is true of our system, too. That makes improvement of the system of the fiches financieres really urgent. I do not know what your Lordships feel, but I feel that under our procedure the financial memorandum which accompanies draft Bills deals with the expected cost; but from my experience those financial memoranda too often grossly underestimate the resulting cost and often are hardly worth the paper they are written on. I think that illustrates the difficulty of the problem. Without efficient fiches financieresthe present system will mean that Council Ministers will be operating completely in the dark as regards the total Budget and until obligatory and non-obligatory expenditure are effectively classified as between the Council and the European Parliament I would respectfully suggest that the members of the European Parliament will also be operating in the dark.

In the meantime, one cannot help hoping that, as has been said, the European Parliament may look favourably on the idea of something like our Public Accounts Committee, which, noble Lords will agree, although very rough and ready has a lot of achievement to its credit. I should like to join in the tribute that has been paid to our professional advisers, our staff and those who have given evidence to us. I think the noble Lord, Lord Mais, will agree that the sub-committee could not have been better served in those respects.

Although inevitably it may seem that we are criticising a good deal of the EEC system of budgeting at the present stage, bearing in mind the relatively short period in which the EEC has been in existence, the obvious difficulty of reconciling the views of the members of the Council, being national Ministers, and the recently expanded size of the system, I suggest that there are no grounds for surprise if progress proves rather slower than might be desirable. I feel that one gets the impression of a system that is not unconscious of its imperfections and is trying to adjust itself increasingly to realities. If the relations between the European Parliament, on the one hand, and the Council and the Commission, on the other, can be kept amicable and constructive, there are surely good hopes that ways of introducing further practical improvements may continue to be adopted, even if perhaps in the words of, I think, Mr. Baldwin, "with the inevitability of gradualness".

12.5 p.m.

Lord BANKS

My Lords, may I say how much I have appreciated the thorough explanation of the sense of the report which was given to us by the noble Lord, Lord Mais. The Report itself I found most valuable, both for the information that it contains, the comments that it makes and for its two recommendations for scrutiny and control of Community expenditure. I have listened with great interest to the contributions of the two noble Lords who have spoken from such great experience, the one of the European Parliament and the other of the conduct of financial affairs here at home. Following them I offer my own views on the subject with some diffidence.

We learn from the Report that the amount of the Budget is equal to 0.57 per cent. of the Community GNP, a total of about £3,300 million, and I think we get that sum into perspective if we compare it with the £4,800 million which we in this country pay every year in retirement pensions alone. So for a Community of nine nations and of 250 million people it is not a large sum. As has already been said, expenditure on agriculture accounts for over 70 per cent. of it and this is undoubtedly a very lopsided position, but the Common Agricultural Policy is being reviewed. This may well lead to a change in policies, but whether it will lead to any saving in money remains to be seen. But as other policies develop, as the Social Fund and the Regional Fund expand, so a better balance in the overall Budget will be established.

This must inevitably lead to considerably increased expenditure; I think we must face that fact, and indeed welcome it. But it raises the question: is all this new expenditure to be in addition to national Government expenditure or will some of it, or much of it, replace national Government expenditure? Reference has already been made to the high percentage of the national income and the gross national product which is taken by the State in our own country; and a high proportion is taken in the other Community countries as well. In fact the problem in our national States, and certainly in our own country, is that we are moving into a period of "public squallor" to take half of Galbraith's famous phrase, because we cannot find the money for so many important public activities and services—for hospitals, schools, railways, social services. At least we cannot do it at the present limit of growth.

It seems to me that some of the Brussels expenditure must be replacement expenditure as certain functions are transferred from the national level to the Community level. This controversy has arisen over the Regional Fund where the Government have been criticised because they have been thought to be seeking to use the money from the Regional Fund to cut down on what they would themselves spend on regional policy. I think that criticism is justified because, quite clearly, to do that is to defeat the object of the Regional Fund, which was to get projects under way in the regions. In my view there is no doubt about that. But if the Regional Fund in fact became the main instrument of regional policy, so that instead of providing about 8 per cent. of the amount that we ourselves spend nationally on regional policies, it was ultimately providing the bulk, then, in those circumstances, I think the expenditure would be replacement expenditure. At the moment we are getting a small but welcome addition, and it is not to be used as relief for national Exchequers. But we have seen some replacement of expenditure with the adoption by this country of a Common Agricultural Policy. Although we contribute to that, we no longer have to pay deficiency payments in the way that we used to do.

My Lords, the Budget as first presented by the Commission increased expenditure by 29 per cent. When we take into account inflation, and also the fact that this is inevitably an expanding and developing institution with policies which are getting off the ground only in special spheres, that does not seem to me to be an unduly high increase. But the Council have taken the view that the economic situation makes it necessary to contain the growth of public expenditure, even of this comparatively small addition, as I pointed out earlier, to the expenditure of Governments which the Community Budget makes. So the Council has looked very closely at all proposals for additional expenditure.

As has already been mentioned, the consequence is that a number of apparently arbitrary cuts have been made. The Social Fund has been cut by 20 per cent., although again, as has already been stated, the agricultural expenditure is left intact. I very much hope, as other noble Lords have said, that Parliament, which has the power to increase within limits non-obligatory expenditure, will restore the cuts made in the Social Fund, particularly because of the implications of the Social Fund for the assistance of the unemployed. If there is to be an eventually greatly increased Community expenditure, then the control of expenditure becomes all the more important. I very much hope that the proposals now set out in this Report will be taken up and put into effect. I am encouraged to learn that something has already been done about one of them.

My Lords, if the Community policies are to develop as I have foreseen, and if they are to replace to some extent national policies in certain fields, then there has to be a very strong commitment on the part of Member-States of the Community to the concepts of economic integration and political union. I think the impression has been given, and I would not want to go into it today, that the British Government are less than whole-hearted in their support for those two concepts. This impression has arisen over energy, direct elections and from the Regional Fund. Therefore, my final word is a plea for the Government at the earliest possible moment to make clear beyond doubt, in both words and deed, their unreserved support for these twin aims of economic integration and political union.

12.14 p.m.

The Earl of DUDLEY

My Lords, I should like to thank the noble Lord, Lord Mais, and the noble Viscount, Lord Amory, for their friendly remarks and to congratulate the noble Lord, Lord Mais, on guiding us with such ease through what I must now, in order to avoid plagiarism, describe as the labyrinth, and say that if he found at the other end the minator in the shape of the noble Earl, Lord Bessborough—the product of John Bull and Europa—I hope he will agree that the goring was not too savage, and that he will find a suitable opportunity later if not to dispatch him, at least to vault successfully over his head!

My Lords, the Report of the Select Committee is a document to which I give my warm support. I should like to emphasise, in support of my former colleagues and of the noble Lord, Lord Mais, the labours which underlie the production of such a Report for this House, particularly in the case of a monumental subject such as the Community Budget. I also recognise the concern of the Government to fully consult Parliament on Community policies and matters. When they first took Office last year, the processes of consultation were in their infancy. I must say that they have been at pains to remove any delays or difficulties which accompanied the development of that process.

This said, it has not always been very easy for the Scrutiny Committees to seize upon Government policy—indeed, where Government policy on Community matters has existed. The Explanatory Memoranda which accompany Community proposals are generally clear, concise and comprehensive, but they tend to be non-committal about Government policy. Evidence from the Departments is nearly always first-class; but here again, there are limits on disclosure beyond which the expert witnesses do not feel able to transgress. The scrutiny of the Budget proposals I believe has been as thorough and comprehensive as possible against a background of what the Parliamentary Rapporteur at the European Parliament—whom the noble Earl, Lord Bessborough, will remember and to whom he referred—called the infernal timetable of the Budget. The Explanatory Memoranda were published in September and October, but they give no clue to Government policy. The Select Committee's Report necessarily directs itself to the scope and content, to the nature and merits of the Budget rather than to Government policy.

My Lords, at times the Government are somewhat ambivalent in their attitude towards Community proposals and policies, but they have expressed quite positive views about those policy areas which are of immediate concern to them. In March of this year the noble Lord the Lord Privy Seal in his Statement to this House, when he repeated the recommendation of the Prime Minister to vote "Yes", made a Statement setting out quite clearly certain objectives of the Government in respect of the Community. I should like to make one or two quotations from that speech which appears at cols. 626 to 630 of the Official Report for 18th March last. The noble Lord the Lord Privy Seal said: Objective One: Major changes in the Common Agricultural Policy so that it ceases to be a threat to world trade in food products, and so that low cost producers outside Europe can continue to have access to the British food market. The noble Lord asked for measures to discourage surpluses and to give priority to Community consumers in the disposal of any surpluses which arose, and also for the improvement of financial control. He then went on to explain some of the steps which had already been taken to secure these objectives. The noble Lord said: Then there is the recent practice that any surpluses which do develop are run down by cheap supplies to Community consumers rather than being unloaded on world markets…On the objective of 'improved financial control' some progress has been made—better estimates of costs and budgetary implications of new proposals, tighter monitoring of expenditure….". Finally he said: …it rapidly became clear that we could best secure our objectives not by seeking to overturn the system of financing the budget from 'own resources' but by correcting its unfair impact by a mechanism which would provide a refund to us This is, of course, the corrective mechanism to which the noble Earl, Lord Bessborough, made reference.

I must truthfully say that I can find nothing in the 1976 draft Budget which can be accepted as better estimating of cost than the previous year, especially as regards the Guarantee Section of the EAGGF. On the contrary, one could infer from the Explanatory Memorandum of the Council, on pages 18 and 19, that there has been some lowering of the standards of cost-estimating, in that all attempts are now being abandoned to provide for adjustments of agricultural prices, in that the expenditures required to meet these are unforeseeable. It goes on to say that the financial repercussions—and I note carefully the word "repercussions"—must, therefore, be reflected in the adoption, where necessary, of a supplementary Budget. I should like to ask the noble Lord opposite whether he thinks that these words mean that this large appropriation, some £2,500 million, is, as of now, an open-ended commitment? Does he accept this view?

We are told by the Council and by the Government that there is no way of forecasting expenditures which may stem from decisions to be taken by the agriculture Ministers next Spring, no way of predicting the outcome of the harvest when the Budget is established, no way of forecasting the agricultural price changes that may be required. If so, then surely the commitment is open-ended. The forecasting error for farm expenditure last year was over 10 per cent. of the draft Budget, and represented over 50 per cent. of Britain's total budgetary contribution. If the commitment is open-ended, I think the noble Earl, Lord Bessborough, and noble Lords, would agree that this is not an acceptable or prudent arrangement, and I feel that the Scrutiny Committee are right to refer to it, because, after all, their main concern is the mote in the Community eye rather than the undoubted beam in our own eye. If it is not open-ended, where is the limitation? Not in the votes on the supplementary Budgets, because they are passed after the policies have been agreed. I am sure the House will welcome the noble Lord's views about this dilemma when he replies.

My Lords, I am minded to make the suggestion that, in a Community where agricultural policy plays such a large part in determining total expenditure, the calendar year may not necessarily he the most appropriate accounting period. I do not wish to tread on the noble Earl's ground, but I should like to ask whether agricultural policies could be determined somewhat earlier after the harvest, perhaps in December or January, and the Budget established in February or March for an accounting year commencing in June or July. This would have the added advantage that the budgetary scrutiny procedures could go forward at a time when Parliament is sitting. What special merit is there in the calendar year for the Community, and what disadvantage in my suggestion, apart from the Treaty Amendments?

The Report suggests five further categories of expenditure, as follows: the Commission's running expenses, comprising by my calculation just under 5 per cent. of the total Budget; the Regional Fund, now adjusted at 4 per cent. of the established draft Budget; the Social Fund, representing nearly 5.5 per cent. of the Budget; research technology and energy, 3.2 per cent; and food aid now reduced to 2.87 per cent. of the Budget. All these categories together amount to 20.05 per cent. of the Budget. In monetary terms they total £700 million out of £3,500 million. Control over much of these proposed expenditures now lies with the European Parliament, limited only by ceiling increases on last year's appropriations which require the agreement of Council. The total of these so-called non-obligatory expenditures is confused by a dispute between Parliament and Council over the stages of the Regional Development Fund to which reference has been made, and, dependent on the outcome, Parliament has the last word either over 12 or 16 per cent. of the total Budget.

The policy areas where the European Parliament has financial control have been enlarged by the establishment of the "own resources" system and by a gradual strengthening of the budgetary powers of Parliament, and this process is likely to continue. My next point is that, despite the increase in its budgetary powers, Parliament continues to play only a consultative role in the legislative process. It is, therefore, in the peculiar situation of having financial control over policies on which it will have been consulted but with which it may disagree and which it has not established. Again, I hesitate to tread on the ground of the noble Earl and his colleagues, but I shall make a suggestion here which I believe to be one at least of interest if net of value. Also, as I think the noble Lord, Lord Mais, said, it is likely to be in Parliament's interest—and I am talking of the European Parliament—to strengthen the financial base of those policies which it supports even when in times of financial stringency the Council has second thoughts about them.

This is happening now in respect of those non-obligatory expenditures which the Council has thought it prudent to prune in the present economic climate. I suggest—this is my point—that there is a strong case for establishing an institutional link between Council and Parliament by enabling the European Parliament to participate directly in the legislative process. I venture to put forward to you, my Lords, and to the noble Lord opposite, that Parliament should be accorded the right to send a representative to each of the main Council meetings, drawn from the major political groupings in the Assembly or from large combinations of smaller groups. The representative would have the right to vote, but his votes would be geared to Parliament's budgetary parameters; that is, not exceeding 15 per cent. of the total national votes, or nine votes. They would represent Parliament at Council meetings covering the main policy areas of trade relations, agriculture, development, transport, finance, including the Budget and the environment. This is a controversial suggestion. It would require Treaty amendment, but I am confident that it would result in a smoother and accelerated passage for the Budget through the various stages, since the European Parliament would feel itself more closely involved with the legislative process and therefore less prone to wield the financial bludgeon as the only means of asserting its rights.

As the noble Lord, Lord Banks, pointed out, the Select Committee's Report calculates that the draft Budget is only just over 0.5 per cent. of the total gross national product of the Community. Because of the importance of the CAP, one cannot say it has no effect on the Community's economy; indeed because of the CAP it must have a very considerable effect on the agronomy. But its general effect on the economy must be slight. I believe that there is need for a more powerful and effective monetary instrument of economic policy in the Community dimension, and that it is in Britain's interest to press for this rather than to stand away from it. This is not the time to say more, except that I should like to see the Community Budget dovetailed into a wider economic and monetary framework. The CAP would then take its place alongside other important policy areas, such as the needs of industry and full employment. This development need not be in anyway a substitute for national initiative and policies but rather supplement and further co-ordinate them. I hope the noble Lord and his colleagues will bear these considerations and suggestions in mind when they consider the stocktaking report on the CAP and the United Kingdom's budgetary contribution.

Finally, I should like to support the comment of the noble Earl, Lord Bessborough, on the corrective mechanism, for which one notes that there is no provision made in the Budget. We understood from previous Ministerial statements that this formed part of the budgetary element of the renegotiation discussions. Can the noble Lord say whether the correcting mechanism is expected to be applied in 1976 to the United Kingdom or any other Member-States' budgetary contribution and, if so, how will it be paid for? Presumably, there will be a general readjustment of budgetary contributions, but would this be made effective and binding by a supplementary Budget? It would be helpful to have the noble Lord's views on the anticipated outcome of the proceedings. In respect of the Budget, I have read volumes, and I hope I have not spoken to too many of them this morning. It reflects my interest in, rather than my superficial knowledge of, this voluminous subject.

12.31 p.m.

Lord LEATHERLAND

My Lords, I did not put my name on the list of speakers, so out of courtesy to the House I shall be brief and merely apply myself to one point. First, I ought to say how indebted I believe the whole House is to my noble friend Lord Mais for having introduced this subject for discussion this morning. I also feel grateful to the many other noble Lords who have spoken and who have, from their inside knowledge, given us an idea of how the wheels go round at Brussels and Luxembourg when the EEC Budget is being prepared.

I want to look at this subject from the outside, as a keen supporter of the Economic Community, but one who feels himself unhampered by all these technicalities of budgetary control. When I looked at the Report that has been placed before us, it struck me that farm spending overwhelms the rest of the statistical survey that is given to us in the Report. In the past year, the Budget estimate was 4,500 million units of account, but it will turn out to be 5,000 million, and in the coming year will be 5,500 million; that is, roughly £2,300 million. I should like to know how much of this went to France. I should also like to know how much of the total Budget goes to the benefit of France, directly and indirectly, and how much France pays to the EEC in return. We should probably find that France is turning out to be the great beneficiary under this scheme, quite apart from the way the activities of France have forced up the price of food to the British housewife.

Apart from what was said by my noble friend Lord Mais and others as to the desirability of giving the Council of Ministers and the European Parliament more control over the details of the technical budgetary activities, and how they are to try to stamp out some of the fraud that is undoubtedly being perpetrated by bogus imports and exports across frontiers in Europe, I should like to see a fundamental reform in the whole policy and in the whole finances of the Economic Community. If we are to pay money to support the farming of France, I think that France and others should pay more to support the industry of this country. That is all I have to say.

12.34 p.m.

Lord REAY

My Lords, if noble Lords will bear with me, I should like to say a few words, not so much to follow the noble Lord, Lord Leather land, or my noble friend Lord Dudley, who made some interesting radical proposals which will certainly require study, but more to take up a point made by the noble Lord, Lord Mais, and to some extent some remarks of the noble Lord, Lord Banks, earlier in the debate.

The noble Lord, Lord Mais, made a most thoughtful, fair, and well-informed speech. He based his general argument and approach on the need for economy in public expenditure, and he analysed the Budget and the cuts that have been made in it, and what our attitude should be in the light of that approach. It is important to distinguish between real and unreal saving in public expenditure. The size of the Community Budget, and any increases in it, do not directly reflect increases in public expenditure. For example, a 50 per cent. increase in the Community Budget would certainly not mean a corresponding increase in the public expenditure of the Member-States. The reason is that there is enormous scope for expenditure to be transferred from a national level to a Community level—and this is taking up the point made by the noble Lord, Lord Banks—or for new expenditure to be started at a Community level rather than a national level.

At the moment, as has been pointed out by several speakers, some 70 per cent. of the Budget is on agricultural policy, because of course there is a Common Agricultural Policy. But the Budget would be far larger if there was a common energy policy; if there was a common policy towards developing the countries outside the relationship which has been established with the ACP countries; if there was a common social policy; if there was a common regional policy and so on. Therefore, the size of the Budget does not give an indication only of the rate of Government expenditure, but also of progress which is being made on the Community level.

Undoubtedly, the Council approached the Budget in a very similar way to the approach of the noble Lord, Lord Mais. They saw it as giving an opportunity for them, on a symbolic level at least, to make what would appear to be cuts in the rate of increase of public expenditure. But I have some doubt as to their sincerity in this matter. I think that, probably, they do not wish to cut, or rather to impede the progress of the development of common policies, where they have already agreed in principle that there should be such common policies; and I suspect that there will be a supplementary Budget, and that they know that there will be. I think that the cuts have been made to give a rather false impression of a willingness on their side—perhaps I should withdraw the word "false" —to effect savings in public expenditure, and that is about all.

In saying that, I do not say that the approach of the noble Lord, Lord Mais, is wrong. I think rather that there is a missing factor in it. It is vital to keep a sharp eye on the expenditure of the Community, and to do everything possible to see that the development of the Community does not give a further impulse to what is one of the evil tendencies of our time; namely, for Government expenditure to run away with itself. This is something which could easily happen, and there are certain features essential to the Community which encourage it. It is also important to bear in mind that the Community, and Community common policies, cannot be developed without the Budget becoming a more important and larger instrument, and that when, for example, we in the European Parliament's next session seek, as we shall do, to restore in the Budget cuts which have been made by the Council in energy research, in the social fund, in the regional fund, in food aid, in aid to non-associated countries, it will be done because we believe that the Community should develop common policies in these fields, rather than because we do not feel, or do not share, the anxieties which the noble Lord, Lord Mais, has expressed about the growth in public expenditure.

12.40 p.m.

Baroness ELLES

My Lords. I join with other noble Lords in thanking the noble Lord, Lord Mais, for his lucid report and for the clear manner in which he introduced this Motion. We all know that it is an extraordinarily complicated matter and for those of us who are no longer involved or concerned with budgetary control in the European Parliament to have to read through a considerable number of volumes is quite an undertaking, and I am grateful to the noble Lord for having expounded on this matter so skilfully and helpfully. His Motion has given us the opportunity to discuss Community matters which are of direct interest to the pockets of the citizens of this country. This is a subject which we in this House seldom have an opportunity to debate, and for this reason in particular it is welcome.

We must realise, from the tenor of the Report, that it shows that the Community is still a very young institution and that we are even younger Members of that institution; and further it is clear that the Community is really only feeling its way at the present stage in order to develop more acceptable procedures and practices which will enable the Nine Member-States to co-operate together to settle their financial programmes for the coming year. We know that it is bad enough on a national level, and where there are Nine Member-States with varying interests and even with varying rates of exchange and varying rates of inflation, to mention only a few of the imponderables, we can be well aware of the many difficulties with which the Council is faced.

I join with my noble friend Lord Bessborough in saying that it would have been more helpful if the Scrutiny Committee could have given us a report on the draft Budget as opposed to the preliminary draft Budget, and perhaps another year, taking into account of course the complicated timetable procedures and the heavy workload, we could have a report from the Scrutiny Committee on the draft Budget. As the noble Lord rightly said, the preliminary draft Budget is not a policy document, but by the time it becomes a draft Budget it to some extent revealing either the policies of the Council which will be effective in the following year or those policies which will not be decided on in the following year. For this reason it would be helpful, for a debate of this nature, to have further information. As President Rumor in the European Parliament stated in October, even the draft Budget is not the final document; letters of rectification, amendments and modifications will be debated in the coming Session of the European Parliament next week, so even with the draft Budget we shall of course, not be discussing the final document, and we should bear this in mind when talking about some of the figures involved.

I wish from these Benches to say how much we welcome the improvement both in the presentation of the draft Budget and the procedures connected with its presentation. We congratulate most warmly the noble Earl, Lord Bessborough, on the task he undertook, and I will read his full title because it is most impressive: Chairman of the Parliamentary Delegation to the Council for Consultation on the 1976 Budget. Knowing my noble friend Lord Bessborough so well, we know that it is not only due to his personal charm but also to his toughness that such conciliatory procedures were enabled to be undertaken with the Council, and they have gone a long way towards the more satisfactory and more pleasant climate, if I may call it that, in which the draft Budget has been presented and will be coming to the European Parliament next week.

There are some other improvements to which I draw your Lordships' attention. There seems to have been at least some measure of agreement on what is compulsory and non-compulsory expenditure. Certainly there does not seem to be the antagonism that there was last year. Further, the draft Budget seems to have been more on time this year; the rush with which the European Parliament committees had to discuss amendments and modifications has been obviated to some extent. We, particularly on these Benches, are of course very pleased with the setting up of the Audit Court; this was not wholly but almost wholly due to the efforts and activities of members of the European Conservative Group during the first year of entry. The necessity to set upan Audit Court was realised very early on, particularly by those members of the European Conservative Group who are accountants, and their recommendations were accepted. Thus, we are delighted to know that there has already been an amendment to the Treaty to this effect, which I understand has been signed by all Member States but has not yet been ratified. Perhaps the noble Lord, Lord Jacques, will tell us if and when it is the intention of Her Majesty's Government to ratify this amendment so that the Audit Court may be set up at the earliest opportunity, because it will undoubtedly play an effective role in the financial procedings of the Committee. We also of course welcome the setting up of a Public Accounts Committee by the European Parliament. This is undoubtedly a necessity as a measure of control, as is rightly pointed out in the Thirty-fourth Report.

I shall refer briefly to some inherent difficulties which we see both in the timetable and the procedures for establishing a draft Budget. Considerable mention has been made of the CAP and the difficulty of forecasting figures. If one were to look at it from a very personal point of view, these figures would really be farcical because they cannot bear any relation to the needs and facts of the coming year, with the rapid changes in world prices, the effects of the weather on harvests, and so on, and other effects on production in general. In this connection, I was interested in the suggestion made by my noble friend Lord Dudley as to the timing of the draft Budget, and I wondered whether, in this regard, the agricultural figures might not be better settled after rather than before the annual Farm Price Review. I do not know whether this would be acceptable, but it is an idea that might be considered in relation to establishing more realistic figures for CAP. Then we must take into account the changes due to rectification before December and I understand that already one has been recorded for example, the financial aid to Portugal. This is another complication with which we are faced.

Considerable anxiety has been expressed about the need for supplementary Budgets. In another place last night, it was firmly stated by Mr. Michael Shaw that supplementary Budgets should be established only if they are unavoidable or unforeseeable. Whether or not this is realistic remains to be seen because, as we know in national Governments, there are supplementary Budgets and Affirmative Resolutions of all kinds which increase expenditure without having to go through the form of a formal Budget; it is questionable whether, with rising costs and rapid inflation, it is possible in this era to go without supplementary Budgets.

However, I wish to put forward a proposal, and at the same time strengthen suggestions made elsewhere, that more use should be made of Chapter 98 which provides for non-allocated provisional appropriations; that is, we can have some money put aside for future expenditure, but it can be transferred to another Chapter during the course of the year. At least a total limit would then be fixed by the Member-States before the Budget is accepted, and this might be helpful. Then we have the problem of Council decisions which have not yet been made, but which the Commission has contained in its programmes. Here again we must ask whether Member States are not sometimes dragging their feet on these decisions, although they have been contained in programmes which have been proposed by the Commission and accepted by the European Parliament. This, of course, touches to some extent on the Regional Fund.

In this connection, I remind noble Lords of the words used by Mr. George Thomson in the European Parliament when he said, … the overall scale of the Fund was set at 1,300 m. u.a."— that is, 1,300 million units of accounts, over three years to be committed in stages of 300 m. this year … 500 m. next year and 500 m. in the final year. He added, Perhaps fortunately, for the Community's regional development policy these decisions were taken by a Summit Meeting of the Heads of Government, and they therefore stand outside the current budgetary argument. So I wonder on what basis Member-States have agreed to cut the item for regional development in the draft Budget. It was cut from£450 million to £300 million, but that does not seem to be in accord with the remarks of Mr. George Thomson in the European Parliament. Perhaps the noble Lord, Lord Jacques, will be prepared to answer that question. Another inherent difficulty which I feel has not been satisfactorily answered is the question whether items can be carried forward from one year to the next. If an item has not been fully expended, can the amount which is left over be carried forward? Perhaps the noble Lord could also comment on that point.

I should also like to add a few words on the contents of the Budget. Much has already been said about the CAP, so I will not comment on that, but I should like to draw the attention of noble Lords to Chapters 500 and 510 in relation to the Social Fund. Although the Social Fund has been cut quite heavily this year, there is provision to deal with unemployment; and, in particular, I was very pleased to note the provision to help young unemployed under the age of 25 and those who are entering employment for the first time. This is a departure from the original statement by the Commission last year, when it said that it was able to help only those who had been employed and were becoming unemployed. As I understand the heading in the draft Budget, there is now specific provision for those young who have not yet undertaken employment. I find this very welcome.

With regard to the Aid Fund, which I believe concerns most of us very considerably, we should like to see the margin of manoeuvre used largely to help those Commonwealth Asian countries which are not assisted through the EEC or the Lomé Convention. That would be in accordance with the agreement at the time of negotiation in 1972–73. According to the joint declaration of intent which was annexed to the Treaty, it was intended to give special consideration to the trade policies of the independent Asian Commonwealth countries. As we know, these include some of the poorest countries in the world. We should like to see some of the cuts in aid to these countries restored in the draft Budget and included in the Budget before December.

Finally, in settling these very many and difficult financial considerations, we hope that the Government will be able to settle them in a Community spirit which will enable them to solve many of the other problems which face this country. We believe that by joint and co-operative effort in the financial field in the Community, we shall be working towards closer co-operation and integration.

12.53 p.m.

Lord JACQUES

My Lords, I should like first to thank my noble friend Lord Mais and his Committee for the Report which they have submitted. They have had an enormous task in going through the voluminous documents in a very short time, and they have produced a Report which is a model of conciseness. I should also like to congratulate my noble friend on his exceptional contribution to today's debate, and say that the whole of the debate has been of a very high standard. I was, however, intrigued by my noble friend's final point, that during his lifetime our public expenditure had enormously increased. He seemed to be implying that we had completely failed to control public expenditure but, nevertheless, he appeared to believe that our experience would help the Europeans to control their public expenditure. I should also like to congratulate the noble Earl, Lord Bessborough, on leading the deputation from the Assembly to the Budget Council. The Assembly can be sure that it has a man who will state his views on its behalf with vigour and persistence.

For the benefit of those of us who are not directly associated with the Community, I should like to say a little about the nature of the EEC Budget and the procedures used in arriving at it. The EEC Budget bears little or no resemblance to our own Budget. Ours is substantially concerned with the raising of revenue to meet the expected expenditure. The revenue aspect in the Community Budget is of relatively minor importance. It is an exercise in forecasting the amounts which are likely to be forthcoming from certain predetermined sources, and in calculating the remaining balance which will be needed from the Member-States. It is primarily an exercise in forecasting the financial consequences of existing Community policies, and it is necessary to provide authority for expenditure on those policies. Therefore, it is substantially different from what we understand by a Budget in this country.

The Commission submits its forecast of the financial consequences of existing Community policies in the form of a preliminary draft Budget which is submitted to the Budget Council. This is a Council of Finance Ministers, and in considering the preliminary draft the Budget Council votes by qualified majority; that is, each of the four major States in the Community has 10 votes and the others have two, three or five votes, as the case may be. The total of votes is 58 and the majority is 41.

After the Budget Council has considered the preliminary draft and made any amendments it wishes, the draft is passed to the Assembly and, for the purposes of its consideration, the Budget expenditure is divided into two kinds. The first is the obligatory expenditure which is said to be that which necessarily results from the Treaty. So far as that expenditure is concerned, the Assembly can recommend modifications but that is the limit of its power. The second part of the expenditure is the non-obligatory expenditure, which, at the present time, consists of administrative costs, the Social Fund and expenditure on research and investment. Here, within certain strict limits, the Assembly can amend and, indeed, have the last word.

When the Assembly has completed its first consideration of the Budget, the latter is returned to the Budget Council and the Council then makes the final decision so far as the obligatory expenditure is concerned. If there have been modifications proposed, it decides whether to accept them and, if amendments to the non-obligatory expenditure have been made, the Budget Council gives its views on those amendments. The Budget then goes back to the Assembly and the latter makes the final decision so far as the amendments to the non-obligatory expenditure are concerned In due course, the President of the Assembly declares the Budget to be adopted.

As regards the 1976 Budget there are two strands influencing the Council's attitude. First, it has continued the practice of recent years of providing only for policies already adopted by the Community. There is no excess provision. It is contended that by this method the special Councils—such as the Agricultural Council and other Councils of Ministers —are subject to the discipline of needing supplementary Budgets. But I should imagine that the position in the Community is very much the same as the noble Viscount, Lord Amory, explained it was in this country, when he said that he thought Ministers in the other place rather easily got their supplementary Budgets. I should think that it would be the same here.

In order that the Member-States should have more reliable data on which to work, I should have thought that it would be possible to provide for some kind of surplus within the Budget, but a surplus which could be spent only on somebody's authority; the authority of the Budget Council or, perhaps, the authority of the Summit or the European Council. I should have thought that that would have given the Member-States some reliable figures on which they could proceed with their own national budgets, and, at the same time, would have provided some limit to any open-ended commitments.

The second strand in the attitude of the Budget Council was that it felt that this year it had to have regard to the economic and financial situation, particularly of the Member-States from which it comes, and it decided that all possible cuts should be made in the light of information which was available at the end of September. Of course it made some cuts. I should say in fairness that the United Kingdom shared this stringent approach. We felt that we had to have regard to the fact that the money that we paid to the Community is public expenditure in this country, and in so far as that expenditure was increased there would be greater pressure on our domestic programmes involving public expenditure.

As has been said, the preliminary draft went to the Budget Council with the total expenditure with £3,358 million, and at the end of the day it was £3,107 million; in other words, the Council reduced the overall expenditure by something like £250 million. I must say that that was broadly satisfactory to the United Kingdom, but we did not necessarily agree with the details. Therefore, I shall move on to some of the details. First, so far as the Regional Development Fund is concerned, the decision on the Fund made it clear that the maximum commitment possible was £500 million. That has been honoured—and I say this directly to the noble Baroness who raised the issue. The Budget Council has provided for a commitment of 500 million units of account £not pounds.

But there was a surplus to be brought forward from last year. Because there is an exceptional time lag between commitment and payment—and that, I think, answers the point raised by the noble Lord—the Council felt that in this year of stringency it was not necessary to provide as much as the Commission had provided, but it has honoured the commitment and, of course, we are very glad about that. We are satisfied that the surplus of payments was not due to any slowness on the part of industry or Government here, or elsewhere, to make claims, but was due mainly to that delay between commitment and payment.

On the Social Fund, the Budget Council reduced the provision by 100 million units of account to 400 million units of account. The United Kingdom Government greatly regretted this reduction. We regretted it because this was expenditure which was directly concerned with assistance to the unemployed, and surely we are at a time when in 1976, we are likely to have perhaps the greatest unemployment in numbers that we have had for some years. Therefore, this was a time to spend that kind of money.

However, the representatives of the Member-States within the Budget Council pointed out that this was a 14 per cent. increase on the previous year. They pointed to the stringencies which they were applying in their own countries, and they said that this was as far as they would go. In the end we had to accept that situation. But I point out that this is non-obligatory expenditure: that it is within the power of the Assembly to restore some of the cuts. So far as the United Kingdom is concerned, they welcome the increase in that expenditure which was made by the Assembly in 1975, and they hope that the Assembly will do the same in 1976.

I come now to aid. It is well-known that Her Majesty's Government strongly favour some aid to non-associated developing countries. The principle was agreed in July, but no policy has been formulated. Therefore, in accordance with the normal practice, the Budget Council has deleted the item until there has been a formal policy decision, as distinct from a decision only in principle. But on the initiative of the United Kingdom Ministers it was agreed that this was without prejudice to subsequent decisions that might be made. Thus, if a policy decision is made, presumably there would be a need for a supplementary Budget.

I turn now to agriculture, where, of course, we have the greatest difficulty in estimating; it is far more difficult than in any other sphere. It depends upon the weather and the harvest in the coming year. I should say that there should be two estimates. There should be a preliminary estimate in the autumn of the previous year—or certainly not much earlier than the middle of the previous year—and there should be adjustments within limits laid down after the Price Review in the beginning of the following year. But perhaps all this could come within the controls which it is already suggested there should be over the overall Budget.

The Report of our own Select Committee shows the enormous increase in the agricultural expenditure. The Budget, including the supplementary Budgets for agriculture in 1975, amounted to 4,567 million units of account. For 1976, the preliminary draft shows 5,493 million units of account; and I think that we may take it for granted that that is likely to be increased by supplementary Budgets. The United Kingdom Government believe that this large increase underlines the urgent need for the stocktaking at present going on on the agricultural policy. So far as we are concerned, this matter is being pursued with vigour in that stocktaking, and we would hope that there would be some closure of what was described earlier in the debate as the "open end".

The Committee concluded by making two clear recommendations. First, it called for an improvement in the fiches financieres; that is to say, the financial memoranda attached to proposals. I would make only two comments here. First, we must bear in mind that they certainly give far more information than do the financial memoranda attached to United Kingdom Bills; but I think perhaps they should, and I should like to see them give more. Secondly, I am advised that any official body which is considering these fiches financieres, whether it be the Assembly or any other institution directly concerned with the community, or indeed our own Committee, can at all times ask for additional information.

The second and more important recommendation made by our Committee was that there should be a Public Accounts Committee of the Assembly. Our Prime Minister has welcomed a resolution of the Assembly calling for such a development backed by the new Court of Auditors. He has gone further and suggested that the whole question of financial control, including the development of personal accountability and the appointment of a specialist financial commissioner, as proposed by Germany, should be considered at the next summit meeting, which is to take place early in December. So I think your Lordships will see that the Government are wholly behind the Committee in the line that they have taken on this point.

I should like to conclude by making a brief comment on our own contribution. Unlike my noble friend Lord Leatherland, I have been more concerned with what we pay than with what France pays or gets back. The Treaty of Accession fixed our gross contribution for 1975 at 13.57 per cent. During the first eight months we have contributed £212 million and received £269 million, largely because of exceptional receipts on account of agriculture at the beginning of the year. Nevertheless, although it is difficult to be certain, we hope and expect that at the end of the year we will indeed finish with a small surplus. So far as 1976 is concerned, the Treaty of Accession fixes our percentage of the gross payments at 16.3 per cent. Although this is determined by the Treaty of Accession, it would not in any case be affected by the correcting mechanism agreed in Dublin, because 16.3 per cent. is not substantially higher than our share of the Community's gross national product. So the mechanism does not come into effect, and it could not come into effect, because of our share of the gross national product. It will mean that we shall have to pay a gross amount of a little more than £500 million. As to what the net sum will be, it is far too early to make even a wild guess, but I would expect it to be a payment, a net outflow, very substantially less than the gross payment which we will make in the first place.

There are one or two questions upon which I might comment. So far as the Court of Auditors is concerned, the Budget Treaty, which included the Court of Auditors, was signed on 22nd July last year, and it is now before the countries for ratification. The United Kingdom would expect to ratify this treaty in perhaps January next year. It will take a little longer to get all the countries to ratify. It is likely to be towards the end of the year before it is fully ratified, but we would expect it to be fully operative for the 1977 Budget. I welcome the point made by the noble Lord, Lord Banks, that if there is to be a development of expenditure by the Community, then the corresponding expenditure of the Member-States should not only be expected to decline but should decline. It should be a transfer. Otherwise, the increase in public expenditure would obviously be excessive.

My Lords, I think I have pretty well covered the principal points which have been raised, but if I have not and if any noble Lord cares to have a word with me I will either give him the information which he or she wants, or endeavour to get it. In conclusion—it is time I sat down—I would thank all those noble Lords who have taken part in what has been a debate of exceptionally high standard.

1.17 p.m.

Lord MAIS

My Lords, I do not wish to delay your Lordships' House in pursuing or protecting the hare, whichever may be your Lordships' inclination, but I must thank all those Members of your Lordships' House who have taken part in this debate today. It makes the work of the Sub-Committee well worth while when it is received in this manner in your Lordships' House. I would just refer to a comment made by the noble Earl, Lord Bessborough. I should like to say to him that the points he made have been well taken, and perhaps the Sub-Committee or the Select Committee could benefit greatly and have closer links with the European Parliament if we could persuade him to become a full member of the Committee and contribute to our deliberations. I am sorry if he felt that the Committee usurped some of the authority of the European Parliament. I can assure him that we would never have dared to be so presumptuous.

There is one point which I should like to reiterate; that is, that our Report concentrated on the broad principles—in particular, of course, the lack of control—and to do this we were tied to the preliminary draft Budget. The noble Baroness, Lady Elles, referred to this. If, next year, we can work to the draft Budget instead of using the preliminary draft Budget, we shall be more than satisfied. I will close by once again thanking all those Members of your Lordships' House who have supported this debate.

On Question, Motion agreed to.