HL Deb 20 January 1976 vol 367 cc394-414

4.52 p.m.

Lord GORONWY-ROBERTS rose to move, That the draft European Communities (Definition of Treaties) (No. 3) Order 1975, laid before the House on 12th November, be approved. The noble Lord said: My Lords, I should like to say at this stage how sorry I am that many of the noble Lords who are members of the United Kingdom delegation to the European Parliament are prevented by their duties there from attending this debate. We must all regret that their active participation in European affairs means that we shall not today be able to benefit from their invaluable experience.

I have described to the House the purpose of this particular designation procedure before and I shall not repeat it in detail this time. The purpose of the designation order is to enable the treaties included to take effect directly in United Kingdom law. So far as this order is concerned, the two treaties contained in the Schedule provide for the amendment of important basic Community treaties; namely, the EEC Treaty, the ECSC Treaty, the Euratom Treaty and the Merger Treaty (which established a single Council and a single Commission). It is to bring these two amending treaties similarly within the scope of the European Communities Act 1972 that the order has been introduced.

Of the Treaties covered by this order, the one which I expect to be of greater interest to Members of this House is that on the budgetary powers of the European Parliament on which the noble Baroness, the Chairman of the Select Committee on the European Communities, will no doubt be speaking shortly. I shall not anticipate her, but will simply say that the Government commend to this House this limited extension of the powers of the Parliament in the budgetary field, over and above the powers given to the Assembly, as it was then generally called, under the treaty of 22nd April 1970. The extension is limited, but it is certainly an extension. It is designed to give the representatives in the European Parliament the right to play a role in determining the nature and the extent of Community spending. Also important are the provisions of the treaty under which will be created a permanent Court of Auditors to replace the present part-time Audit Board.

The Court of Auditors will have powers to examine all revenue and expenditure accounts. Its task will be to ensure that spending is consistent both with Community law and with sound financial management. It will present an annual report to both the Council and the European Parliament. In our view, the creation of a Court of Auditors is directly related to the proposals made to the European Council by our Prime Minister for the improvement of financial control in the Community, including the creation by the European Parliament of something like the Public Accounts Committee which we have for many years had in another place.

The purpose of the other Treaty which is the subject of this order is to amend the Statutes of the European Investment Bank to enable the Governors of the Bank, acting unanimously on a proposal from the Board of Directors, to alter the rules governing the Bank's unit of account. The EIB Statutes are a Protocol annexed to the Treaty of Rome. They cannot therefore be altered except by the procedure laid down in Article 236of that Treaty, the final stage of which is ratification by all Member-States in accordance with their respective constitutional requirements—a task on which we in this country are now engaged. For the United Kingdom this involves giving the proposal legal validity under the European Communities Act by means of this order.

The Amendments are necessary because the Statutes of the EIB define the capital of the Bank in terms of units of account which have a gold value. I shall not, except under considerable pressure, go into detail on that point. Article 7 of the Statutes provides that the conversion rate between Member currencies and the unit of account for the purposes of subscription to the Bank's capital shall be the par value of that currency as notified to the International Monetary Fund.

During the recent period of generalised floating of currencies the use of a gold weight for the definition of a unit of account has become inappropriate and the conversion rates for gold-based units of account no longer reflect the market rates of Member currencies. The course of discussion in the International Monetary Fund has made clear that there will be no return to the international gold-based standard of earlier years. EIB Governors therefore agreed at their meeting in July 1974 to start the process under Article 236 which would eventually take the valuation of the unit of account out of the Statutes and give the Governors the power to alter the definition of the unit of account and the method of converting it into national currencies.

The changes proposed are merely broad enabling provisions. They say nothing about the ultimate definition of the unit of account or the rules for its conversion into Member currencies. That will be for the Bank Governors to decide in the light of circumstances when the Statutes have been amended to give them the power to make that decision. And when a proposal for a change is put before the Governors, their decision has to be unanimous. This effectively gives the United Kingdom—if it wants it—a veto. It does not mean that we should wish to resist the introduction of a more realistic unit of account for the Bank's dealings but it does mean that we shall, like other countries, have a deciding voice in the timing of any change and the mechanics of any transitional period. I beg to move.

Moved, That the draft European Communities (Definition of Treaties) (No. 3) Order 1975, laid before the House on 12th November, be approved.—(Lord Goronwy-Roberts.)

4.59 p.m.

The PRINCIPAL DEPUTY CHAIRMAN of COMMITTEES (Baroness Tweedsmuir of Belhelvie)

My Lords, it has been agreed through the usual channels that it may be for the convenience of the House to debate not only the order which has already been moved by the noble Lord, Lord Goronwy-Roberts, but also the Report of the Select Committee on the European Communities because that is also devoted to the budgetary powers of the European Parliament. I should therefore like merely to move the Motion standing in my name formally at the end of this debate. I hope that the House will agree.

The Select Committee's Report is dated June 1974 and was prepared by my predecessor, the noble Lord, Lord Diamond, and his Committee. It was thought at the time that it would be most convenient to debate it when the order amending the Treaties came before the House. I am grateful to the noble Lord, Lord Goronwy-Roberts, for his explanation of the effect of the new budgetary powers both in the European Parliament and in the financial control within the Community. Like him, I must say how much I regret that this debate has been timed at a moment when some Members of your Lordships' House have to attend a Budget Committee of the European Parliament in Brussels.

I was asked in particular by my noble friend Lord Bessborough to say that he would have very much liked to take part, but with the noble Lord, Lord Bruce of Donington, he feels that he must be in Brussels, because at the Budget Committee of the European Parliament the whole question of the establishment of a kind of Public Accounts Committee, and its relationship to the Committee of Auditors is being discussed. I know very well the difficulties of arranging business ahead, but I understand that in the European Parliament the Committees are fixed quite regularly, and perhaps in future the European Parliament's commitments might he taken into account when we have our European debates.

In the normal course of events, proposals of the importance that we have before us now would have been considered by the Select Committee of your Lordships' House at a far earlier stage, and they would have been reported upon in order to give the House an opportunity to comment before the order is laid. But the Commission's original proposals appeared in June 1973, and after consideration by the European Parliament the proposals were revised in October 1973. Your Lordships will recall that the Select Committee was not established until May 1974, and therefore it was impossible for it to consider the matter in what we would now feel to be the proper manner. Therefore we are at this moment in a position where we cannot, as a House, amend the order before us, even if we wished to do so; we can only accept it or reject it. But I should say that the Select Committee, in its 11th Report, commended these proposals to your Lordships' House.

Nevertheless, I suggest that we should realise that in practice the first power in the No. 3 Order, which is designed to strengthen the budgetary powers of the European Parliament, is likely to be used only rarely. The Parliament is given the power to reject the budget as a whole and to require a new budget. This can be done only by a two-thirds majority of the votes cast and an absolute majority of the Members of the Parliament. If a budget is rejected, expenditure may continue month by month to the extent of one-twelfth of the previous year's budget. But I suggest that this is a change rather more in form than of substance. It is a large power, which was described by one witness before the Committee—Mr. Kirk, the Leader of our British Delegation at Strasbourg, who has now become Sir Peter Kirk—as a nuclear power akin to the power always possessed by the European Parliament to dismiss the Commission as a whole. I should like to take this opportunity both to congratulate Mr. Kirk on becoming Sir Peter, and to wish him a very sure recovery from an illness which I believe is somewhat protracted.

The Council of Ministers has in fact refused to allow the European Parliament to reject only part of the budget. The Council has also refused to Parliament power over the financial regulations which will continue to be issued by the Council without approval from either Parliament or the Commission. Nevertheless, the European Parliament possesses certain very important budgetary powers which are not affected by the order before us today. The Parliament can reject the non-obligatory expenditure of the Communities, and it has the right to increase this type of expenditure within an agreed ceiling, which is a greater power than that possessed by another place in the case of the budget. How an agreement is reached as to what the ceiling should be is described in Cmnd. 6252—which goes with the order before us—in Article 203, and particularly in paragraph 9. I quote: A maximum rate of increase in relation to the expenditure to he incurred during the current year shall he fixed annually for the total expenditure other than that necessarily resulting from this Treaty or from acts adopted in accordance therewith. They take account, for example, of the trend in terms of volume of the gross national product within the Community, the average variation in the budgets of the Member-States, and the trend of the cost of living during the preceding financial year.

As the House knows, the European budget is divided into obligatory expenditure which derives from commitments resulting from the Treaties, such as a Common Agricultural Policy, or secondary legislation derived from the Treaties. Non-obligatory expenditure comprises, for example, the administrative costs of the Community; in other words, financial commitments which have not been incorporated into legislative instruments. The latter is very important, because a European Parliament could in fact bring the Commission to a halt by refusing to supply the machinery for the Executive. I understand that last year, 1975, the non-obligatory part of the budget amounted to about 15 per cent. of the whole. But there is as yet no agreed procedure within the Community for deciding whether future expenditure is obligatory or non-obligatory.

Let us take for example the Regional Development Fund. This was set up on the basis of Article 235 of the Rome Treaty. This article allows the institutions to draw up policies, and consequently to allocate funds, in areas not specified in the Treaties. The Council of Ministers considers this to be obligatory expenditure. But Parliament believes that all expenditure of this kind should logically be classified as non-compulsory because it is connected with regulations which in fact do not necessarily result from the, Treaty or from Acts adopted in accordance therewith. I understand that, not unnaturally, Parliament wishes to see some kind of agreed interpretation of the Treaties in this respect.

I am very glad that we are, I understand, to see the establishment of a full-time Court of Auditors to succeed the part-time board. I am sure that this is very important. The Government, your Lordships' House as a whole, and its Select Committee have been very much concerned over financial control in the Communities. In the Select Committee we are very conscious ourselves that we have not yet devised a means whereby we can see the total financial result of the various legislative instruments which come before us. But our 34th Report, and the debate upon it last year, drew attention to these matters in considerable detail.

In the 11th Report which is before your Lordships, the Select Committee recommended that a further measure of Parliamentary control over Community finance could be added by making the appointment of the auditors to the audit court subject to the approval of the European Parliament. Under present proposals this has been the responsibility of the Council alone. There has been considerable delay in creating this audit court, and we should all welcome the complementary exercise being discussed today by the Parliament to try to bring in a system of financial scrutiny that is similar to the Public Accounts Committee in another place. No doubt this new committee will examine the report of the audit court in its work on the control of spending. I understand it is also intended to examine proposals for future expenditure as well as past expenditure, maybe with yet another committee, which should, I should have thought, ensure greater financial control. My Lords, it will be interesting to know from the noble Lord, Lord Goronwy-Roberts, when he comes to reply, the exact date on which he thinks the audit court will be established. I think this Order has to be ratified by all the other eight members, and it will be interesting to know whether it will come into force a month after the last ratification or when the exact date will be.

My Lords, the budgetary powers of the European Parliament will of course have a very important bearing on the question of direct elections and on the composition of those who will become elected members to a European Parliament. I do not wish to discuss this now because I understand there will be a Government White Paper on direct elections on the 2nd February, with a debate to follow in February, before the Council of Ministers meets to decide this issue in March. But I think that we should not pass any budgetary powers without giving some thought ourselves to the kind of powers that the European Parliament should have in this important field in the future.

I should like briefly to refer to the conciliation procedure (known by the terrible name of "consertation", instead of "conciliation") between the Council and the Parliament. This is not, of course, the subject of the order before us, but it is designed to allow the members of the two institutions, the Council of Ministers and the European Parliament, to confer on matters of difficulty, particularly matters concerning non-obligatory expenditure. While the Council will still have the last word on obligatory expenditure, the European Parliament has it on non-obligatory expenditure; and I suggest to your Lordships' House that the way in which this conciliation procedure is carried out can be of immense benefit to the operation of the Community as a whole.

5.12 p.m.

Baroness ELLES

My Lords, we in this House have had the advantage of being able to consider Orders Nos. 3 and 4 separately, and also to have, following the Minister's explanation, a very lucid and most helpful account of the contents of the draft treaty relating to the budgetary powers of the European Parliament from my noble friend Lady Tweedsmuir of Belhelvie. I very much endorse her remarks concerning regret that some of the members of the European Parliament are not able to take part in this debate today. I know that the noble Lord, Lord Goronwy-Roberts, will, with his usual courtesy, have taken note of this comment;and I hope that another time we shall be able to have the benefit of the knowledge and, in particular, the practical experience of noble Lords from both sides of the House. I can put quite briefly the views of our Party on the two draft treaties before your Lordships' House. Basically, we support any improvement in flexibility and pragmatic approach in dealing with the very difficult financial measures with which the Community is faced, and at the same time, of course, introducing more transparent, clear and effective methods of control over the expenditure and financial undertakings of the Community.

The draft treaty, containing provisions to grant powers to the Board of Gover- nors of the European Investment Bank to alter the definition of the unit of account if necessary, takes account very clearly of the evolving situation of international monetary relations, and I think this is to be warmly commended. It has in fact been said elsewhere that the European Investment Bank, possibly because of its relative autonomy and non-interference from other institutions and Governments, has been an un-qualified success, and possibly the noble Lord might feel willing to support that comment. It would, however, be interesting to know what the total amount of loans from the EIB to the United Kingdom has been, with an indication of the rates of interest of such loans. It must surely be beneficial to the economy of the United Kingdom, for both public and private sectors, at a time of great need of injection of new investment, that this kind of medium-term money should be available to this country at reasonable rates of interest, and I should be very grateful if the noble Lord could give at least some indication of the size of the loans which we in this country are now receiving.

Turning to the second draft treaty, we can but welcome extension of the powers of the European Parliament to control the European budget, particularly now, because from the 1st January 1975 it is financed from the so-called "own resources", although the extension of such powers is in effect rather slight. The new power granted to the European Parliament to reject the draft budget as a whole and to require a new draft to be drawn up has been described, as my noble friend Lady Tweedsmuir of Belhelvie has said, as a kind of nuclear deterrent: there, but on no account to be used. It is somewhat similar to the power to dismiss the Commission; threatened at one time, I think in November or December 1972, but never exerted. The power to reject a part of the budget, which has of course been a really useful power, has quite naturally been denied, in that you can give the power in form but Governments are very unwilling to give it in fact. We welcome the small but practical advance of extending the European Parliament's power of modification of the budget and of discharge to the Corn-mission in respect of the implementation of the budget.

The establishment of a court of auditors, largely due to proposals by the British delegation and worked out during the course of membership from 1973 onwards by all sides, will undoubtedly be a great improvement to the present audit board; and I should like to emphasise, if I may, what is contained in the Eleventh Report very clearly, in the evidence printed; that is, that it was clarified that the board had not been able to operate effectively, not because of any lack of skill or competence on the part of the staff (there might have been some misunderstanding on this, so I think it might be emphasised that it was not a question of the personalities involved, or their skill or competence) but because the conditions necessary for effective control were lacking. I think it is fair to say that.

The powers given to the new court to investigate on the spot and the new powers to receive information and documents should all contribute to considerable improvement in the controlling of Community expenditure as such and also in determining (and this is an advantage which perhaps has not been emphasised) whether such expenditure is indeed sensible or suitable. So that really the powers of the Court of Auditors are quite considerable if they are exerted in the way that we envisage; and I would join with my noble friend Lady Tweedsmuir in asking the noble Lord, Lord Goronwy-Roberts, whether he can give us some indication as to the appointment of the United Kingdom member to the audit court, and when the court will take effect.

The third element, the draft joint declaration by the European Parliament, the Council and the Commission on the setting up of a conciliation procedure, is now almost past history, and it is really a matter of legal technicality to bring the document into force, because as we understand it, and as was pointed out in the debate on the draft budget of 1975, some form of conciliation procedure was in fact set up. I think that both the European Parliament and the Communities, and indeed your Lordships' House, were extremely grateful for the efforts that my noble friend Lord Bessborough contributed to the successful starting off of such a procedure. It could very easily have gone wrong if the wrong person had been appointed chairman, so I would hope that noble Lords would feel that a warm tribute should be paid to my noble friend for the very great contribution he has made in this rather delicate, new area of relationship between the European Parliament and the Council.

There are undoubtedly still areas of disagreement in principle, such as those already mentioned by my noble friend—the definition of compulsory and non-compulsory expenditure—but it is frequently true to say that what appears to be an insuperable difficulty can find its solution through adequate and appropriate procedures, especially when these lead to closer and clearer communication between the institutions. I think that both the setting up of the Court of Auditors and the conciliation procedure, together with the possible setting up of this public accounts committee, will all contribute to clearer and more successful control and communication. These new measures, containing a modicum of increased Parliamentary powers, more effective control over expenditure and easier communication, we believe will contribute to a better working of the Community institutions.

5.21 p.m.


My Lords, I should really be in a Committee at Brussels at this very moment, but after a great deal of doubt and thought I came to the conclusion that this House and this debate should be given priority. I belong to both Parliaments, as does everyone who is there. I should like to support those who have said that the meetings of our Committees at Brussels are known far ahead and that it should not be too difficult, when business is planned, to fit in this kind of debate on those days—and there are some in the whole week—when no Committee is meeting. Since this House did me the honour to send me to the European Parliament I have found that Parliament more vigorous and effective than I had originally expected; but I am less enthusiastic about the budget procedure, even as it has been recently amended, as the noble Baroness described to us and as is described in a Report before the House.

The one trouble, I think, is that the budget, so-called, of the European Community is not a budget in our sense of the word at all. It is simply an aggregate of the sums that it is calculated by the Commission will be spent in a year. They are added up; and that is the budget, so-called. One major defect of the budget system is that the revenue that is made available by the Council to the Commission is not really related to proposed expenditure. It is fixed by a system known as "own resources "—which means resources belonging to the Community; and they consist mainly at the moment of contributions by Member-Governments. They will consist in due course primarily of receipts of VAT.

In passing, I may say that I am not sure that it will be altogether good for the Community if it comes to depend entirely for its main source of revenue on a tax which is really most unpopular in all parts of the Community. If everybody says that what is done by the Community and what is spent by the Community is coming out of VAT, I do not think that this will endear the Community as much as it should be endeared to the public in our country and in other countries. The Commission submits the budget to the Council of Ministers, who habitually reduce and cut certain items from it. Some of these cuts are made just for show. A lot of the budget procedure is a kind of dance, a ceremonial affair. Some of the cuts made by the Council of Ministers are for show and are intended to be restored by supplementary budgets during the year. This flies in the face of the basic principle that supplementary budgets should be there only to meet unforeseen and unpredictable, new expenditure. Incidentally, this system of phoney supplementary budgets wastes a good deal of time of the European Parliament.


My Lords, I hesitate to intervene, but is there anything like the conception of a contingency fund or any check like our Public Accounts Committee in this set-up?


Not yet, my Lords, There is no contingency fund. There is thought of a public accounts and audit committee; but this will take some time. There is on contingency fund except in the sense that the Council has at the back of its mind restoring some of these cuts by later supplementary budgets. There is not a public contingency fund. Some of the Council cuts are intended to be partially reversed by Parliament. This is a formal concession to Parliament. It expects and allows for these. Our Governments also do that sort of thing, but not on the same scale.

My Lords, the power of the Parliament is extremely rigidly limited, because if Parliament proposes a restoration of a cut which the Council insists on—which constantly happens—Parliament's only remedy would be to reject the whole budget. This I will come back to. It seems to me that an improvement would be for the Community to have proper budgeting in our sense of the word. Proposals for expenditure should as now be made by the Commission and the Council and then approved and amended by Parliament. A most important reform would be that proposals by Commisison and Council should be made for specific votes of supply, balancing the proposed expenditure; so that the two things are in a balanced and proper form. I think that only in this way can we get a balanced budget in which expenditure and revenue are set out and balanced one against the other, so that one has, as all Parliaments and Governments ought to have, responsibility for proposing revenue to balance proposed expenditure.

Baroness ELLES

My Lords, if the noble Lord is putting forward this thesis, may I ask him whether he is suggesting that there should be a European tax to provide European revenue?


My Lords, I do not doubt that that will come one day; but it is a long way off. Once VAT is put into the budget it becomes almost a European tax. They would have to harmonise it a little; and that is why they hesitate. It is the intention that there should be a European tax, a VAT which is on the same principle, at the same rate, over the whole of the Community. I suppose that there is this intention.

I would say that the most important aspect of the budget is that it could be used to increase the powers of Parliament, and an increase in the powers of Parliament is more than ever necessary since direct elections are now in prospect. If direct elections are held with a Parliament as slight and as weak in powers as it is at present, I think there would be a great danger of derisory votes which would do the whole concept of a developing Europe and direct elections grave harm.

I agree with the noble Baroness, Lady Tweedsmuir, that there is a direct relationship between elections and the budgetry powers of the European Parliament. Obviously, if you have direct elections it becomes a different kind of Parliament and it ought to begin (as I will urge in a moment) to exercise some of the true powers of a true Parliament. Our own Parliament, I need hardly say, got powers against the Crown, a Crown that had much more power than the Council of Ministers now has, by insisting on remedying grievances before supplying. The European Parliament has, and will continue to have, grievances enough: different kinds of grievance from what the House of Commons had in the 17th century, but not altogether different because the two are related to taxation. Some of these grievances are directly related to the budget; because Parliament feels itself helpless to restore cuts made by the Council or to propose increases that the Council does not want.

Other grievances, which are graver, relate to the whole question of Parliament's general lack of power. That is the permanent grievance in the European Parliament against the Council of Ministers and the Governments of Member-States. The only means to assert the powers of the Parliament would be to reject, or to threaten to reject, the budget as a whole, which is in its power. That is a great step; but it is somewhat less than nuclear, as Sir Peter Kirk. I believe, said. Incidentally, I should like to say how much we miss him on our side in the Socialist group as well as do others in that Parliament. In the short time that I was there with him, I thought he behaved extremely well and spoke not only for his own Party but very often for the country, which is proper, and very often for Europe. I also wish him a very speedy return to health and congratulate him on his recent honour, very well deserved.

But it is not nuclear because it would not have the same drastic consequences as if the House of Commons or the House of Lords—as happened in 1910—rejected the budget. There is no budget then. What would happen has been set out in the Report and referred to by the noble Baroness: the previous year's budget would remain in force. The Community would not be without a budget. Every month the Commission could spend one-twelfth of the previous year's budget until a new one was voted. It would be a very serious step, especially in times of inflation, because one-twelfth per month of a budget of last year is not really worth anything like as much as one-twelfth of a budget for this year. But if there were no inflation, it would not be nearly so "nuclear" as that.

If the European Parliament showed itself serious in the purpose or possibility of rejecting the budget, it almost certainly would not be necessary to carry out the threat. If it were seriously intended, the Council and Commission would certainly make some concessions desired by Parliament. Rejection of a budget would be very inconvenient and a slap in the face. No Parliament that does not show Parliamentary' courage can have or deserve real power. This is one of the troubles of the European Parliament; it does not have Parliamentary courage and does not try to assert powers which are already within its reach, and would be more in its reach after direct election. The best means by which the European Parliament can display real Parliamentary courage would be by exercising its powers over the budget. I am sorry that nearly all previous speakers indicated this is an unreal power; that it is so great it cannot be used. It is something possible to be used, and certainly something to threaten to be used. I hope in the debates in the European Parliament on next year's budget a good proportion of European MPs—and I hope also of British MPs there—will be ready to advocate such a course.


My Lords, before my noble friend sits down, would he agree that whatever new ideas we try to set up—and those of us who were against the Community are accepting it now as it is a fait accompli—we must still stick to the famous formula that there should be no taxation without representation, and a Parliament without power over taxation is not a Parliament at all?


My Lords, a Parliament which is not elected is not a Parliament at all, either. Therefore, when it is elected I hope it is much more likely to exercise some powers over taxation. It took a few centuries for Parliament in this country to reach this point; it may take a decade (which is a good deal less) for the European Parliament to reach it.

5.33 p.m.


My Lords, as has been already explained by previous speakers, the Report of the Select Committee which we are debating together with the Order is concerned with three reforms: first, the Amendment of the budgetary procedures giving in particular the powers to Parliament to reject the budget as a whole; secondly, the establishment of the conciliation procedure; thirdly, the setting up of the audit court. As I understand it, the conciliation procedure has been in operation for some18 months. The power to reject the budget has been recognised by the Council but is only now being ratified. The audit court has not yet been set up pending ratification.

It is argued by the Select Committee, and has been argued this afternoon, that conferring on Parliament the powers to reject the budget as a whole is a change in form rather than substance since by its control of the non-obligatory expenditure the Parliament could previously have paralysed the administration. But, in my view, being able to accept or reject the budget as a whole is a more straightforward procedure and goes some way to recognising the authority of the Parliament, particularly as it carries with it the right to ask for a new budget.

If the Community is to be supported by its own resources, by its own level of taxes, it is right that the Community expenditure should be clearly acknowledged to be subject to the democratic control of the Parliament. Community taxation will not be subject to the democratic control of any other Parliament. But the sovereignty of the Parliament will be sadly incomplete so long as the distinction is maintained between obligatory and non-obligatory expenditure, as other speakers have already insisted this afternoon. With the Parlaiment unable to reject the budget in part or to amend, against the wishes of the Council, the obligatory expenditure covering some 85 per cent. of the total, the power of the Parliament remains limited. It may well have to use its more drastic power of the rejection of the budget as a whole in order to get these important lesser powers. In that connection, I was interested to hear what the noble Lord, Lord Gordon-Walker, had to say about the possibility of the use of this power of rejection.

The conciliation power is to be welcomed because it permits a dialogue between the Council and the Parliament. The original design envisaged the Commission and the Parliament engaged in constant dialogue, but since power has now moved to the Council of Ministers, which is part executive and part legislature, it is important to bring the Parliament and the Council closely into contact. The audit court is much to be welcomed, and the sooner it is established the better. I join with others in asking when it is likely to be set up. Clearly it must work closely with the Parliament. I, too, should like to have seen the Parliament given the power to approve the membership of the audit court. It will be working full time, armed with the three additional powers outlined in the Select Committee's Report, and it should be a most valuable instrument for the supervision of control and expenditure.

Regarding the general level of expenditure, I repeat in conclusion what I said during the debate in this House on 7th November on the Community's 1976 budget. The total annual expenditure of the Community at the moment comprises 0.57 per cent. of the gross national product of the Community. It is a very small sum. As Community policies are developed—and we must hope the Regional Fund and Social Fund will be developed—we must expect Community expenditure to increase considerably. A good deal of that no doubt should be a transfer from national government. But the prospect of this increased expenditure makes even more necessary the proper supervision of that expenditure and its democratic control.

5.38 p.m.


My Lords, if I may briefly sum up the discussion and address myself to one or two of the more important points that have I been raised during this debate, I am sure that I voice the feelings of every Member of your Lordships House when I once more address our warmest gratitude to the noble Baroness, Lady Tweedsmuir of Belhelvie, for having initiated a very useful debate on questions which she, as Chairman of the Committee, has made her special field. She raised a number of apposite points, which other noble Lords also stressed.

There is a general feeling that the time has come—or may soon be reached—when an agreed definition of "obligatory" and "non-obligatory "expenditure will be needed. It is certainly desirable, and it is a matter which we expect will be the subject of discussion between the institutions in due course. As she suggested, it would certainly reduce the risk of such disputes as occurred over the Regional Development Fund. We all know that the RDF has had to cope with certain organic difficulties without that kind of theological preoccupation being imposed upon its operators.

I think it was the noble Baroness who also led the discussion on the relationship of direct elections to taxation and to the yield of revenue. This was a point followed up by other noble Lords. On her question as to whether the White Paper on direct elections will be published, I cannot be precise but I would hope that it would be published within the next few weeks. That gives scope for the noble Baroness and myself to come back to this question.


My Lords, I thank the noble Lord for saying that, but in fact I did not ask that question. I said I thought it was to be published on 2nd February. It would be very nice to hear it confirmed.


My Lords, the period between now and 2nd February is, by stretching a point, the next few weeks. The noble Baroness also asked when the budgetary powers treaty would come into force and hence the court of auditors be set up. Naturally, that was a point which practically every speaker raised. Article 30 of the treaty, which is the subject of this order, specifies that the treaty will enter into force on the 1st day of the month following the deposit of the last ratification instrument. This, of course, depends on the speed with which other countries ratify, and I can only express the hope that they will do so quickly. None has as yet done so. However, I think that, like this country, other countries are seized with the importance of this reform—because it is a reform to substitute for a part-time audit board a full-time court of auditors with the powers that we have heard summarised from this Bench and by others.

The noble Baroness, Lady Elles, asked me to join with her in testifying to the success of the European Investment Bank. I do so gladly. There are certain aspects of the operations of the Bank which should commend themselves increasingly to this country—the medium-term nature of its operations, for instance, —and also one or two other points which arise from the answers which I tried to get to the important questions which she put to me regarding loans. The full list of loans from the EIB to the United Kingdom was published in a Written Answer in the Official Report of another place on 4th November 1975. Since then there have been six further loans, totalling £61.7 million. This brings the total since accession to £299.3 million, and the total for 1975 to £186.5 million.

The second point which was raised by the noble Baroness leads me to say that the loans are currently at the rate of 9.5 percent. This has fluctuated during the year only by about a quarter of one per cent. I particularly asked whether there was a floating element in the interest charges. There is not. I understand that it is composited so that a fairly constant rate of interest is struck for a fairly long period. This enables people within the limit of about a quarter of one per cent., to decide how useful the loan will be and how it should be used by them. It has in fact been steady at 9.5 per cent. since September.

My noble friend Lord Gordon-Walker in, if I may say so without presumption, an admirable speech to which we all listened with great pleasure raised a number of fundamental questions. If I may say so without offence, this was a Second Reading spech on a major proposal and it was good to hear these points raised, orchestrated, as they were, so effectively by my noble friend Lord Davies of Leek. I should like to touch only on one or two of the important points which were raised. My noble friend asked, with others of your Lordships, that we on the Government Front Bench should try in future to plan these debates in consonance with the calendar of the European Parliament. I can only say that we shall do our best. All Parliaments have their time-table difficulties, but I am sure that the noble Lord the Leader of the House, and my noble friends the Chief Whip and the Deputy Leader of the House, will address themselves with enthusiasm to such an obviously sensible point.

My noble friend also said that the budget should not depend too much on VAT. When my noble friend said that I thought perhaps he was shooting the rapids with a somewhat hasty generalisation. Perhaps we could agree to put it like this. He said that most of the Community's revenue will come from VAT. I should think it would be quite some time before that happens. For the foreseeable future the majority of the Community's revenue will be derived from customs duties and agricultural levies under the Common Agricultural Policy.

A Noble Lord

My Lords, that was 19p.


My Lords, that may be so but I am addressing myself now to the somewhat technical point raised by my noble friend. Perhaps we might discuss this point. It is for serious and constructive discussion as to the source of funds to the European Parliament, and I agree with him that some fundamental thinking about this will have to take place, and that in the fairly near future. For instance, my noble friend suggested that proposals of expenditure should be balanced by requests for votes of supply. Some people might think that was going too far too fast. It is a matter of judgment. The European Community is not a nation-State. It may never become a State. There is a good deal of variation of view as to how it will evolve. It may evolve into a confederal or federal situation—who is to say? But these are open questions and, as I said, it is refreshing and helpful to have them raised in the way that my noble friend has raised them today. I wish I had time to follow up a number of other points; for instance, the role of the supplementary budget—


My Lords, may I interrupt my noble friend? I am glad he made that last remark, because in all sincerity one of the great problems of those of us who are prepared to accept the result of the national vote on this issue is, "What is it ultimately going to be philosophically?—because we seem to be moving through pillars of cloud. Is it to become a federated State or a nation State? Once we can be clear on that we can approach the financial problems connected with this European organisation. But at the moment I and, I am sure, many others are not clear on what is to be the ultimate state of the European Economic Community.


My Lords, I am sure that my noble friend is quite right, but we are not alarmed at the prospect of evolving as so many other States and confederal States in the world have evolved over a very long period of time. My noble friend reminded us that we have taken a very long time in this country to evolve to the system that we have now. We may be evolving out of it in the next year or two—who is to say? I hope not. These things take time. As my noble friend Lord Davies has said, no one knows the exact shape of the European fact. It is a fact and it will continue to be a fact, but a changing fact. It may never become a State in its own right, as it were. Do we refer to the State of USA? In fact, we refer to the United States—in the plural—of America. We have the Commonwealth of Australia, and the Canadian system. All these are different. There is also the South African system.

I think it would be well to invest time, patience, knowledge and views for quite some time on the question of how we want to see Europe, the congenial Europe of the Nine, and perhaps of other countries as well in the future, and that is an extra dimension of the consideration which we shall have to give—how it may, indeed, enlarge as well as change the Constitution. I am most grateful for the welcome that has been given to this important order, and particularly for the tone and content of the useful debate which we have just had.

On Question, Motion agreed to.