EEC: PRELIMINARY DRAFT BUDGET FOR 1977

HL Deb 19 July 1976 vol 373 cc629-73

8.50 p.m.

Lord MAIS rose to move, That this House takes note of the Report of the European Communities Committee on the Preliminary Draft EEC Budget for 1977. The noble Lord said: My Lords, it is my privilege to introduce to your Lordships' House the Report of the European Communities Committee on the Preliminary Draft EEC Budget for 1977. Your Lordships will have received a copy of the report, but I regret that your Lordships have not had it for a longer period, and have therefore not had a greater opportunity of studying it. Your Committee has been working considerably against time in order to produce the report in time for today's debate. Nevertheless, I trust that your Lordships have had an opportunity to study at least some of the salient points. May I draw the attention of your Lordships to those points which your Committee consider to be particularly important?

Your Lordships will recollect that last November your Committee expressed some concern at the delay in the production of the draft budget proposals for 1976, and perhaps your Lordships will take some comfort from the fact that this year the draft budgets have been produced earlier than on previous occasions. May I also remind your Lordships that in our report last year, to some extent we concentrated on the need for more effective scrutiny and control of Community expenditure, and on the procedural and institutional means necessary in order to effect this improvement.

This year, for the first time, the Preliminary Draft Budget, having been produced earlier than previously, has allowed your Committee and the House to consider and to debate the consequences and effects of that Preliminary Draft Budget before, in fact, the initial Budget Council of Ministers meets on 22nd July. Therefore, for the first time it provides us with an opportunity to bring influence to bear on the Government, and to examine how much progress has been made in the last year in the improvement of financial control within the Community. Your Lordships may perhaps think that as today is the 19th July, and the 22nd July is the date when it is considered by the Council of Ministers, this does not leave us very much time to make our feelings felt, but at least it is a considerable improvement on last year. I will not at this stage comment further on the improvements in control. I propose to leave this in far more capable hands, those of the noble Lord, Lord Cobbold, who will be speaking later in the debate. The report also gives a factual summary of the 1977 budget proposals, together with suggestions for the improvement of control.

Turning to the detailed budget proposals for 1977, your Lordships will note that it is anticipated that the total expenditure for that period will amount to 9,260 million units of account. Working on the basis of 2.4 units of account to the pound sterling, that amounts to £3,800 million sterling, an increase of 684,000 units of account over the figures given for 1976. The principal increases are in connection with research and investment, which show an increase of 48 million units of account; miscellaneous aids and subventions are increased by 84 million units of account; the Regional Development Fund, an increase from 300 million units of account to 500 million units of account. Your Lordships will probably remember that last year, the 1976 Budget included 500 million units of account under that heading, but it was subsequently reduced to 300 million units of account.

My Lords, the biggest increase of all is in connection with the Agricultural Fund. That shows a very substantial increase indeed, amounting to 1,230 million units of account—that is as far as the guarantee section is concerned. There is a slight reduction so far as the guidance section is concerned. With regard to food and other aid, here again there is an increase from 237 million units of account to 283 million units of account, and lastly, but by no means least, there is a big increase in the provisional appropriations from 21 million units of account to 239 million units of account. I will have something more to say about appropriations later on.

On the other side of the scale, the Social Fund has been reduced from 441 million units of account to 172 million units of account. I must direct the attention of your Lordships to the fact that although the increase for 1977 over 1976 is substantial, the 1977 figures are still provisional, whereas the 1976 expenditure is almost certain to be larger than the Budget figures suggest. This is principally due to the fact that supplementary budgets were expected, in particular one to cover agricultural monetary expenditure. Since the report was printed and published, we received information as late as last Friday that a supplementary budget for 1976 has been presented by the Commission in Brussels, and may well be considered by them on 22nd July, at the same time as they consider the Budget before your Lordships today. As yet we do not have the English text of that document, but we understand the proposals of the Commission are in the region of 632 million units of account, reflecting decisions taken in the 1977 Agricultural Price Review, and developments in the agro-monetary field. This has been partially offset by gains on the differences in the rate of exchange. If the amount I have just mentioned is added to the 1976 budget, your Lordships will find that it compares almost exactly with the budget for 1977.

It is difficult to make a strict comparison between the 1977 figures and those for 1976, due to the fact that several items of expenditure, such as the Social Fund, this year have been affected by the extension of the commitment to the appropriation system whereby only payment appropriations are entered in the budget. Nevertheless, the increase in the 1977 figures over those of 1976 is significantly lower percentage-wise than the increase of the 1976 figures over those for 1975, and also the 1974 figures compared with 1973.

My Lords, under Article 203 of the EEC Treaty, the Commission is required to place the Preliminary Draft Budget for the succeeding year before the Council of Ministers not later than 1st September. Last year, your Committee did not in fact receive the Budget papers translated into English until mid-September, when your Lordships' House was in Recess. Although they proceeded at once to consider the report, it was not possible for this to be debated in your Lordships' House until 7th November, long after the Budget Council of Ministers had established the Draft Budget. Therefore, there was no opportunity for Finance Ministers to take into account the views expressed by either House before their meetings of 22nd and 29th September.

Furthermore, because of the timetable, there was very little time for either the Council of Europe or the European Parliament to consider the views of other institutions, for the procedure had to be completed by December. Under the new timetable, which is experimental for this year, the Commission has produced for the first time a Preliminary Draft Budget by 15th June. The Council at once referred this to the Budget Committee consisting of officials of Member States and representatives of the Commission. Unresolved issues are thus to be discussed within the Committee of Permanent Representatives and then at a meeting of the Budget Council, which will be held on 22nd July, the date to which I have already referred, they will, acting on qualified majority, establish the draft budget and forward it to the European Parliament.

That institution will consider the draft budget between 10th September and 28th October and will propose modifications to the obligatory categories of expenditure and amendments to the non-obligatory categories. Then it returns to the Council, who will have until 20th November to accept or reject the modifications and to modify the amendments. Thereafter the Parliament will have a further 23 days to act on any changes made by the Council, and finally the Presidents of the Parliament will declare the budget adopted on 19th December.

I would draw your Lordships' attention to the fact that this is an experiment only for this year. In the light of experience the Council will decide whether or not to follow the new timetable in future. It may be of some satisfaction to your Lordships and to those in another place that this advanced budget timetable has been adopted as a result of pressure from national Parliaments. I am sure your Lordships will appreciate that, although it is obviously a step in the right direction to produce the budget at an earlier date, it does bring with it certain disadvantages in that the new budget is presented before the final outcome of the previous year's budget is known or can be forecast. It can also be said that the earlier you produce a draft budget the less reliable it is likely to be. On the other hand, I think all our experience in the past has been that the more frequently you produce a budget, the more information you have from the previous years, the more accurate the budget will be.

We are in the early days of a vast undertaking, and for that reason if we want the early production of budgets to continue we must accept the fact that the final outcome may not be as accurate as we should like. But, on the other hand, I think your Lordships will agree that the advantage of having a budget earlier far outweighs any disadvantage. I will not go into detail, but I would direct your Lordships' attention to the present policy and the problems which arise from including in the budget commitment appropriations.

Under the financial regulations of April 1973 the Commission may enter into commitments to spend money only within the amount of substantive provision in the current year's budget. The problem which arises from this general rule is that where expenditure extends beyond the financial year in question the money to be spent in future years can only be committed if the whole of the necessary expenditure has already been provided for in the budget. Consequently appropriations are entered in the budget for specific actions which cannot or may not be completed and paid for, or for that matter even committed in the course of the budgetary year in which the amounts are included. For instance, where a commitment is validly entered into but not paid an automatic carry-forward is allowed. Even when no commitment has been made, there is still the possibility of a nonautomatic carry-forward taking place. The amounts involved in this are very considerable when compared with the total amount of the budget.

In addition, this undoubtedly adds to the difficulties of an adequate financial control. For instance, payments carried forward from the preceding year represented 28.9 per cent. of the 1975 Budget. That is over a quarter, getting on for a third, of the total amount of that budget. I am afraid I do not have the figures yet for 1976.

In the budget we are considering today only the payment appropriations will be entered into the appropriation column of the budget, and the commitment appropriations will form part of the remarks column under the appropriate item. Any appropriation for commitment not used by the end of the financial year will be cancelled, thus limiting budget entries to sums actually paid out, and will substantially decrease the appropriations carried forward. This is a sensible move. But it does have one disadvantage, and that is that in certain aspects the 1977 Budget figures are not strictly comparable with previous years. Working on this basis in the preparation of the 1977 Budget there has been a certain amount of anticipation; namely, that there will be acceptance by the Council of a proposal for a regulation amending the financial regulation of 25th April 1973, which empowers the budgetary authority—that is, the Commission and the Council—to apply the distinction to any multi-annual project it wishes.

My Lords, when we debated the 1976 budget last November your attention was drawn to the question of control, and it was control, or lack of it, which caused your Committee more concern than virtually anything else. Attention was then drawn to the fact that national Parliaments could exercise control, should they desire to restrict budget expenditure, only indirectly through the influence of their own Government Ministers in the Council of Ministers. Nevertheless, your Committee is pleased to note that an effort has been made to achieve greater transparency in the presentation of the budget. In particular it is essential that there should be a clearly defined distinction between firm authority to spend during a particular year and tentative figures relating to subsequent years or for a project as yet lacking firm policy approval.

Nevertheless, although your Committee is glad to note the intention to present commitments and payment appropriations under separate headings, it is essential that this should be done in such a way as to avoid the slightest risk of the commitment figures being regarded as having, or providing, the authority of an actual budgetary provision for expenditure in the financial year to which the budget relates. For this reason your Committee strongly recommend that consideration should be given to showing all commitment figures separately from the payment commitments, in much the same way as this information is presented annually in the United Kingdom Annual Public Expenditure White Papers, which, as your Lordships know only too well, are separate from the annual Estimates and imply no authority whatsoever to spend. Your Committee last November made a number of criticisms and suggestions with regard to financial control in general. I believe that the noble Lord, Lord Cobbold, will deal with these particular points in detail later on in this debate—and who better qualified so to do? He will, I know, explain what progress or lack of progress your Committee have noted during the past year.

One point which I am sure will be welcome is that the Committee have noted that, although the United Kingdom share of the 1977 Budget will be 19.24 per cent. of the total, or 1,781 million units of account—and, coming a little closer home, £742 million sterling—it is nevertheless likely that a substantial part of this will be offset by receipts from the budget. This assumption is made because in past years our receipts from the Social and Regional Funds have been high, and also we have benefited considerably from the monetary factors—that is, the monetary compensatory amounts paid by the EEC to the United Kingdom in respect of the shortfall between the unit of account and the Green Pound. This is dealt with in detail in the report, and I will not burden your Lordships further.

My Lords, there is much more in this report to which I should have liked to refer but I am conscious of the fact that there are a number of other noble Lords who wish to take part in this debate and I would not wish to delay them further. In conclusion, if I may crave your indulgence, I should on this occasion like to pay tribute to Mr. Paul Wooley, who was the technical adviser to Sub-Committee A and did tremendous work for us, and who has now departed to a senior post in the International Monetary Fund in Washington. I would also again pay tribute, as I did once before, to the Parliamentary secretariat, and on this occasion in particular to those young ladies down below who worked terribly long hours in order to produce the typed version of this draft report and without whose efforts undoubtedly we might not have been debating it today. I should also like to thank the members of my Sub-Committee A for the tremendous contribution they have given both in time and from their great experience. My Lords, I beg to move.

Moved, That this House takes note of the Report of the European Communities Committee on the Preliminary Draft EEC Budget for 1977.—(Lord Mais.)

9.11 p.m.

Baroness ELLES

My Lords, my noble friends will certainly wish me to thank the noble Lord, Lord Mais, for his very clear and lucid exposition of the main points of interest and importance contained in the draft Budget before your Lordships this evening. Like he did I shall certainly try to apply a self-denying ordinance and not touch on many matters, all of which in the draft Budget could be discussed at great length and are of great importance. We, on this side of the House, certainly appreciate the importance of this draft Budget. We are also grateful of course to the noble Lord and his Sub-Committee for all the work they have done in preparing the 45th Report which we have before us this evening in order to help us understand better the problems raised in the presentation and procedures connected with the draft Budget.

Before passing on to the substance, we should also like on this side of the House to congratulate most warmly the noble Lord, Lord Bruce of Donington. I do not know whether it should be congratulations or commiserations we should be offering, but I should like to congratulate him on his appointment as rapporteur for the Budget in the European Parliament. It is certainly the most arduous of all the rapporteurships, and on this side of the House we certainly wish him very well in his very arduous and exacting task during the coming months.

I should like first to mention the question of the timetable for discussion and consultation on the Budget. This seems to be a great improvement on last year's arrangements. We on this side of the House pressed heavily that there should be an alteration; that there should be time to discuss this more fully, and particularly more time to discuss the draft Budget, look into the implications, and be able to have some influence on decisions which will he taken over the coming months.

In this connection, we wish to express our thanks to all those who have undertaken and been involved in changing the timetable. It has obviously meant a great deal of work not only for the Commission but for the Treasury and all the Government Departments connected with this change. From this side of the House we wish to say that we very much appreciate this. Lord Mais was perhaps a little diffident and put a few reasons to show why it was not perhaps such a good idea, but we feel that for the present, for this year, we should appreciate the trial of this new timetable and we do not consider that there is any reason for being quite so diffident as the noble Lord was.

In regard to the formalities of the presentation of the Budget, we welcome the separation of commitment appropriation from payment appropriation as a more practical and clearer method of proceeding and we realise that this achieves a certain transparency in the way in which the Budget is presented and this must bring only benefit to all those who have to deal with this document. I am not sure that I took correctly the point which Lord Mais raised about showing all the commitment figures separately. In my humble understanding of the draft Budget, these commitment figures are, in fact, shown separately, I think in another column; I do not quite see why the noble Lord considers that they should he show n completely separately from the Budget. I should have thought that it would have been helpful in this sort of document to know the kind of commitment that will come forward in the following years. I think they are shown sufficiently separately to give an indication of onward expenditure in the coming years and I welcome the separation in the way it is now being shown.

The political implications reflecting the draft Budget proposals are in accordance with the need for all Member States to control their public expenditure and we appreciate that the percentage increase over last year's Budget may be even less than that which is calculated at the moment in view of a possible quite large supplementary budget which will be coming forward soon, so that although it is in the present document shown as 22 per cent., I imagine that that percentage will be reduced considerably, or certainly to some extent, by the time the supplementary budget has been produced before 22nd July.

Despite inflation and the Budget being an estimate of expenditure, it should at least try to represent as nearly as possible in a concrete forecast the commitments and payments for 1977. We appreciate that this is almost impossible, considering the enormous element of the Budget which is connected with agricultural matters and with the uncertainties in this field which are ever present. The drought must seriously have affected the agricultural policy, particularly in relation to dairy produce and all the guarantees that are given to farmers in this area.

I imagine, therefore, that the present figures shown for the agricultural sector will need to be revised considerably, and presumably there will also need to be supplementary budgets in this field. I do not think the fact that they have to be changed really matters all that much. What we really need is an idea of the kind of expenditure that will be involved over the coming year. I do not think that any Government have ever been in a position to give a correct account of what will be spent in the coming Near, and this is merely another example of the impossibility of forecasting expenditure, especially in an area where even the weather plays a considerable role in affecting expenditure.

I must say a few words about the agricultural expenditure because concern is sometimes, if not frequently, expressed about the proportion of expenditure dedicated to agriculture; it is somewhere in the region of 67 per cent. this year. Whatever has been said about CAP, it has achieved three things. First, food prices were kept down in the European Communities during a time when world food prices were rising.

Secondly—this is a point which is always overlooked by those of us who live in an area of plenty—we have had plenty of food and have not suffered from a shortage in the way that practically every other part of the world has suffered and, whether one talks of mountains or lakes, I am certain that the 249,999 million other citizens of the Community share the same feelings when it comes to being able to buy food in the shops. Thirdly, it has supported farmers' income and, by the assurance of support for their incomes, has encouraged them to continue in their productive activities. If none of those points had been considered and had not been achieved by CAP, we should have had reason for complaint. Nobody denies that the whole thing must be looked at again—revised and considered in the light of new developments—but perhaps people are too ready to criticise CAP without looking at its benefits. Indeed, in this country, as was announced the other day, we received £338 million towards agricultural expenditure and this has undoubtedly influenced the fact that we have been able to keep food prices down to a comparative degree. I should just like briefly to comment on the imbalance between the guidance and the guarantee sectors, as we consider it. We would rather see more spent on restructuring of farms and rather less on the guarantee in relation to the amount which is available for expenditure.

Secondly, I should like to speak about the fact that so much of this money is given to support farmers' income. It is this support of farmers' income which is related to national policies. Would they need support from the European Community if they paid less tax and if succession duties did not seek to make them give up their livelihood? Domestic issues and, above all, national fiscal policy, cannot be divorced from considering the European Community Budget expenditure. I shall not enlarge on this but, clearly, a good deal could be said on the way national policies deal with individual incomes, whereas, in the Community, the farmers' income is separated from anybody else's income. I believe that this was realistic when about 50 per cent. of the population were engaged in farming activities. However, we have gone through a changeover from farming to industrial life in the Community and I wonder whether it is not now time to consider that the number of farmers in the Community in relation to other professions and careers should be considered in the context of income support through national policies or even through a European social and employment policy, rather than taking it as an agricultural item.

My third point relates to the failure so far to develop and co-ordinate policies on any other than agricultural matters which fall within the Treaty, such as the common transport policy. That combined action may be taken at diplomatic level vis à vis third countries is one matter, but is it not time for a more comprehensive and constructive transport scheme in the Community? The fact that there is no other main policy within the Community is what leads to the emphasis on agriculture. It is not because agriculture is put above every other policy. It is the fact that no other common policy has been developed which calls upon Community funds. Surely, too, expenditure on employment policy, which does not take up a very large percentage of the Community Budget, would be an area at which we should be looking. Of course, I am not suggesting that we should increase the expenditure in the Budget, but merely that there might be a shift of resources from one area of the Budget to another. Certainly, employment policy is very much overdue for consideration by the Community.

I want just to say a word about the regional policy. Of course, the Regional Fund has benefited the United Kingdom considerably. We are getting about 28 per cent. of the total amount of £540 million over the three years and, in talking about the effects of the Community on the United Kingdom and the knowledge of the citizen of what Europe does for him, I believe that there can be no better way of telling him than by letting him know how much we benefit financially from the Community. I happen to be one of those, like many others in your Lordships' House, who do not believe that the economic side of the Community is what is most appealing; there are many other very important reasons why we consider that the European Community should be developed. Nevertheless, I believe that there is no better touchstone of the effects of the Community than to know how much of the enormous Budget which we are discussing is coming straight back to the citizens of this country.

One point which I noticed in one of the documents that I was looking at was the suggestion that when we have loans from the European Investment Bank or from the ECSC, they should be shown in some way—that mention should be made in hoardings that the money is a loan from the EIB, just as one sees "Ministry of Works—or whatever the present Department may be—Development by such and such a local authority". Information should be put on hoardings in order to show that Europe is actually taking part at a local level and is taking an interest in an area or is connected with some new infrastructure in some other part of the country. This is particularly important for the regional fund, because I understand that about 40 per cent. is going to Scotland, and an enormous amount to Northern Ireland and to those areas of the United Kingdom which have greater need than perhaps the South-East or other of the more prosperous areas.

I should like to mention the question of additionality. I wish to refer to what was stated in paragraph 15 of the Forty-fourth Report from the Scrutiny Committee relating to the Tindemans Report. Admittedly, the sentence related to economic integration, and I quite understand that the thinking of the Committee was related to economic integration through a larger Community budget. But it went on to say: expansion should only be approved if it can be demonstrated that Community expenditure is acting as a substitute for, rather than as an addition to, national or local government expenditure. I took that as being a Freudian slip and possibly a reflection of the practice of the Government.

I should like some confirmation or denial from the Minister as to this problem of additionality. We on this side of the House should like to know how much is paid from Community funds which goes into the Treasury and which is not passed on necessarily to local authorities or to Government programmes. Are these funds, which are coming into the United Kingdom, used entirely for initiating new programmes? Are the Government themselves paying 50 per cent. of the programmes for which Community money is meant to be used? The regulation says, in relation to the regional fund, that the Fund's assistance should not lead Member States to reduce their own regional development efforts but should complement these efforts. I should be grateful if the Minister is able—in what I am sure will be the very short time available to him—to comment on this. If he has not time tonight, will he kindly write to me on this matter of additionality and state what the exact position is in regard to Community funds? This is an important aspect of the effects of the draft budget on national expenditure.

We read with interest the evidence given to the Scrutiny Committee, particularly a passage relating to a change in the unit of account used for the budget and the difference between the actual market rate and the juridical rate. I understand from the minutes of evidence produced that the Treasury has agreed that there should be arrangements to introduce a concept of a new unit of account more realistically related to the "basket". Apparently this is not considered to be a severe difference in cash terms. Can the Government give some indication as to the terms of this agreement, and say what will be the time scale? Is it to happen fairly soon? Might we also have some estimate of the cost and effect on agricultural prices as a result of the change in the use of another unit of account? Again, if he cannot give an answer tonight, perhaps the Minister would be good enough to write to me on this matter later.

I also want to comment on the proposals discussed in paragraph 22 of the Forty-fifth Report on the Preliminary Draft EEC Budget from the Scrutiny Committee with regard to one of the Commissioners acting as a Finance Minister. We have not got a view on this at the moment, and we should like some kind of indication as to the appointment of this Commissioner. He would presumably be one of the 13 Commissioners who would be given the sole task of looking after the finance of the Community. We should like to know if this matter is being discussed and considered by the Government, and what kind of view they are likely to take when they take over the presidency of the Council. Is it something for which they are going to press, and what is their general policy on the appointment of a Finance Minister?

In conclusion, my Lords, and very briefly, we on this side of the House very warmly welcome the increased measures for the control of expenditure and, particularly, the establishment of a subcommittee of the Budget Committee, on which I believe the noble Lord, Lord Bruce of Donington, serves. I am sorry, my Lords, I understand he does not, but certainly Mr. Shaw, from our side, serves of this sub-committee. I understand that this sub-committee has been found to be a practical way, at least for the time being, to implement some form of control prior to the setting up of a court of auditors, although I understand that they will both in fact continue in function. We of course welcome the ratification of the amendment of the Treaty setting up the court of auditors; and, again, here we would ask the Government to press their colleagues in the other eight Member States to see that they also ratify. I understand that Denmark has now in fact ratified—the noble Lord, Lord Bruce, will be able to confirm this, or my noble friend Lord Bessborough—but certainly we should like to see the others ratifying as soon as possible. Of course, if one had a suspicious mind one might wonder why they were not ratifying, but certainly we in this country consider that a court of auditors to control public expenditure on such a vast scale is an essential in order to create the confidence of the citizen in the processes of the Community, and we very much welcome the setting up of this court of auditors.

Finally, my Lords, in the mechanism of budget presentation and in the prospects for tighter budgetary control we consider that there is progress, and we appreciate the efforts of our colleagues in the European Parliament, on all sides of the House, in getting as far as they have. Also, of course, we recognise the cooperation of the Treasury in this regard. To conclude, again we would wish the noble Lord, Lord Bruce of Donington, well in his arduous task; and we thank the noble Lord, Lord Mais, for the presentation of this report.

9.32 p.m.

Lord BANKS

My Lords, I should like to join in thanking the noble Lord, Lord Mais, for the very clear way in which he introduced this preliminary draft Budget to us this evening. I should also like to express very genuine appreciation of the Report from the Select Committee, which is extremely comprehensive and very clear. Last year, when we had the counterpart of this debate, I remember trying to emphasise how small the budget really is, and I am struck by that fact again this year. The Select Committee point out that it is .62 per cent. of the Community GNP as against .59 per cent. last year; so that is an increase of .03 per cent., which I think the Community will not find it difficult to bear. It is, the Select Committee tell us, 1.9 per cent. of the total national budget of Member States. The Select Committee point out, however, that an increase in the Budget is to be expected in future years, and this must be so particularly if, as we hope, the Regional Fund and the Social Fund get under way.

In this context, I should like to take up the point referred to by the noble Baroness, Lady Elles, when she was talking about additionality. It seems to me that in present circumstances, when the amount from the Regional Fund is somewhere about 8 to 10 per cent. of what we ourselves spend on the regions, this amount should not be used as a substitute for what we normally spend; but if there is a very considerable transfer of resources through the Regional Fund and through the Social Fund on a scale quite beyond that at the present time, then I anticipate that that ought to be a transfer of expenditure from national to Community level. I think that is a point which the Select Committee were making in their comments on the Tindemans Report.

If, in fact, we see in the future this increase in the budget, then it will certainly be important to see that the proper checks on expenditure, both when it is proposed and after it has taken place, are established now. I endorse all that the Select Committee had to say about this and the important role to he played by the European Parliament. I also regret that only the United Kingdom and Denmark have so far ratified the proposal for the establishment of the audit court. If we may expect new expenditure in the future, there is little of it this year. New operations take up about 1.4 per cent. of the budget and the largest amount among them is the 100 million units of account set aside for the establishment of the capital for the European Export Bank.

The Regional Fund takes more this year, going from 300 million to 500 million units of account. This is the last instalment of the agreed programme. We must hope that a new programme will succeed it with increasing expenditure. Whether this happens will depend, I imagine, to a large extent on the German Government; and their attitude may well depend on the general response throughout the Community to the matters which we have just been debating. The decrease in the percentage taken by agricultural expenditure, once separated from agricultural monetary expenditure, is welcome and perhaps is the first step on the road to a more balanced budget in which agriculture will not take something like 70 per cent. or so of the whole.

Agricultural monetary expenditure, I understand, takes about 12 per cent. and the Select Committee tell us the Commission are, not unnaturally, unhappy about this position and propose to reform the provisions relating to monetary compensatory amounts and to change from the present unit of account to a unit of account based on a basket of Community currencies.

These moves may well affect the United Kingdom adversely, but would, nevertheless, appear to be overdue; and, in any event, as the noble Lord, Lord Mais, explained, our costs are not what we imagined they might be at the time of entry, or have not so far proved to be. The Select Committee say that the use of the present unit of account is not wholly indefensible since it provides help for a country when its currency depreciates; but it is help which must be abruptly terminated when the adjustment comes eventually and which does appear unfair to other countries in the meantime. It would seem preferable to have a more graduated adjustment such as the new unit of account would provide and specific separate approved assistance for any country which might require it at any time.

The percentage increase in the budget is less than for a number of years, as has already been said, and the Select Committee, as we have also heard, say that it will be 22 per cent. I understand that this is taking the preliminary budget against the preliminary budget last year after allowing for the new distinction between payment credits and budgetary commitments. I understand that if we take into account the rectification budget presented by the Commission a few days ago, this will mean that the increase in the proposed budget over the 1976 budget will be 9.33 per cent. for payment credits and 13.2 per cent. for budgetary commitments. But I suppose there may be a similar supplementary budget in 1977 and everything depends on how accurate is the forecast. The budget is, after all, a forecast of the financial effects of policy decisions already taken; nevertheless, it offers us an opportunity to assess the significance of the different policies being pursued.

Finally, I am left with three outstanding impressions. First, that the budget is still dominated by agriculture; secondly, that we spend a very small sum on the Social Fund and on the Regional Fund, welcome though it is; thirdly, what a small amount altogether we are spending on what is potentially so ambitious a project as the creation of a European union, whatever interpretation your Lordships may individually place on that term following on the debate which we had earlier this evening.

9.40 p.m.

Lord BRUCE of DONINGTON

My Lords, I should like to take this opportunity of thanking the noble Baroness, Lady Elles, for the kind remarks she addressed to me concerning the responsibilities that the European Parliament have entrusted to me. I should like to think that in due course that may reflect some credit upon this House. I read carefully the document that has been prepared by the Committee of the noble Lord, Lord Mais. I congratulate him and his Committee most sincerely on the extreme clarity of this report which has been produced in under one month from the issue of the preliminary draft budget. If one could have seen the actual volumes of the budget—seven in all—with their vast bulk and thousands of pages, one would have appreciated that it must have needed a considerable amount of work to assimilate them, or assimilate the most essential parts of them. As one who has had the opportunity of studying the documents, this is one of the best summaries I have ever seen of any kind of European document.

This is the last occasion that we shall have before the European Parliament representatives—of which I am one, together with the noble Earl, Lord Bessborough, Mr. Michael Shaw and others—meet the Council next Thursday, 22nd July. We shall make our views known then on the kind of action we think the Council ought to take and what attitudes of mind the Council ought to take regarding Parliament's views on the preliminary draft budget. We hope that on that occasion the Council and Ministers will not have made up their minds as to what they propose to do. After all, they do not have to submit their draft budget to Parliament until 10th September. We therefore hope that what we may be able to say on 22nd July may have some influence upon them and what we say here today has some influence on our own Ministers representing us on the Budget Council.

It is possible to take two views of the type of budget which has been presented to us. It is a very small budget in relation to the total resources of the Community's total income and expenditure and, at about £3,801 million—which is projected expenditure—it is at about the level of a medium-sized multinational company. It is under 2 per cent. of the total national budgets of the Nine: it is an insignificant fraction of the gross national product of the Nine. As I said, there are two attitudes one can take. There is the attitude, "After all, this is another expense on the budgets of the national Parliament". Of course, much cheap political capital can be made by individual politicians wishing to look, in the eyes of their Parliaments, the most zealous in cutting down every bit of expenditure possible regardless of its purpose.

The way in which I hope your Lordships will look at it, and in due course the European Parliament will look at it, is this: Does it meet the real demands of the Community in accordance with the provisions of its Treaty? In other words, does this really amount to the correct type of expenditure and the correct priority of expenditure in order to achieve the best results within the economic climate available and bearing in mind the powers of the Member States? Is this the best way of going about it? This latter way of looking at the budget is the one that I would hope the European Parliament would take and the one which will be taken by your Lordships. Even if we take the broader view, as I hope we shall, it is of course necessary to ask: Is this a satisfactory reflection or instrument of Community policy?

This does not mean that we should not exercise the utmost care in scrutinising items of expenditure in order to see that there is no waste. This must be so, and particular attention will obviously be paid to Titles 1 and 2 of the budget, which incorporate the expenditure of the Commission itself in terms of staff salaries, establishment expenses and so on. The noble Baroness may rest assured that we shall pay great attention to the words which have fallen from her lips on this peripatetic Parliament moving between one, two or three places, as the case may be.

We shall also, of course, examine staff under Title No. 1. In this connection, if I may, I should like to remind your Lordships of some very sensible observations that fell from the lips of the noble Lord, Lord Carrington, in the debate on the 14th July. He was talking about the way we seemed to be losing our confidence in this country, and he said: … it is not helped by the continual carping and criticism of our institutions by the media. Of course, I do not mean there should be any cover-up of our failures or that there should not be exposure of wrongdoing. But the sneering and the cavilling at our institutions goes much too far. The noble Lord went on to give examples; then he continued: Those responsible for this and those who allow it should ask themselves very seriously whether they are doing much of a service. It may be smart and it may be slick; but it is dangerous and it is contagious."—[Official Report, 14/7/76; col. 324.] There is already similar evidence within the media of a deliberate campaign of denigration being mounted against the civil servants in Brussels. I think that ought to stop and that those who own and edit newspapers might undertake a similar degree of responsibility as was advocated by the noble Lord, Lord Carrington, the other day. Indeed, some of us may think that if the final truth were known the social value of some of these statesmen, both at home and abroad, is at a proportionately higher level than the salaries and expenses paid to some owners and editors of our national newspapers, whose affairs are never under public scrutiny.

Having said that, my Lords, it is necessary—and we shall endeavour to do it—to give serious scrutiny to every item of expenditure to see whether it is cost-effective so far as our limitations go. It is our intention that the whole organisation, irrespective of whatever Mr. Jenkins may do, shall be brought under Parliamentary scrutiny and under scrutiny from the Community Budget Committee on this occasion.

I shall not go further into matters connected with the budget proper, except to point out that the expenditure on agriculture represents 68 per cent. of the total. This is largely an open-ended commitment. It is important that this should be borne in mind. It is called, "compulsory expenditure". Parliament exercises no control at all over it and the Council do not evidence any particular desire to control it either. It is, in fact, open-ended expenditure and, therefore, open to some of the criticisms that have emanated not only from ourselves but also from the noble Baroness herself.

Also, if I may presume to answer another point raised by the noble Baroness, the Regional Fund is subject to specific regulations which are laid down in Volume 18 of the Official Journal of 21st March 1973. It is important to realise that every time a payment appropriation is made out of the Regional Fund of the European Community there is a like percentage commitment on the part of the Member State affected. If 30 million units of account are paid to a certain country from the Regional Fund, that country is expected to provide 70 million units. That means that if a Member State considers itself to he subject to the necessities of austerity and wants to reduce its own Government's expenditure, or if we in this country decided to cut our expenditure on regional development, the amount which was received from the Regional Development Fund would automatically be cut.

So, even though Parliament has power to increase the total availability within the Regional Fund, because it is regarded by the Commission as non-compulsory expenditure the amount that any country draws out of the Regional Fund ultimately depends not upon the will of Parliament, but upon the will of the Member State concerned. I certainly hope that that will be borne in mind, in the light of the strictures which the House was good enough to permit me to make earlier on the gross disparity which has developed between the richer parts of the Community and the poorer ones. This shows that very considerable responsibility rests upon Member States, if they all bow to the current clamour to cut public expenditure, because if cutting that expenditure impinges on regional development they will be making the position worse than it ever was before. I hope that Her Majesty's Government and my noble friend will bear that point in mind.

In theory, the European Parliament has the right to increase the expenditure in the Budget by 122 million units of account, which is approximately £51 million. It may well be on this occasion that, far from advocating that the Budget should be cut, the European Parliament, supported by delegations from this House and from the other place, may suggest increases if an extra amount is required for research and development, data processing and all the other Community projects. I therefore hope that my noble friend, who is to reply to this debate, will convey to his right honourable friend the fact that we shall expect new account to be taken of the general attitude within the Community as a whole, and in the European Parliament, which will be no less intense than it was last year; and that we want a responsible Budget and not one that merely echoes a parrot cry, unsupported by any economic analysis or by any social recognition, and which simply says, "Austerity for austerity's sake".

Finally, on the assumption that the Council will decide to amend the preliminary draft Budget produced by the Commission, we hope that the provisions of Article 13 of the Financial Regulations, which require the Council to state its reasons, where necessary, for departing from the preliminary draft, will be borne in mind. I say this with feeling because the draft Budget came back from the Council last year with some what comic amendments to the effect: "For reasons of austerity we have decided to do this". This will not do; it is not in accordance with Article 13 of the financial regulations.

I share entirely the concept which was touched upon by the noble Baroness, Lady Elles, concerning the budgetisation of loans. Although the European Investment Bank is established under Articles 139 and 140 of the Treaty, the loans made and repaid are not stated in the Budget. With the noble Baroness, I much prefer the adoption of the procedure that we tried to adopt in this country of above and below the line expenditure so that we may see what are the capital outlays and returns. I hope that this will be done. I hope also that in due course the Financial Commissioner will be able to give us an explanation of why the net interest charges in the current Budget have not been stated in respect of loans made and effected during the last financial year. Doubtless there will be a memorandum upon the matter.

Also, we and, I think, the House would prefer that the sums which are being made available under the Lomé Convention—the sums which will be disbursed for stabilising prices to the developing countries concerned—should also be budgetised. At the moment all payments and receipts in regard to the Lomé Convention are outside the budget. We think that they should be inside it. Therefore we want transparency and we hope sincerely that the remarks which have been made tonight by your Lordships in all parts of the House to my noble friend will have some bearing on the response that we get on 22nd July.

9.57 p.m.

Lord COBBOLD

My Lords, the noble Lord, Lord Mais, in introducing the Motion, has covered the general sense of our Report, but it may be of interest to the House if T refer in rather more detail to one of the particular aspects to which the Committee has given special attention. First, I should like to echo on behalf of the Sub-Committee and, perhaps, on behalf of the Select Committee, the congratulations to the noble Lord, Lord Bruce of Donington, on the very important and somewhat difficult task which he has undertaken and I should like to thank him very much for the extremely valuable evidence which he and two of his colleagues from the other place gave to us in the course of our inquiry about the Budget.

It should first be emphasised that the EEC Budget is not exactly a Budget as we understand the term. It is more akin, as has been suggested in the Report, to an estimate of the likely financial consequences of Community proposals. If I may quote from last year's Report: The Committee concentrated on the need for more effective scrutiny and control of Community expenditure. This year the Committee have felt that their principal duty was to consider to what extent the criticisms and suggestions made in last year's report have been dealt with. The Committee have felt bound to conclude that although there are some welcome improvements, there remains a great deal to be done before control procedures can be regarded as satisfactory.

In saying this, I should not wish to underestimate the difficulties. Many of your Lordships know from practical experience the problems and frustrations involved in securing effective control of expenditure in local and national Administrations, even when they have decades and even centuries of experience. In a Community administration, still in a formative stage, the problems are far greater, both because of their complexity and also because of the need to dovetail the experience and methods of the various participating countries. Nevertheless, it is a matter which must be tackled and must be tackled more urgently and more vigorously than it has been up to date. The position has nowhere been set out more clearly and more forcefully than in the Government White Paper of December last, to which the Committee hope the House will give the strongest support.

The problem falls broadly into two parts. First there is pre-budget control; that is to say, an effective machinery for costing and controlling the financial consequences of policies and proposals as they come forward. Secondly, there is ex post facto control to ensure that monies have been properly spent and that accountability lies on the officers, departments and institutions responsible for recommending or authorising expenditure.

On the first point, some progress has been made since the Committee's last report, particularly in the development of so-called fiches financieres which are in effect costing documents which accompany each proposal. The Committee feel, however, that this particular development needs to go a lot further before it covers the ground. In the context of the fiches financieres procedure the Committee strongly recommend to Her Majesty's Government that when draft Directives are put forward to the Scrutiny Committees in this House and in another place the departmental memorandum should always he accompanied by the clearest possible forecast of any financial consequences.

The Committee attach even greater importance to the proposal that there should be a financial commissioner concerned with financial and control duties only and not burdened as at present with other responsibilities. His position would thus be more like that of a Treasury Minister or senior official in a national Administration. But even if this proposal is adopted it must be recognised that real control of expenditure lies with the Council of Ministers, where the difficulties of overall financial supervision, such as is normally exercised by a Finance Minister in a national administration, are obvious enough. These difficulties have been stressed to us in evidence, as has the importance of ensuring that effective financial analysis comes forward to the Council with each proposal.

Your Committee have noted the material increase of 1976 estimates over 1975 for administrative costs. Attention has also been drawn to the present system whereby the Council of Ministers exercises no control over the expenditure of the European Parliament, where costs are inflated by several factors, including the use of six languages and, as has already been mentioned, the peripatetic nature of the Parliament.

It is however gratifying from our national point of view to note that in the table of contributions to the EEC Budget the actual out-turn for 1975 shows a net benefit to the United Kingdom. This result is in part due to receipts from Social and Regional Funds, but in part to the depreciation of sterling. As has already been mentioned, the proposed application to the budget in 1978 of a European unit of account reflecting current exchange rates would of course have profound consequences for the United Kingdom contribution.

I turn now to the second point, that of ex post facto control, involving adequate arrangements for audit and for accountability of officers, departments and institutions responsible for expenditure. On this, the Committee feel bound to record their view that, while there are pointers in the right direction and while a great deal of hard work is being done to achieve proper mechanisms, the progress made since the last report is very disappointing. Until the proposed arrangements for an Audit Court are ratified, with machinery somewhat similar to the Public Accounts Committee with which we are familiar, your Committee do not feel it possible to have confidence in the audit system. They have been disturbed to hear in evidence that the bodies at present responsible for audit do not have completely free access to information and also that various frauds which have given rise to criticism in the past have by no means been eliminated.

Your Committee hope that this House will give the strongest support to the efforts which are being made by Her Majesty's Government and also in the European Parliament and its Budget Committee by Members of this House and another place to accelerate the progress which is urgently needed in these fields. I should not like it to be thought that your Committee have approached the problems of the budget and of financial control in too carping a spirit. The United Kingdom has joined the Community at a stage when the ideals of its founders have to be translated into the nuts and bolts of arrangements covering such mundane matters as money and food. The Community institutions are busy translating their ideals into reality. Your Committee fully appreciate both the difficulties involved and the efforts being made to overcome them even when we deplore the slow ness with which progress can be made. One might add, my Lords, that it is perhaps not for the United Kingdom to appear in too white a sheet in these matters, or as perfectionists in the art of financial forecasting or of controlling escalating costs, whether they be due to inflation or to other causes.

10.6 p.m.

The Earl of BESSBOROUGH

My Lords, like all the other speakers, at the outset I should like to thank the noble Lord, Lord Mais, for conducting us again, if I may use the pun which 1 used last November, through this complicated maze, or labyrinth as another noble Lord has described it. He has certainly rendered us good service in producing this report. I feel that we should also congratulate the noble Lord, Lord Cobbold, who has clearly been his principal adjutant and who has presided over the Committee in the absence of the noble Lord, Lord Mais. I was very sorry not to be free to attend, together with the noble Lord, Lord Bruce of Donington, and my honourable friends in another place, to give evidence before the Committee.

I should also like to say that we all welcome the appointment of the noble Lord, Lord Bruce, as rapporteur for the 1977 budget. I have fortunately been in a position to hear him agreeing very often with my honourable friend Mr. Michael Shaw, who leads our budget delegation. It really leaves me little to say, because I agree with everything he said, and also with everything the noble Lords, Lord Mais and Lord Cobbold, said. However, there are just one or two minor points which I might have put to the noble Lord, Lord Mais; indeed, which I wanted to get to him before the report was printed, but I am not going to deliver myself of these little points, rather similar to ones I produced last year, in view of the lateness of time.

But there is one important point I should like to make which I think was probably indicated by the noble Lord, Lord Bruce of Donington, although perhaps he did not say so specifically. There is no reference in the report to the margin of manoeuvre which the Parliament has in this respect over non-compulsory expenditure—for example, aid to the associated developing countries. A similar comment could also be made in a later paragraph, paragraph 40, where the entries that Parliament can make under this margin were not in fact referred to.

My Lords, as your Lordships know, I was very much involved in this procedure last year, and it is extremely important to the European Parliament, which has the final say in this expenditure. I should also point out that I feel the budgetary authority—and this again is a slip in the document—is Council and Parliament, and not of the Commission; that is in paragraph 13. 1 feel that this paragraph might perhaps have paid a little more attention to this point, and its last sentence is perhaps too generous towards the restricted attitude of the Council towards the budget entries.

Overall, I have the impression that the sub-committee's report could perhaps have been better directed towards considering the shape of the Community budget that your Lordships would like to see, rather than to dwell overmuch on questions of control which are, I think, better dealt with by the European Parliament, including the noble Lord, Lord Bruce of Donington, and my noble friends, and on which the United Kingdom Parliament is perhaps not quite so well qualified to comment.

I should have liked to say something about this notion of commitment appropriations. I will do so briefly, because I think that they are not perhaps fully understood. The notion is in line with the Commission's belief that the budget of the Community should be a budget of forecasts, and should enable the Commission to enter into commitments without obliging it actually to effect the payments in the one financial year. I should also, in that connection, have liked to speak of the revision of the financial regulation. What is going to be proposed is not going to solve all the problems, but it is an important matter which the noble Lord, Lord Bruce, and I are at present considering.

I would make one comment on the energy sector, in which I am specially concerned. The Commission have proposed major increases, and ft is as well they have, for exploration for hydrocarbons and uranium within the Community, plus financial interventions in the cold storage sector. This is a total increase of 55 million units of account, or 83 per cent., in commitment appro priations, with a much smaller increase, of course, only about 13 per cent. for payment appropriations. In the general research activities of the Community a steady increase is proposed, in line with the decisions on the multi-annual programmes that have intervened since the beginning of 1975. So for the whole of Chapter 33 (on research) of the preliminary draft budget an increase in payments appropriations amounts to some 48 million units of account. However, since the major commitments for the four-year or five-year programmes were entered into in 1976, there is an actual fall in commitment appropriations for 1977.

I was asked to say something on one particular supplementary budget, which seemed to some of us in the European Parliament to be essential, although in principle we are very much opposed to supplementary budgets. This was the one which was adopted recently concerning the del Fruili earthquake in Northern Italy. Your Lordships will remember the disaster which took place there. I was sent by the European Parliament to represent it in the disaster area to see what steps were being taken by the Community authorities, and whether the aid from the Community of some 60 million units of account was opportune.

I need hardly say that this was one of the most moving and agonising experiences of my life. I was present when the 923rd body was drawn out of the rubble. But these disasters certainly do increase Community solidarity, and perhaps some good thing comes out of terrible disasters of this kind. In this case Parliament used an accelerated procedure to approve the supplementary budget, because it was our opinion that it was urgently needed, and that it would be inopportune for any of the European institutions to seem to be delaying the project, even in the name of defending their budgetary rights. On the control aspects, the actual special programmes proposed for that part of Northern Italy are in the form of the assimilation of that region into existing Community policies. Therefore, the general financial provisions of, for example, the Council Directive on hill farming and the basic agricultural regulations will apply.

On the third aspect of the proposals—the regulation on special assistance for repairing infrastructural damage caused by the earthquake (Document (76) 279), inasmuch as it was proposed to expedite procedures, without necessarily consulting the Regional Policy Fund committees, difficulties in financial control could be raised, but it was envisaged that general Community supervision would be sufficient. I hope it will be. In any case, we shall be watching this very carefully, and I am sure that the Budget Committee's sub-committee on financial control will be keeping an eye on any problems that might arise from this point, and I shall certainly be doing so personally by another visit to the area.

In conclusion, I believe that it is a positive factor that your Lordships have been able to examine the preliminary draft Budget at this stage of the procedure; namely, before the Council draws up the draft Budget on 22nd July. This is an improvement on last year. The new calendar, brought in largely as a result of pressure from the European Parliament, and I think from noble Lords here, will enable both national Parliaments and the European Parliament to exercise more effective scrutiny. Commissioner Cheysson has already characterised this Budget as banal. More charitably it could be described as a budget of consolidation. It should certainly not invite the axe from the Council when it draws up its position on Thursday. If that axe were wielded, then certainly the Budget would, in my view, be a step backward and would indicate a lack of will to persevere with European integration. I trust that it will not do that, and I trust that the noble Lord the Minister will be able to assure me that it will not happen.

On the points of presentation of the draft Budget, the Commission should be congratulated for providing a very detailed and extensive explanation, in Volume 7, of the draft Budget. It is by far and away the most comprehensive political document accompanying a Budget so far. Whatever other criticisms we may have heard this evening, it is certainly the most comprehensive document which has so far been produced by the Commission. It should serve as a model for future years, and I should like to pay this tribute to the Finance Commissioner, M. Cheysson, and his staff for the work which they have accomplished in a very much shorter time than in previous years.

10.20 p.m.

Lord PRITCHARD

My Lords, at this hour will not detain the House for long. The brief theme of what I wish to say is to stress, both as an industrialist and a banker, that there should be an improvement in the costing of the EEC figures and that there should be greater opportunity for your Select Committee and its subcommittee to comment on and criticise, constructively of course, the extent of the financial burden which is laid on EEC Members in the light of future inflation.

We are all used to making our own budgets, be it personal or in industry, and we are used to a discipline being imposed on us so that we include not just the things that we can do with but the things that we cannot do without. I feel that in the EEC, in many instances, because it is somebody else's money and they are not responsible for raising it, they do not have the same discipline. The noble Lord, Lord Bruce of Donington, spoke more eloquently than I could about this whole financial area and I support him in what he said. Equally, the noble Baroness, Lady Elles, touched on the financial benefits that this country is receiving, and I very much support her when she says that it is important that this is made clear by Her Majesty's Government to the public who are not aware of this fact. I wish also to emphasise what the noble Lord, Lord Cobbold, said about the need for stricter control over spending and a stronger audit control. These are in my opinion two points where there is considerable weakness in the Commission that would not be tolerated either by Members of the other House or indeed by any commercial company in the Community.

The Select Committee was told in evidence by the Treasury of an improvement in the fiches financiéres, to which Lord Cobbold referred, which is the financial explanatory memorandum which accompanies each Commission document. We welcome this and we believe that it is highly important that this improvement should be sustained. Ministers and officials in the Council and in its Working Parties should test and scrutinise with the greatest possible care the Commission's estimates and costs. The House will have seen at the end of each report that we have made the suggestion that the Governments' explanatory memoranda should, as a matter of course in all cases, give an indication of the costs of their proposals in as much detail as possible. In doing so, they would only be following the practices of most of their Parliaments, and certainly our own, whereby Bills are furnished with an explanation of the financial implications when they are introduced.

Further, your Select Committee and its sub-committee A dealing with finance, economics and regional policy—both of which I have the honour to be a member—will then make it their practice to seek information from Government Departments as to the cost of the proposals and will report on the information they receive in a particular paragraph dealing with the financial implications, in the way that has been done up to now in regard to the legal implications of EEC draft legislation. This is standard practice and it is a great credit to my chairman of sub-committee A, the noble Lord, Lord Mais, that he has done what he has done in such a very short time after receiving the document. I strongly support the congratulations of Lord Bruce and others on the amount of work that he and his colleagues have done in such a short time in presenting such a concise and yet full report.

In the First Report of the Expenditure Committee in another place, dated December last year, it was stated: We feel bound to conclude that, even allowing for unannounced policy changes, the Treasury's present methods of controlling public expenditure are inadequate in the sense that money can be spent on a scale which was not contemplated when the relevant policies were decided upon. This criticism was of course levelled at our own national control, but I believe that the same criticism can be levelled at the EEC, perhaps to an even greater extent.

I should like to end by asking the Minister whether it is possible to answer two questions in his reply although, as he has not had much notice of this, perhaps this may not be convenient, in which case I should be grateful if he could let me know the answers in due course. The first question is in connection with the effect of inflation. We all know that actual expenditure must often exceed planned and approved expenditure simply to purchase the same amount of goods and services. What will be the position in the Community? If the cost of a policy increases because of inflation in the Member States, will money expenditure be held constant and the programme therefore reduced, or will the full programme be pursued and therefore the cost increased? Secondly, that question has implicitly assumed that the rate of inflation is the same for all Community countries, whereas we all know that to be inconceivable. What, therefore, are the implications of the differential rates of inflation in this context?

10.27 p.m.

Lord RAGLAN

My Lords, I thought that, as chairman of Sub-Committee D on Agriculture and Consumer Affairs, it was incumbent upon me to say something about the agricultural budget, so long as I could make my speech not too long and boring. I should like first to refer to the subject of our previous debate this afternoon. Mr. Tindemans refers only briefly to agriculture: in fact, he gives it only eight lines. In the Select Committee's comments on his report, we said that we considered this surprising in view of the fact that agriculture, as has been mentioned this afternoon/ represents over two-thirds of the Community's budget. I suppose that Mr. Tindemans might reply that the Common Agricultural Policy was already a fact and that he was thinking more about the future than about the present. On the other hand, my noble friend Lord Northfield might have something to say about that as well.

Nevertheless, in those eight lines, Mr. Tindemans manages to make what to my mind is a highly controversial statement. He says, having said that agriculture is our most highly developed and integrated form of common action: Agricultural policy reflects one of the aspects of European union in that it guarantees farmers incomes and living standards comparable with those of other groups in society. This objective is one of solidarity and justice. The inference of that statement, so far as I understand it, is that the CAP exists, in Mr. Tindemans' view, to ensure parity of income for farmers vis-à-vis industrial workers. Although your Lordships will discuss these social matters in greater depth when we come to the debate on the Select Committee's Report on Farm Structure, I feel I should point out that Mr. Tindemans, in saying what he did, has given ammunition to critics of the CAP—and there are still many in this country—who are continually saying that the CAP is entirely producer orientated and thinks of the consumer not at all. If that really were the case, and Mr. Tindemans was right in his assumption, I think we should have all have a justifiable cause for complaint. The Select Committee says as much in Part IV of its report on Tindemans. But it seems to me that the CAP is in fact much more well-meaning and beneficial than that in practice, even if it is frequently to be criticised in the practicality of its schemes.

We start with the broad idea behind the CAP that it is wise and it is prudent to be as self-sufficient as possible. The formulaters of the policy think that there is no virtue in importing foreign food. Why import it if we can produce it ourselves? Next, one runs into the problem that if one goes for self-sufficiency one is bound to have surpluses from time to time, and that it is surpluses—and this may seem paradoxical—and not shortages which usually beggar producers. If one has something to sell in time of shortage, one can make a lot of money out of it, but if one has an enormous surplus one cannot sell any of it very often. So just as we in this country thought up deficiency payments to help farmers in time of surplus, so the Common Agricultural Policy makers invented intervention; that is, a floor price for the commodity below which the Community intervenes and buys the surplus.

We must not forget that we in this country also have traditionally bought surpluses of those commodities in which we have chosen to be self-sufficient, such as milk and potatoes. But in our case this has been done not through an intervention board but through statutory marketing boards. There is much evidence to support the view that for certain commodities marketing boards are much more sensitive instruments for control and fine-tuning than the Intervention Board of the CAP. But the purpose behind both these instruments is broadly the same, which is that if you have self-sufficiency you have surpluses; surpluses harm producers; and that jeopardises production the following year—in other words the result of a free market is chaos, and the necessary alternative, which is a managed market, costs money. The continual argument within the CAP is how that market, which is as near as possible a free trade area, is best managed.

One of the points of disagreement is, and will continue to be—and this is where I began my remarks—what proportion of the agricultural budget will be directed towards market management itself, and how much, and in what way, it should be directed towards supporting farming as a way of life in those areas of the Community (and we must not forget that we have also many areas in Britain) where it is not possible to maintain a decent income out of farming, due to small farm size, or unfertile locality or substandard methods of farming.

Looking at the budget forecast, one sees that the Commission reckons that to support the CAP it will be necessary to find about £2,587 million; that is about £10 per head of the EEC population. This £10 compares with about £6 per head which United Kingdom agricultural policy was costing in the last year (that is, 1972–73) in which separate account was kept of expenditure. Allowing something for inflation and something else for the fact that our agricultural support budget was applied only in respect of half the food that we ate, the Community forecast budget does not really, it seems to me, compare too badly in cost with what our own used to be. Certainly the allegation that money spent on the CAP is money spent on a ramshackle extravaganza appears to me to be very wide of the mark indeed. We do not get too bad a value for our money. But, my Lords, we must continually look for ways in which we can get better value, and we must surely be mindful of what my noble friend Lord Bruce of Donington said about the commitment being open ended. Incidentally, it represents only about 1½ per cent. of the total budget of the nations in the Community. Nevertheless, there may come a time when a limit will have to be set.

My Lords, in considering the draft budget, one must first of all remember that, since agricultural expenditure is about 70 per cent. of the Community's budget, any large alteration in the agricultural bill is likely to have a big effect on the total budget. Earlier draft budgets have been presented in September the previous year, and advancing this one to June will have the effect of making the forecasts more unreliable and tentative than usual. For instance, many important agricultural commodities had not started their 1976–77 marketing years in May, when the Commission were trying to get out their figures. Nevertheless, one cannot have one's cake and eat it, and if we want to consider the budget earlier we must be mindful of the drawbacks. The Commission, as has been mentioned this evening, will submit a Letter of Amendment in September which will correct the initial agricultural estimates on the basis of later information.

My Lords, certain assumptions have been made in the construction of the budget, any one of which can make a big difference if they are not confirmed. First, they assume that the Council of Ministers will agree to adopt the Commission's co-responsibility measures for milk producers. This is not the time to debate those measures, but some people think that the Commissioners are being clever without being practical enough. Secondly, the Commission assume that the Council will agree to the halving of the existing levels of monetary compensatory amounts before the start of the 1977–78 marketing years; and, finally, the Commission assume that the Council will agree to limit the price rises which it will undoubtedly award to Community farmers next spring, so that the extra charge on the budget is only 200 million units of account—that is, £83 million. The assumption that all monetary compensatory amounts should be halved has important implications for Britain. As my noble friend Lord Mais said, we have done very well out of these payments in the past, especially in terms of shielding consumers from the full effects of the falling pound; and the Government's desire to shield people from the true cost of food will be balanced by the reluctance of our partners to continue to subsidise us.

Lastly, I would remind your Lordships that the agricultural budget is in two parts: the guarantee fund, which is applied to produce, and the guidance fund, which is applied to improving the means of production. The forecast holds a surprise for all those who thought, perhaps like the noble Baroness, Lady Elles, that the greater part of the CAP's problems was derived from the need for structural reform—that is, the amalgamation of holdings and the need to increase efficiency—for the Commission propose holding expenditure on improving long-term structure to a rigid limit of 325 units of account, and not even all this is expected to be spent in 1977; about half of it, in fact. The Select Committee's Report refers to this as "disturbing". My own opinion is that I think it may really reflect what in my view is welcome realism in the Commission, in that it is one thing to talk about structural reform and to offer bribes to bring it about; it is quite another to cajole small farmers to accept these incentives and to change their way of life accordingly.

The answer to the problem of structural reform appears to be not to accord with Mr. Tindemans' sentiments and assumptions, but to pitch the price of agricultural produce at such a level that the very inefficient are not kept in business and are not given parity of income as of right, and to let time and the lure of more profitable jobs elsewhere be seen as necessary allies to a policy of subsidised resettlement. In other words, I think that changes are already going about as fast as they can reasonably be expected to go. Your Lordships will know that ways of thinking can take long enough to change, and ways of life take much longer to change. I think it is very important to remember that when considering the CAP and its budget and its development in the future.

10.40 p.m.

Lord JACQUES

My Lords, if I am a little cryptic I think that the House will understand. I should first like to congratulate the Committee on their report which is both full and comprehensive and which has been prepared in such a short period of time. I would also congratulate my noble friend Lord Bruce of Donington on his appointment a rapporteur in relation to the budget. I think that we all know him and expect him to do useful work for the Assembly and to be a credit to the United Kingdom.

The time-table we have this year is experimental. It was partly at the instigation of the United Kingdom; and, in the course of the debate, the advantages and disadvantages of that time-table have been quite clearly stated. I need not repeat them. I must say that since the time-table is experimental we must keep an open mind, but the Government will bear very much in mind what the Committee has said and what has come out in the debate. There is in addition a three-year forecast which is not yet available.

The change that has been made to the form of the budget on commitment appropriations and payment appropriations has been quite fully explained to the House. The Government welcome this change; it simplifies. But we expected that the commitments would be restricted to projects which were going to be spread over more than one budget year: Provided that is done, we certainly welcome this simplicity.

We notice that the Scrutiny Committee have suggested that the commitment appropriations should be kept quite separate—something similar to our Public Expenditure Statements. We have grave doubts about that. Our Public Expenditure Statements are concerned with the planning of expenditure. These commitments are more than the planning of expenditure: they are usually the amounts up to which the Commission is authorised to commit. Therefore, we have very grave doubts as to whether or not they should be in a separate document.

The Commission, of course, sees the preliminary draft Budget as a forecasting document. It includes all items for which there may be a need for expenditure. The Budget Council usually deletes items for which there has not been policy agreement. In consequence, there are almost certain to be supplementary budgets; but supplementary budgets go through exactly the same procedure as preliminary draft budget. We are convinced that this is a better way of controlling the finance.

The preliminary draft Budget of 9,260 units of account is an increase of 22 per cent. on the agreed budget for 1976—and I mean the agreed budget before the supplementaries. But that increase is understated. We must bear in mind that when changes are made such as the changes that have been made from commitments appropriations to purely payment appropriations, then, in the first year in which the change is made, there is a reduced level of expenditure. Your carry forwards are obviously going to be greatly reduced. The only carry forwards you have are those from previous years. It follows, therefore, that this 22 per cent. increase is an understatement and the real increase is something substantially more than that. Consequently, that has to be borne in mind.

So far as the attitude of the United Kingdom is concerned, let me say to my noble friend Lord Bruce of Donington that this Government have never, do not, and will not advocate austerity for the sake of austerity. We advocate austerity only when we think it is absolutely necessary to protect our currency or reduce our rate of inflation. That is our policy. It has been clearly stated and I restate it.

Consequently, since we do not seek austerity for the sake of austerity at home, we are unlikely to do that in the Community. But because of our position at home—and we have to bear something like 20 per cent. of the cost—we will seek to restrain increases in ways which are sensible. We shall try to get sensible priorities. Already, although the preliminary draft was published only on 15th June, there have been changes which will affect the budget. For example, on 29th June there was a measure of agreement on new methods of controlling the number of staff and controlling the pay increases which they will receive. This agreement will give rise to some recalculations in the budget.

The noble Lord, Lord Bruce of Donington, put two questions to me in writing which I can answer briefly. He asked, first, if inflation continued, whether the control in the Community's budget would be on a cash level, or whether provision would be made for the increase in cost. The budget itself provides for anticipated increases in cost, but if this is not sufficient because of inflation, then it is a matter for the Commission as to whether or not it seeks a supplementary budget. It is a matter for the Budget Council and the Assembly as to whether or not they accept those supplementary budgets.

The second question was: what is the effect of differential depreciation? That must depend upon the sector of the budget concerned and the place where the money is spent. For example, if the sector of the budget concerned is original fund, and the money is spent in a country where inflation is at the most rapid rate, then the consequence would be that while the same amount of money might be spent, it would buy less in the country concerned.

Last year 64 per cent. of the preliminary draft budget was on agricultural guarantee. This year, on the face of it, the figure is 63 per cent., but one has to take into account that there have been changes in the budget, particularly in regard to monetary compensation. Monetary adjustments which were formerly charged as part of the agricultural budget are now charged separately. If one allows for that, then agricultural guarantees account for 69 per cent. of the 1977 preliminary draft as compared with only 64 per cent. in 1976. So the cost of the agricultural guarantees has increased more than the increase in the total budget.

We all know the reason for such a big percentage of the budget being agricultural guarantees. This is the only area where the Community meets almost the whole cost that would in other circumstances have been borne by the national States. In all other sectors, the Community simply makes a contribution. The major part of the cost is borne by the national exchequers of the Member States. Of course there is very little that the Budget Council can do about this position. The Budget Council is not concerned with making policy; it is concerned with seeing that what is provided is the amount that will be needed to finance the policies which are made elsewhere.

What can be done are two or three things. First, we can examine the budget, whether for agriculture or anything else, to make sure there is no fat hidden in it. Secondly we can question the changes that have been made to make the agricultural budget look somewhat smaller than it would have been. Thirdly, we can examine those areas where the estimates are highly speculative. Fourthly, we can seek to eliminate any elements of contingency reserve; and of course we shall do so in so far as we are part of the Budgetary Council.

I should like to say a few words on the United Kingdom's contribution. In 1976 the contribution was 16.3 per cent. This year it will be 19.24 per cent., but I must point out that at current exchange rates it will be only 13 per cent. Our gross national product is 16 per cent. of the gross national product for the Community. Therefore, we could hardly expect that we should be able to claim some compensation from the correction mechanism which applies when the contribution made by a State is excessive in relation to its gross national product — because, taking the current rates of exchange, our percentage is much less than our percentage of the gross national product.

However, we must bear in mind that there are going to be changes. It has already been provisionally agreed that as from 1st January 1978—and remember, my Lords, that means the next budget we shall consider—instead of the present units of account for budget purposes being related to gold, there will be a unit of account which is Market-related. This, of course, will make a substantial difference to our contribution; but in our case we have a proviso that we would accept the Market-related unit of account, provided there is satisfactory agreement for the two remaining transitional years of 1978 and 1979, and that there is a reasonable interpretation of, I think, Paragraph 131 of the Treaty of Accession; so that we have some protection. But we also have to bear in mind that from 1980 onwards the budget will be on a full "own resources" basis. I think it is within those years—that is, the years 1978, 1979, 1980 and onwards—when we may very well have to look at the correcting mechanism which was agreed in the renegotiation for the collection of our contribution. I believe that in those years we may well be pleased with the foresight shown by the former Prime Minister who renegotiated the correcting mechanism.

Finally, I should like to say a few words on financial control. Last December, the then Prime Minister took the initiative. Germany proposed that there should be a Finance Commissioner. We strongly supported that. A new Commission has to be appointed in 1977, and in 1977 this matter will certainly come to a head. So far as the Court of Auditors is concerned, I think I need only say that apart from ourselves and Denmark, who have ratified, several other countries are in the course of their procedural processes in ratifying. We understand that at least three of those countries are very near to ratification.

So far as the documents are concerned, I think there is some exaggeration here. The trouble in regard to documents and auditing arose over two matters. First, there was the question of the minutes of the European Development Fund. The question was whether the Audit Board should automatically have all the minutes, or only some of them. The Commission referred this matter to the Committee of Ministers, which took the view that the Board should not automatically get all the minutes—they were sensitive minutes, in many cases—but should get those which were needed for the purposes of audit. I believe that the other case was in connection with aid to developing countries, and the matter in dispute was whether the Audit Board should get the documents at once, or after a project had been completed and closed. The view taken by the Commission was that they should get them after a project was completed and closed. So that while there was some point to be made, we should be careful not to exaggerate.

Lord BRUCE of DONINGTON

My Lords, will my noble friend forgive me for interrupting? Is he aware that the circumstances that gave rise to the misgiving about documentation did not arise from the two examples he gave? What caused the misgiving was the payment to maltsters in connection with malt subsidies. That is the case that was considered by the controlling sub-committee, and that is where there was some difficulty about the provision of documents to the Audit Board.

Lord JACQUES

My Lords, I can only say that that is somewhat different from the advice that I have received, and the point raised by my noble friend has not been raised with me. But I can say that, under the treaty which is now in course of ratification, the Audit Board will have much wider powers and this problem will be completely overcome, whether it applies to maltsters or to anybody else.

Lord HOY

My Lords, I do not want to interrupt at this late stage, but the suggestion was made that a committee like the Public Accounts Committee might play a very satisfactory part in connection with this type of accountancy. As one who served on the Public Accounts Committee for more years than I care to remember, I hope that my noble friend might consider that a committee like the Public Accounts Committee could undertake this job to the satisfaction of all concerned.

Lord JACQUES

My Lords, we are pleased to have noted that the Assembly has appointed an Audit Committee which will be somewhat similar to the Public Accounts Committee, and we welcome the proposal. So far as the financiers are concerned, we believe that they have been much improved but the quality varies somewhat, which is to be expected since we all ourselves vary a good deal. We believe that financial control does not wholly depend upon institutional changes; it depends upon improving procedures. We know that our colleagues in the Community will be plugging away all the time to improve the procedures—and this also applies at home.

10.59 p.m.

Lord MAIS

My Lords, the hour grows late and T will not detain your Lordships longer than I can possibly help. I should like to thank noble Lords and the noble Baroness, Lady Elles, for taking part in this debate and I hope that they have not been delayed overlong. I should like to add my congratulations to those already offered to my noble friend Lord Bruce of Donington on his new appointment, and I am sure that our affairs are in good hands. May I thank your Lordships for the kind remarks that you have made about the Report, which are greatly appreciated? I know that they will also be appreciated by the Committee and the staff, to whom the credit belongs. I thank your Lordships very much for taking part in this debate. I hope that it has served a useful purpose.

On Question, Motion agreed to.