§ 7.18 p.m.
§ Lord RAGLAN rose to move, That this House takes note of the Thirty-seventh Report (HL 191) of the European Communities Committee on Ethyl Alcohol (R/2959/76). The noble Lord said: My Lords, your Lordships have been having a most interesting discussion on the broad principles or bare bones of the Common Commercial Policy. In the CAP, we have a policy which is fully operational although it is limping, rather, under the weight of the green money system; and your Lordships' committee, Sub-Committee D, is continually employed in scrutinising a steady flow of proposals of a technical kind which, as my noble friend Lord Peart knows very well, are the flesh and blood of a working policy.
§ This proposed Directive is one of these. I am very pleased to see so many members of the Sub-Committee present, and I should like to take this opportunity to thank them publicly for the contribution they have made towards producing this report. I am glad that several of them (more than are on the list of speakers) are going to speak this evening to the report; it greatly helps me to have them here to support me.
§ I am not going to go through the report, but rather I will take what I think are the essential elements of this draft Directive and try to set them in a wider policy context than it is strictly possible to do within the formal confines of one of our reports. It is a very complicated 268 Directive, and your committee had quite a puzzling time unravelling it—and it is unfortunate that we do not altogether like what we found. Your Lordships will know that ethyl alcohol is the principal active ingredient of many drinks, but the Directive does not refer to wine, beer, cider or other such drinks which acquire their alcoholic strength by the normal, natural process of fermentation. It embraces only alcohol of the kind which is obtained by putting similar ferments to these, including, incidentally, potato mash, through a process of distillation to make either spirit drinks or alcohol spirits for industrial use. It also embraces synthetic alcohol which is obtained from petroleum. It is not the ordinary vinous or "beery" drinks which it refers to, but the distilled spirit obtained from these types of ferment. Ethyl alcohol is a very important industrial raw material which is used in large quantities for many things; for example, it is used as a solvent base for perfumes and inks and as a liquid vehicle for aerosol sprays of many kinds. When it is used for this purpose, it evaporates quickly and harmlessly in a short time.
§ I shall try to explain as briefly as possible the need for this Directive. As your Lordships will know, more wine and other fermentable produce is being produced in certain areas of the Community than can be sold in the normal way as drinks. This is not a new problem. The way in which the countries concerned have traditionally dealt with their surpluses is by distilling the produce to make industrial alcohol. In Holland, grapes are not grown and potatoes are used in the same way as surplus wine is used in France and Italy. In France, Germany, Italy and Holland, this distillation is carried out under the auspices of a State alcohol monopoly. This governs all output, whether of agricultural or of synthetic origin. However, synthetic alcohol is very much cheaper than the cheapest agricultural alcohol except the alcohol which is derived from molasses—and your Lordships will see a table of comparative costs on page 15 of the report.
§ In order to make the production of agricultural alcohol viable, certain industries in these countries are required to buy it. This specific industrial use is 269 known as a reserve sector and having a reserve sector is considered to be justified in the interests of relieving these countries of an otherwise embarrassing surplus of wine, potatoes or molasses which is made from sugar beet. Since the famous Charmasson judgment, these State alcohol monopolies have been declared illegal obstacles to intra-Community trade as they interfere with imports from other Member States. Now the Commission is having to try to get agreement on a compromise régime and, not unnaturally, it has come up with a hotchpotch of existing practices in the Nine, including the provision of reserve sectors and the proposal to tax spirit drinks in order to subsidise the production of this costly agricultural alcohol and make it more nearly competitive with synthetic alcohol.
§ This tax is euphemistically known as an equalisation charge. Our gin industry reckons that it would work out at about 10p a bottle while the Ministry of Agriculture thinks that it would be more like 3p. Whatever the charge, or the sectors that it is proposed to reserve—principally the pharmaceutical industry, which, your Lordships will be interested to know, uses 600,000 hectolitres of this stuff each year—the whole idea comes as strange and wonderful to this country. This is because we make only enough alcohol from agricultural produce to satisfy our own spirit drinkers and to support a valuable export trade in spirits which will be quite hard hit by the proposals in this Directive. Our industrial alcohol is almost all found from petroleum. There are no reserve sectors, no governing régime and the imagining of an alcohol surplus I think stretches only so far as a vision of wilder scenes of "Whisky Galore".
§ In certain areas of the Community however, the livelihood of many people—and they are poor people, many of them—depends on the production of grapes and, sometimes beet, which nobody wants. The advent of this Directive must prompt the question whether it is right that they should continue to be subsidised in their uneconomic employment by a requirement for certain industries to take their expensive alcohol through what amounts to a tax on spirits.
§ Your Committee did not think this right. As I mentioned earlier, this alcohol surplus has been a problem for a long time, 270 particularly in France, and because of tradition, political difficulties and lack of means to find alternative employment in the areas concerned, it has not been tackled. Now it is the Community's problem; but the Commission is not trying to solve it in the spirit of free trade which inspired the Charmasson judgment. It is trying to use the same kind of controls which the State monopolies have been using.
§ I do not think that we in this country are in a position to criticise State monopolies. We have them in the shape of our Milk Marketing Board, which we are fighting strongly to retain, because we think that producers and consumers alike would suffer if it went and if there were a free-for-all. Furthermore, our marketing boards keep in business producers who would go to the wall if there was free competition: the economy of whole regions—those furthest from the centres of consumption—would suffer badly. If the régimes of the alcohol monopolies were suddenly abolished without special remedies being sought and applied, the economies of whole regions would suffer likewise. Whereas, if our boards were abolished, consumers would find themselves paying more for less, it is fully recognised that, in this case, consumers are already paying more than they need, and it is proposed to deal with what is essentially a structural surplus without taking steps to tackle the causes of that surplus.
§ Again, we have no reason to be particularly proud in this country of our record in regard to structural surpluses. Our industries are rife with them and we have been battling with the problem for years, propping up traditionally uneconomic industries to save jobs because we recognise that the economy of whole cities and whole areas depends on retaining these jobs. We know, too, that upsetting a traditional way of life is a painful business; but, in our case, we have at least insisted that the Government, as representatives of the general taxpayer, should take some general responsibility in helping to put structural surpluses to rights.
§ What this proposed régime would do is to put responsibility for the cost of the surplus onto the consumers of alcohol alone. It would do this indiscriminately, whether they were bibulous or industrial 271 users and without setting aside provision to reduce the surplus. The surplus is not being recognised for what it is—a socioeconomic matter of great seriousness affecting a very wide area and something which should, I believe, be made the responsibility of a Community regional policy.
§ If the Government accept the Commission's proposal, they will be accepting the principle of a tax only on the consumers of certain products to pay for the scheme; they would be accepting that the Common Agricultural Policy can dictate the source from which certain industries get their raw materials. They will also be endorsing the institutionalisation of a perpetual surplus of agricultural alcohol. For those reasons which underline the views which we give in paragraph 35 of our report, your Committee advise the Government not to agree to these proposals in their present form.
§ I should like to end with a personal view which I am sure will fall on receptive ears in the person of my noble friend Lord Peart. In trying to deal with this surplus of alcohol we should be understanding of the real difficulties which some of our partners are in. If we do not show them sympathy, we cannot expect sympathy from them when we have problems. We must be prepared to yield occasionally and not stand up rigidly for everything we want. That is in the nature of a partnership. But we should make it clear that these proposals will not help or solve anything in the long run. It will be far better if the Commission take them back again and get it right next time. I beg to move.
§ Moved, That this House takes note of the Thirty-seventh Report (HL 191) of the European Communities Committe on Ethyl Alcohol (R/2959/76).—(Lord Raglan.)
§ 7.32 p.m.
§ Lord SAINSBURY
My Lords, I want to make the briefest of interventions this evening merely to reinforce what my noble friend Lord Raglan has already said about this proposal. In my opinion, this Directive is just another example, as paragraph 20 of our report makes clear, of what is now the Community's standard reaction to the development of any product that threatens the market for a 272 CAP product: in other words, an attempt to restrict the marketing of a rival product. That is what has happened here with agriculture and synthetic alcohol.
The proposal as it stands at present will lead to control over both the types and prices of alcohol used in industry. I can find no justification whatsoever for this substantial infringement on the right of manufacturers to choose those raw materials which are best suited to their businesses at the most advantageous prices available. I endorse the Committee's view that there should be no constraint on how manufacturers run their businesses in an endeavour to mop up unwanted surpluses. I hope that my noble friend the Leader of the House, who is to reply to the debate, may be able to shed some light on how the Community justifies its interference in the industrial process.
To make things worse, the actual system of control proposed is bureaucratic in the extreme. As the report points out, it will hardly work satisfactorily since it calls on national civil servants to display commercial and industrial expertise which their training has not given them. I hope Brussels will take note of this report, and that it will be one more nail in the coffin, not of the Market itself, of which I remain a strong supporter, but of the excessively interventionist and bureaucratic measures which are being put forward.
§ 7.35 p.m.
§ Lord ELTON
My Lords, I must apologise for not having my name on the list of speakers but it was not until after it was printed that it was clear that I was going to be able to be here to intervene in this debate. But I think it is a subject of sufficient importance to justify such an intervention. I should like at the outset also to congratulate the Committee on their lucid explanation of a subject of great complexity. That complexity deserves an adverse comment from this House. If I may quote paragraph 23 of the Report:A further feature of the proposal to which the Committee wish to draw attention is the bureaucratic and highly complex nature of the actual system of control proposed. An official of the Ministry of Agriculture in oral evidence said that the Ministry itself had had difficulty in understanding the proposals because of their complexity and ambiguity. It is not surprising therefore that trade bodies in giving evidence 273 should speak of their difficulty in making sure they had correctly understood the proposals, especially as, apart from their complexity, many of the Articles as drafted are still ambiguous and imprecise in their meaning".This is the second shot at the document we are looking at: it is not the first draft. Any document which can be commented on in those terms by three separate groups of intelligent human beings is very severely wanting. We are accustomed already in this House to doing battle on behalf of lucidity and conciseness with Parliamentary draftsmen in this country. One is somewhat daunted with the prospect of another phalanx ranged behind them of draftsmen in Europe, and I think we ought to make our views known at an early stage.
The background to this document is more simple than its contents. If I may give a not altogether simplistic interpretation: as I see it, large sectors of the European Community are dependent on producing stable products, and prominent among these are sugar beet, grapes and grain. These communities within the Community are economically dependent on selling them at a good price. Their Governments have paid such attention to the good price that they have produced a surplus of them, and this is the policy pursued by the Community.
The fate of agricultural surpluses, if left unattended, is naturally to go rotten; in other words, to ferment. Happily, this process produces fermentation which results in alcohol. This alcohol can be distilled to a purity rendering it useful for a number of purposes. But, unhappily, alcohol produced by this means from grape and grain works out at from two to five times as expensive as alcohol produced synthetically from petroleum, as listed in Table III to which the noble Lord, Lord Raglan, has referred. The substances produced resemble one another closely, and no one in his senses will pay, for instance, £1,230—the top price shown in Table HI—for a metric tonne for ethyl alcohol produced from the wine lake, when he can have an equal quantity from, as it were, North Sea oil at £270.
Thus though you have reduced the wine lake by distillation, you have in no way made it more saleable. Meanwhile, the grapes inexorably ripen on the vine. You have therefore to intervene in the market 274 to make it operate to the benefit of the producer. This is something that the draftsmen of this document propose to do by reserving certain substances in which it shall be illegal within the Community to incorporate synthetic alcohol. These substances are specifically those for oral consumption, vinegar and pharmaceuticals. There is a semantic oddity which distinguishes vinegar and medicines from things which are intended for oral consumption, but I will pass over that because I am sure your Lordships understand the intention.
These substances provide the producers of surplus grain and grapes with three convenient groups of captive consumers who must be supplied with expensive alcohol of agricultural origin. I find this phrase very difficult: "Alcohol of agricultural origin". I should prefer to call it "agrihol" and have done with it. Incidentally, what better harvest-home could you have than an "agriholiday" when all this is safely gathered in?
However, the intention is that this expensive "agrihol" should be substituted for the less expensive and equally acceptable "industrihol", if that is the word. In any case, even these provisions should not suffice to maintain the price of "agrihol" at a sufficient level and intervention agencies would be required to purchase an agreed but substantial quantity of it at an agreed and equally substantial price. That is reducing the supply, increasing the demand, and keeping up the price. That is the scheme in outline—and a pretty unacceptable one it is.
We have to recognise the necessity for a Common Agricultural Policy and we have to recognise the wisdom of budgeting for occasional small surpluses in individual commodities, in order that in bad seasons there shall not be dramatic shortfalls and unacceptable price increases such as we have seen recently with potatoes. What is not necessary and, in my view, not acceptable, is to budget and plan for permanent, recurring and cumulative surpluses and then to start to invent means of getting them taken out of stock at artificial prices by consumers, unwillingly and—but for the vigilance of Parliament and, in particular, of your Lordships' Committee, who are to be congratulated—unwittingly created. That is not merely unfair to the consumer 275 but it distorts trade by a completely unwarranted intervention. How would it be, by analogy, if there were to be a regulation that all cans for vegetables, baked beans and so on, were in future to be lined not with tin but with silver? The economic implications would be in some ways approximate to those we are examining now.
Furthermore, these are means of restricting innovations. If you insist on depending on old processes, although new ones are more efficient, you are in fact reducing the efficiency of the Community as a whole. For at least as long as we cannot import food at competitive prices on the world market, persistent surplus on the grand scale has no more place in our agricultural policy than persistent deficit on the grand scale ought to have in our economic plans. Glut and slump are the twin enemies of sensible planning.
Having looked at the outline, let me briefly turn to the niceties. Who is to pay for this? Presumably the purchaser of the medicine, the vinegar and the wine. The volume of alcohol qualifying under this heading in the pharmaceutical industry is probably small: I do not know how small. I rather hope that the noble Lord, or those who stand ready to advise him, may be able to have this information by the time we come to the end of the debate; it is not vital but it is interesting. By far the greatest purchaser, in any case, will be the State, in the form of the National Health Service, and I hope that Her Majesty's Government have calculated the additional cost to the Exchequer of that item. It may or may not be formidable, but I see no reference to it in the document. I am not an expert on vinegar and in fact many would claim that I am not an expert on alcohol either. I think that alcohol used in spirituous liquor needs to be of agricultural origin, and I think there have been scandals both in Italy and Germany which suggest it is not popular or advisable commercially to use chemically-originated alcohol—"industrihol "—in drinks of this sort, which are intended to reflect the season in which they are made.
Before I go too deeply into this subject, I should like to reflect on the purpose this debate is supposed to fulfil. As I under 276 stand it, our only purpose, apart from increasing our own information on a quite important subject, is to have some influence on events in Europe, which we can only achieve by any influence we exert upon the Minister who will place the views of the British people before the Community. The material that has been made available to the Committee is available to the Minister. The conclusions which this has enabled the Committee to arrive at are available to the Minister, and so indeed, without any great effort on his part, will be any representations made to your Lordships other than through the Committee. So what we really have to do is merely to place our emphasis on this available material and not to recapitulate it to the great tedium of many of your Lordships here present.
I would say, then, that this House endorses the strictures which the Committee has seen fit to draw against this draft document and its conclusions. I should like to take the opportunity to say that, in my view, it is not the business of the Community to legislate for permanent grand-scale surplus. The report tells us that there are 5 million hectolitres of "agrihol" already available. For those of your Lordships who, like myself, have not gone metric with any facility, I am told that represents 109,990,000 gallons—a figure to make the mind boggle.
It is not the business of the Community to instruct industries on the raw materials they may use. The noble Lord, Lord Sainsbury, has said that very powerfully, and I might add that that appears to be clean contrary to the intentions of the Treaty of Rome, in the name of which this policy is instituted. I think it is the business of the Community to protect the interests of its industry as well as its agriculture, and I believe the Minister ought therefore to pay careful attention, for instance, to the representations made by that most important exporting industry, the Scotch whisky industry. Your Lord-shops will be apprised of the fact that anything which can be made to look like a subsidy received by the distillers of whisky will be seized on, for instance by the Americans as an excuse for slapping on a compensatory import tax at the other end of the Atlantic voyage. Therefore, the intention and the drafting of the document must be clear and there must be 277 guarantees in it to define whisky and the payments that are made. Your Lordships will be aware—if it is not entirely germane to this debate, I think it is not irrelevant—of the heavy discrimination under which whisky labours in the European Market against, for instance, cognac and rum. We are supposed to be a unified Common Market. It is rather distressing when one finds there is so much antagonism actually introduced by legislation into the Common Market.
In the report there is also an argument, to which the noble Lord, Lord Raglan, referred, about the cost to gin and, of course, to the gin drinker, the consumer, who is on the end of this legislation. I would hope that the Minister will take on board that this is not a matter of Party rancour. On either side of the Floor we are saying things which sound remarkably alike, and the same is true of the other place. We wish to see fair play, and we do not think that is something which will arise from the adoption of this document as it now stands, unless it is very radically altered.
§ 7.49 p.m.
§ Lord COLLISON
My Lords, when I looked at the list of speakers this afternoon I was quite surprised and a little worried because there were so few. For that reason I decided to say a word or two this evening. If anything, it is out of respect and appreciation for the work done by our chairman, the noble Lord, Lord Raglan, who introduced the report and went very thoroughly into the technical details. Other people have mentioned those and so I need not repeat them. The strictures levelled at the report have been quite devastating: that is clear from what one has heard, and in one sense I join in them.
I think the attitude of the Committee is summed up in paragraph 20 of the report, which says:In the opinion of the Committee, this proposal for an ethyl alcohol régime is another example of dealing with Common Agricultural Policy surpluses through a policy of taxing consumers. It is also a further example of what appears to be the Community's standard reaction to the development of alternatives which threaten the market for a CAP product".Because of my background, obviously I shall be the last person in the world, in principle, to criticise support for the agricultural industry. I believe that the 278 industry is entitled to that support in order to enable farmers and workpeople to enjoy a standard of living and other standards which are consistent with this day and age.
May I make my position quite clear. Agriculture has been allowed to suffer for too long at the hands of developed industry, and in those places where developed industry has been able to exercise tremendous influence I believe agricultural support to be right. The question is how that support is to be given. One understands, of course, that our European colleagues have the problem of surplus production with which to deal. In this case it is wine, but the production of wine presents no problem to this country. Indeed, it is because we do not have a surplus of wine that the production of synthetic alcohol as an alternative to agricultural alcohol has developed, and the industry is growing. In our case, therefore, this proposal offers no advantage to agriculture. There may be an advantage to the producers of ethyl alcohol if they are guaranteed easy access to the Continent. On the Continent, however, very little ethyl acohol is used. Consequently, there are no advantages so far as agriculture is concerned and, as has already been made clear, there are also disadvantages in the case of other industries.
As has been said, the proposals represent a substantial constraint upon the freedom of manufacturers to buy the raw materials which are best suited to their businesses at the most advantageous prices that are available. Indeed, it is suggested in our report that this policy conflicts with the principles of the Treaty of Rome. It is interesting to note that when they had considered the proposal the Committee on Budgets of the European Parliament reported that they were struck by the fact that what is envisaged in the balancing arrangement appears to be the placing of a burden on an efficient industry which produces potable spirits to subsidise the inefficient production of alcohol obtained by distilling other agricultural products. They add that a proposal of this nature is difficult to justify. To be quite fair, we should report, too, that on balance the Agricultural Committee of the European Parliament favoured the proposal.
279 When noble Lords debated yesterday the report of Select Committe A they will have noticed that in paragraph 39 the Committee said that they considered that a general review of the Common Agricultural Policy was desirable, paying particular regard to the comments made in the earlier paragraphs of the report. I agree with this point of view. In my time I have tried to serve the community in a number of ways, but my first loyalty and love is for agriculture. Also I have a loyalty towards and a firm belief in the principles of the Common Market. Right from the beginning I was in favour of our membership for wide, not only agricultural, reasons, although I believe that in the long run the Common Market will prove to be beneficial to those who are engaged in agriculture. One has only to think of the importance of this powerful economic trading bloc.
This was emphasised in the previous debate. Indeed, if one looks at what happened in Europe in the past and the constant conflict, a Common Market which brings countries together must be an advantage and must be supported. Therefore, I want to make it quite clear that if I appear to criticise certain aspects of the Common Agricultural Policy my criticism must not be taken as a dislike of, or opposition to, the Community itself. As I have said before, certainly I do not oppose a proper support system for the agricultural industry.
I have two worries—I know that t am widening the debate but I believe it to be quite proper that I should—about what is happening. My love for agriculture causes me to feel concern about the reputation of agriculture as a result of the policy of the Common Market to give support by way of intervention, since this encourages producers to produce more than can be consumed. It is an open-ended and quite costly policy. I believe that people who do not understand what it is all about view agriculture in a bad light because of this policy—I think, quite unfairly. Also they imagine, and sometimes say quite bluntly, that it is because of this policy that food is so costly. Manifestly this is not true, and we all know that it is not true. The difficulty is that people see that the result of an intervention policy is the creation of enormous surpluses—a beef mountain, 280 a wine mountain in this case, and a butter mountain—and they believe that this is absurd. I have said this before in our Chamber and I say it again. Therefore I am in total agreement that the Common Agricultural Policy needs to be revised, if only to safegurad the reputation and good name of agriculture itself.
My second worry stems from my regard for the Common Market. In a sense we are new boys. It could be thought by our colleagues abroad that we do nothing but criticise, condemn and (I hope noble Lords will forgive the word) bellyache about their policies in regard to the Common Agricultural Policy. I do not wish it to be like that. I should hate to feel that we are regarded as carping critics. On the contrary, I want our contribution to the whole of the Common Market system, including the agricultural part of it, to be seen as sympathetic, understanding, positive and creative. We are an old country, in the sense that our agricultural industry is the most developed agricultural industry in the world. Those of us who are engaged in the industry are proud to say that we have the most efficient agricultural industry in the world. We have a sophisticated system. Our marketing system, for which we are fighting now, is sophisticated and we do have something to offer.
May I therefore say to noble Lords that I have these two worries. Fully supporting the Common Market as I do, believing that the Common Agricultural Policy will eventually be an advantage to the agricultural producer and to the other members of the Community, but believing also that the Common Agricultural Policy needs revision, I put in a plea that we should be seen to be friends. In this case, for example, my right honourable friend John Silkin has put up a firm defence of our system. We have no problem over wine, although we do have a problem over the large-scale production of synthetic alcohol. When my right honourable friend has to put up a firm defence, he is not seen by anybody to be merely destructive.
I am grateful to noble Lords for listening to me for 10 minutes. I believed this to be an opportunity to deal with the wider issues of my concern regarding the image of agriculture and my concern for my friends in the Common Market. I 281 finish as I began by thanking the noble Lord, Lord Raglan, and his Committee for producing what I feel to be an excellent report, towards the end of which certain suggestions have been made. I shall not run through them, although I hope that the Government will bear them in mind when they consider the report. It was not possible to come to really firm decisions about this because there is so much vagueness left in the situation and the explanations are not good enough. There are certain things which we ought to be trying to achieve by ourselves and our friends elsewhere, and I hope the Government will take account of these comments in the report.
§ 8 p.m.
§ Lord RITCHIE-CALDER
My Lords, I did not put my name down because I had not intended to speak but I noticed a deplorable absence of Scottish—or "Scotch" men—in this debate and it seemed to me that this involved us, as Scots, very profoundly indeed. I can understand that many noble Lords did not recognise in the term "ethyl alcohol" a sort of femme fatale threat to Scotch whisky. If it had been Poosie Nancy we might have understood it. Implicit in this whole discussion—and I want to say to the speakers who have preceded me that I endorse what they have said—I take as some reinforcement the general opposition to this approach by the Commission and I want to say that we realise just what is involved here. I follow my noble friend Lord Collison in his views about the wonderful and justifiable claims of British agriculture and I should like to say that in agriculture in Scotland there has been produced a by-product which has been historically longer lived—and will be longer lived—than North Sea oil; that is, Uisge Beatha.
What we are looking at is something that is, if I may say so, vulgarising the whole of our attitude to Scotch whisky, which some of us think is in fact bottled poetry and history. I do not think my Band of Hope friends would agree with me, but I am sure that others do. In this somewhat sterile and depressing discussion, we are dragging in things like synthetic alcohol made from oil, and the dreadful prospect of Scotch whisky being treated as a surplus. It never is surplus. We never can get 282 enough of it. Here, we have a situation which I think my noble friend on the Front Bench will recognise as important. It is the fact that, in this type of discussion, we are being dragged into the kind of almost unrealistic discussion of how one treats the manifest facts of the Scotch whisky industry, with its enormous exports. We are treating it as though it was something that we could dispose of in what one might think was a lac d'alcohol, or whatever one likes to call it.
In Scotland, we do not look at it that way and we never will. We put a lot of peat and a lot of inspiration and a lot of time into it and also age is the big contribution that we make. I have no brief from the whisky people beyond what I myself feel: I am certainly declaring an interest which is a natural interest in the end product and not in the method of production. Therefore, I want to say that those who are representing us in this discussion should recognise that ultimately, we have our peculiar rights, just as the other producers in Europe have. One of our important, historical products is in fact Scotch whisky and we have to protect it by any means we can. We must not allow the degradation of something which we respect into something which is called "agricultural alcohol".
§ 8.5 p.m.
§ Lord PEART
My Lords, first, I should like to thank my noble friend Lord Raglan for initiating this debate and for his work as chairman of the European Communities Committee, which has produced what I think is an extremely erudite report. Indeed, I think that this House can take credit for the fact that its documents are, I believe, appreciated far more than noble Lords give credit for: they have now reached such a high standard that there is recognition in another place of the good work that the Committees in the Lords have done. I think that should be put on the record and I am grateful for the opportunity afforded to me by this debate to explain the Government's view of the EEC draft proposal for an alcohol regulation.
The Community is still at an early stage of the discussion of the draft proposal. Indeed, it has not yet been before the Council. It is in a Council working group but it must go to Ministers 283 for the first time by the end of 1977. So all is not lost, and I say that to the supporters of the report and to those who have participated in the debate this evening. So the Community is still at an early stage in discussion of the draft proposal and our view of it will need to be defined further as discussion progresses.
No doubt, our negotiators will be helped by the report which is before us. Noble Lords will understand why—as is customary—I cannot be entirely explicit about the negotiating line we shall take on certain issues. It would be very wrong for me, a former Minister of Agriculture who used to negotiate, to try to spell out our negotiating position to the House this evening. To do that could be prejudicial to the United Kingdom interest.
The questions raised by noble Lords have demonstrated the complexities of the issues involved, and I am grateful to all those who have contributed to this debate. The Government will certainly give careful consideration to all that has been said. I should like to say to the noble Lord, Lord Elton, in regard to the financial implications for the United Kingdom that I have checked a little and obviously, with no production of alcohol from materials more expensive than cereals and nearly all our production going into drinks, the United Kingdom would be unlikely to receive any compensation. The costs to the United Kingdom would derive from our usage of molasses, the amounts being dependent upon the quantities used and the price levels and from our intervention contribution. Again, how much? The figures used are notional and the mechanisms are not yet clarified. Therefore, any estimate would be very much a guess and it would be wrong of me to make a guess at this stage, but I will look into the matter more carefully and will write to the noble Lord.
§ Lord ELTON
My Lords, the noble Lord is most kind, and when he comes to read Hansard he will see that what I was specifically asking about was the increased charge to the National Health Service. I recognise that it is a recondite question, but I hope when he writes to me he will answer that question.
§ Lord PEART
My Lords, I cannot say. It would be absurd for me to attempt to because I would be speculating. All I can say is that we are concerned about its impact on the industries involved and the effects, direct and indirect, which the draft Regulation could have on the United Kingdom industries. Here I endorse very much what my noble friend Lord Raglan said, in explaining his proposals and also what the noble Lord, Lord Sainsbury, has said about the impact on the industry and also the bureaucratic nature of the proposal. I must emphasise that we have been in very close touch with these industries since the proposal emerged and they have put their views very fully to us.
We share their concern about many aspects of the proposal. The proposal is a revision of a draft originally tabled by the Commission in 1972. The earlier proposal was shelved in 1973 after lengthy discussion in the Council, and has only recently re-emerged in its considerably revised form. In a nutshell the problem is one of over-production within the Community of agricultural alcohol. On many occasions I remember hearing the arguments affecting particularly the wine producing countries and how they must reduce their wine lake through distillation, which is mentioned in detail in the report and has been described by my noble friend Lord Raglan and others.
It is directly attributable to overproduction of certain agricultural raw materials for which distillation is a convenient outlet. This may not be a United Kingdom problem since we have no surpluses in this sector. But it is one which we cannot ignore, for it will not go away until some forceful and positive steps are taken to resolve it at Community level. Questions raised by certain noble Lords illustrate the need for clarification of some detailed points of the Commission's proposal. The basic problem, as noble Lords recognise, is that for certain agricultural products, upon which certain Community farmers depend, there are no viable outlets except by way of distillation into alcohol. In addition, virtually any agricultural product can be fermented and distilled, so that surpluses (in particular of fruit and wine) are made into alcohol instead of being thrown away. Unless there is rationalisation 285 of agricultural production it is clear that the alcohol market must be very unstable.
The national protectionist monopolies set up by several Member States in order to regulate the market in alcohol have been declared illegal by the European Court of Justice. There is, therefore, a two level structural problem—one problem at the raw material stage and another at the distilling stage. The draft regulation aims to solve these problems by protecting producers of high-priced agricultural alcohol—both the growers of the raw material and the distillers—from competition by lower-priced alcohol. This latter uses a cheaper raw material, or is more efficiently produced, or both.
Under the Commission's proposal, certain market sectors—drinks, vinegar and pharmaceuticals—would be reserved for agricultural alcohol; distillers would be allocated annual production quotas; and the sale of these quotas into the reserved sectors would be supported by subsidy. Sales into intervention would be possible for any alcohol under quota which could not otherwise be disposed of. Alcohol in excess of the quotas would receive no support, and molasses alcohol (the lowest priced agricultural alcohol) would also be without protection, since the Commission maintains that it is price-competitive with synthetic alcohol.
The scheme would be financed by a flat-rate consumption tax on all agricultural alcohol and spirit drinks used in the European Community. Thus, although spirit drinks (with a few exceptions irrelevant to the United Kingdom industry) are excluded from the market regulation as such, they are expected to help to pay for it. If the United Kingdom sees difficulty in accepting some aspects of the proposal, I think it is fair to put on record that most other Member States also have considerable reservations about it. We, therefore, expect that there will be some lapse of time and a fair amount of modification to the proposal before an acceptable text emerges. We shall certainly be pressing for changes, and we shall ensure that there is adequate time for consultation with our industries as the negotiations proceed.
As I hope I have already made clear, the Commission's proposal is in many 286 respects objectionable to us. For example, we question whether it is proper, both in the terms of the Treaty of Rome and in terms of commercial practice, to reserve certain market sectors for goods of a particular type. I think this was the main point made by my noble friend Lord Sainsbury.
This implies restricting manufacturer and consumer choice, encouraging price increases, and represents interference by an agricultural regulation in the affairs of non-agricultural industry. And again, subsidised sales into the free sector mean that our considerable synthetic alcohol industry would be subjected to a squeeze by agricultural alcohol, without the means of defending itself. I can assure noble Lords that we have already voiced strong objections to these points in Brussels and will continue to do so.
We have also been questioning why our spirit drinks, which are not part of the alcohol problem, should be expected to help pay for it. Another pertinent question, in the interest of both producer and consumer, is why our gin and vodka industry should be deprived of its traditional supplies of raw materials, or forced to pay increased prices because of levies on molasses alcohol.
We would wish the regulation to contain clear provisions for restructuring the industry, that is, for discouraging the uneconomic production of alcohol, so that we do not have to go on indefinitely supporting unnecessary or inefficient production. In negotiations in Brussels, which are at present still on an official level, we shall aim for remedies to the ills I have listed.
Before concluding, I should like to emphasise that the proposed alcohol régime already includes some features which are not entirely bad for us. The dismantling of protective régimes in other EEC Member States could lead to the opening up of new markets for synthetic alcohol, and could give increased opportunities for exports of spirit drinks. The undoubted quality and prestige of our spirit drinks would be recognised and would be protected under the new régime. And we would be entitled to an export restitution or production refund on our very substantial exports of Scotch whisky made from Community cereals.
287 It is clear from the draft proposal that the Commission have tried to meet the points made by the United Kingdom during discussions of the previous draft—although they have succeeded only to a partial extent. Discussion in the EEC Council will give us the chance to examine both the extent of the changes made so far and the possibility of obtaining others. I should like to emphasise to the House our firm intention of working for such further improvements—particularly with a view to minimising adverse financial effects for the consumer and to maximising opportunities for future restructuring of uneconomic production.
My noble friend Lord Collison spoke feelingly about the role of agriculture in the Community and the importance of the Common Agricultural Policy. I was glad to welcome his constructive approach to this, as a distinguished former leader of the agricultural industry. I always detect too much carping criticism of the Community by many people, I am sorry to say on my own side, and indeed on the other side as well. I am never worried too much about surpluses to that extent. I am more worried if we have an agricultural system which produces scarcity, and that has happened in the world. Let us not denigrate the system which is emerging. I know there are problems. I got rid of intervention as the sole means of support for the beef industry. Noble Lords will remember that I brought in a premium system, which has not been destroyed by the Community, and which gives our farm producers considerable security, rather similar to our old deficiency payments system, although even that system did not always work. No system is perfect.
Naturally, I do not want to see surpluses destroyed, or some products put into intervention; when that intervention period is carried on for a long time the quality of food put into intervention deteriorates. We all know that. Eventually the CAP will play a positive role, I hope, in world agricultural matters. After all, if the United States of America can dispose of its surpluses of cereals by valuable export markets, there is no reason why we in the Community or we in Britain should not export many of our valuable products—after we have satisfied the needs of domestic consumers—to the markets of 288 the world. Therefore, on this issue, believe that the criticisms that noble Lords have made in their report are correct and justifiable. They will help our team in Brussels. At the end of the day, I hope that we shall finally come out with something which will be sensible and to the benefit of our economy.
§ Lord VERNON
My Lords, before the noble Lord, Lord Peart, sits down, being a member of the Sub-Committee, I should like to refer to a misapprehension which has arisen in the debate. The draft report from Brussels is injurious to the Scotch whisky trade. The evidence given by the Scotch Whisky Association—I am sure that the noble Lord, Lord Raglan, will put me right if I am wrong about this—was that it welcomed the Directive which would help to sell its product in Europe. I felt that that should be put on record.
§ Lord RAGLAN
My Lords, I do not think that I can answer the point raised by the noble Lord, Lord Vernon, without notice because I am a little confused with this Directive and the Excise Directive which the Committee was examining at the same time. I am not sure whether the evidence from the Scotch Whisky Association was in favour of the Excise Directive rather than this Directive. I must check, but I do not have time to do so at present.
§ Lord ELTON
My Lords, although I am not a member of the Committee, perhaps I may presume to come to the aid of the House. It is my distinct impression from all the material that I have seen that the Distillers' Association has shown considerable alarm about what might be the results of this Directive if it were enacted as it now stands. There is no proposal to introduce industrial alcohol into whisky as the noble Lord, Lord Ritchie-Calder, tried to terrorise us into fearing. The Association is very apprehensive about the document as it now stands.
§ Lord RAGLAN
My Lords, I think that that point was borne out by what the noble Lord, Lord Ritchie-Calder, said, but I should like to see it in writing. We referred to the matter on page 12 of our report at paragraph (c).
§ Lord RAGLAN
My Lords, the noble Lord, Lord Elton, questioned the usefulness of this procedure whereby we produce a report and then have a debate on the matter and repeat ourselves. I would point out that in the Select Committee we discuss whether a report should be debated. The decision to debate a matter is nearly always taken if it is judged to be a controversial matter upon which noble Lords who are not members of the Sub-Committee which examines the problem, might like to express an opinion, as has happened today. It also gives one an opportunity to philosophise about a proposal, as I have attempted to do this afternoon, and to examine it from more angles than is possible within the strict confines of a report. Moreover, one has the opportunity formally to voice one's concern about certain matters and thus get details of them into the Parliamentary record. That is, as the noble Lord, Lord Peart, has just remarked, very helpful to the Government, when they are negotiating in Brussels and wish to be reinforced in their attitude from behind. We have other means of calling Ministers' attention to matters, and I should not like the noble Lord, Lord Elton, to think that all we do is produce reports for debate.
I was most grateful to my noble friend Lord Peart for, as always his summing up was so authoritative. He is well practised in the mysteries of the CAP. I know that this is a very slow-moving Directive. It has been going for five years and it may be a long time before it comes to fruition. I am pleased that he has noted our reservations and I am glad to have his assurances. Finally, it is because the carrying liquid is alcohol that the nice smelling squirt from the aerosol that is directed into the armpit feels so cold. Unlike the case of drink, the origin of that alcohol is really irrelevant to the user. It is not right that drinkers of spirits who are taxed for other reasons in other ways should pay to make the alcohol in the aerosol cheaper, but not so cheap as it could be if it came from elsewhere. That is a distillation of our main criticism of the proposal.
§ Lord ELTON
My Lords, I apologise for rising again, but I should like to put the record straight. I attempted to congratulate the Committee on having carried out an extremely useful function. I said that our function was not to repeat it but to endorse it, which is very different from what the noble Lord was attributing to me. I hope that he will accept my congratulations as chairman of the Committee.
§ Lord RAGLAN
My Lords, I thank the noble Lord, Lord Elton, for his nice remarks and I am sorry that I misunderstood him.
§ On Question, Motion agreed to.