Agricultural Prices: EEC Decisions

HL Deb 27 May 1982 vol 430 cc1327-52

4.12 p.m.

Lord Soames rose to ask Her Majesty's Government where and to what extent the decisions taken by the Council of Ministers (Agriculture) on agricultural prices for 1982–83 differ from their conception of the British interest and what effect their decisions are expected to have on retail food prices in the United Kingdom.

The noble Lord said: My Lords, I beg to ask the Question standing in my name on the Order Paper but before my Question is answered I should like to ask a number of supplementary questions and also to offer a few thoughts on the problem which is outlined in the Question. This refers to the forcing through of the decision on this year's agricultural prices by the Council of Ministers.

The first question I should like to ask is: were we forewarned? If not, I have to say that, given the fact that these agricultural price settlements have invariably —since 1966—been resolved by a unanimous vote, the decision to, as it were, vote down a member state and not to accept the unanimity rule was, to say the least, a strange occurrence. However, I think it would not do any harm to realise why the custom has arisen for this decision to be taken under the Luxembourg compromise by a unanimous decision. It is because in all the bargaining that traditionally goes on year by year on the agricultural prices you get one country—for instance, Germany—which might want higher prices for cereals, and another country—for example, Italy—might want a higher price for Mediterranean products. A third country—perhaps ourselves—might want to continue some subsidy on milk to the consumer.

That is to give three examples; and the effect has been that no member state has wanted to agree unless it was satisfied regarding its own requirements. So in effect the fact that this was always taken by a unanimous decision has meant that we have, out of the Common Agricultural Policy and out of the annual price fixing, required the highest common factor of agreement. In my view, this has done more than anything else to ensure that prices were raised not just for a particular product where perhaps it was necessary but more or less across the board, because no country would agree unless its demands were satisfied. So I do not think, that in fact it has been very helpful to the future of the Community or indeed to the bill that this country has to pay for the CAP.

Nevertheless, I repeat: were we warned of the danger by any of our partners, by the Commission or by the Presidency, of the danger that what we have taken for granted, namely that the unanimity rule would prevail, might be thrown over in this case? I heard it, again and again, from my friends in the Community that we were asking for a great deal and the question was: Was it a genuine use of the unanimity rule to say that we minded very much what the total bill was?

That brings me to the next question which I should like to ask my noble friend. What is the difference between the final decision on this year's agricultural prices and what we should have liked to see?—for, surely, we had already agreed to a goodly amount. There are those who say that this meant a difference of an extra £120 million in our Community bill for this year. That is the difference; that is what it would have been, if we had wanted a zero increase and it had come out as a 10.2 per cent. increase. But we did not want a zero increase, so what is the difference between the prices of milk and cereals that Her Majesty's Government would have liked to see and the prices that came out in the final decision? On which commodities was the price higher than we would have liked to see?

Therefore, was it a proper use of the veto? If we were wanting to see a standstill in prices this year and they were asking for 10 per cent., then that, in my view, would have been a proper use of the veto. But if we were prepared to see an increase of £110 million in our bill, because we thought the farmers needed the increase, and, in fact it came out at £120 million, that is not what the unanimity rule was introduced for. It was introduced for when a country had a vital national interest involved. Again, I should like to ask my noble friend whether or not this is right; I know not. What I do know is that our European friends, in general, do not believe that we considered the outcome of 10 per cent., 9 per cent. or whatever it might have been as a vital national interest.

What we were trying to do was to make a certain use of the unanimity rule, to try to prevent any decision on the agricultural prices from being taken, in order to hold them back so as to get what we wanted out of the budget, which is a different question, although I agree that it is marginally connected. If that is so, I must ask my noble friend whether he thinks that this was a proper use of the veto and whether it was not, at least, open to doubt and to question whether that is what was intended when the Luxembourg compromise was introduced in 1966.

We say that we wanted the two decided in parallel, and we got our partners to agree that these matters of the agricultural prices, on the one hand, and the budget, on the other, should be agreed in parallel. Indeed, the question of the budget arose and was discussed by the Foreign Ministers the day before the agriculture council met. A proposition was put forward, which, if I understood it aright, we just said it was not good enough and made no reply to. But we had the opportunity there, had we so wished it, to have settled it the day before, certainly every bit as well as it was finally settled, before the agricultural prices came before the Council of Ministers. But Her Majesty's Government, in their wisdom, chose not to, and perhaps some explanation of that could be given. To what extent, is it thought by my noble friend that the deal that was finally obtained on the budget was a better one than we could have obtained the day before? I wonder very much whether it would not have been far better to have agreed the budget proposal or, if necessary, to have fought it, rather than to have to come to an agreement on the budget issue the day before the prices were discussed so that we could have saved all this brouhaha.

There is another factor. At the same time we were expecting our partners to continue their sanctions against Argentina—and very properly so. Of course, there could be no link between what the Community, through political co-operation, decided to do over Argentina, on the one hand, and what we wished for, either in the budget or on agricultural prices, on the other. When one is negotiating it is important to realise what the other man is saying and to understand why he is saying it. Of course, there was no formal link, but could we have expected the German Foreign Minister to return to Bonn and say, "Yes, we have agreed to go on without any limit on the sanctions against Argentina although, of course, it is not in our direct national interest so to do and many interested traders will not like it; nevertheless, we think it right because of solidarity and because we think it right that Great Britain should be supported in what it is doing in the Falkland Islands. At the same time we have accepted the fact that the British have not allowed our agricultural prices to go through because they did not want them to go through, and now we are being asked to pay a lot more: that our money should take the place of British money in the budget"? Would it have been realistic to expect Herr Genscher to go back to Bonn and say all those things? By all means get the best you can when you are negotiating, but we must remember that there are now 10 of us in the Community, and that we have to get the best we can, taking everything into consideration.

We have now got a settlement, such as it is, on the budget. I personally think that we could have had a better settlement if we had done it differently. We have also got a settlement on agriculture. And all our partners, other than Italy and Ireland, have agreed to continue with the sanctions against the Argentine. But it has left a nasty taste in the mouth. When the question is asked, "Is this our fault or is it the fault of our partners?", do we always want to put the blame on our partners? Is this the fault of the Community or is it the fault of Britain's action within the Community? This is a question to which it is not easy to find a definite answer because this is not a legal point; it is a matter of how one makes use of the Luxembourg Agreement.

May I now proffer a couple of thoughts to my noble friend—first, on the common agricultural policy which is still very expensive and which shows no sign of being amended in any major way. If by amendment people still hanker after the old deficiency payments system, I have news for them. If we all live to be well over 100 we shall not see it altered in that fashion. So we had better stop thinking about it. If, on the other hand, what we want to do is to put a cap on it so that it cannot cost too much, then theme is a way—and I think that this is the only way of approaching the common agricultural policy. It is to give a guaranteed price for that quantity of different commodities which the Community wishes to produce at home. If we wanted 100 per cent. for certain commodities, it would be 100 per cent. of what is required at home. It would include what we require for food aid. But over and above whatever figure is decided would not be counted in the guarantee. That is the same concept as we had before we went into the Community's agricultural support system which the noble Lord, Lord Peart, knew so well (as indeed did I because we both had to manage it), whereby it was for that part of the nation's food which it is in the national interest that we should produce at home. It would seek to superimpose on the CAP arrangements, and this would be of benefit to the Community because it would cost us less. It would also be of indirect benefit to the Community, in that it would not antagonise our trading partners to the extent that the present arrangements do, when we subsidise very heavily exports to other markets. That is my comment on the CAP.

Now, as to the future of the Luxembourg Agreement. First, we must realise that we did not join a Community which takes its decisions on the basis of unanimity. There are certainly carefully prescribed areas which do require unanimity, but, on the whole, decisions are taken by majority vote. We must realise this, and I think that the Luxembourg compromise will continue. It should exist and it is necessary that it should exist. If it had not been invented in 1966, it would have had to be invented some years later anyway, because it reflects the fact that there are now 10—shortly, perhaps, 12—sovereign states sitting round the table and that if there comes a time when the vital national interest is affected then a country can say, "I want this settled by unanimity". But this should be the exception and not the rule because the Community could not conceivably prosper if all decisions had to be taken on a unanimous basis. Indeed, this was never the intention. If anyone translated the Luxembourg Agreement into terms of saying, "It's all right because whenever we want something, we can always have a unanimous vote," I do not think it would be in the interests of the Community that any member state should say that.

I have a proposal to make. When this is considered by the Council of Ministers at their June meeting—when I understand it will be considered—I believe that a country that wishes to insist on the unanimity rule being applied to a particular decision must at the outset of that debate, as it were, hold up its hand and and say that it wants the matter decided by unanimous decision. That should be the basis. That should be debated within the Council of Ministers. In other words, a country which wishes to fall back on the Luxembourg Agreement—which should, as I have said, be the exception rather than the rule—should have to explain to its partners why it is that, in that instance, that country needs to fall back on the exception rather than the rule and claim that, if a particular decision was taken against its interests, it would be affecting interests so vital that the member must ask for this exceptional process. That partner would have to explain it and defend it in front of its colleagues.

One final question. I wonder whether my noble friend or his right honourable friend would have felt very easy in his shoes if he had been defending this in front of his colleagues at the time we insisted on unanimity on this occasion—other than the fact, which I grant him, that it is a departure from custom and practice. It is something that has been highly sanctified by time; that the decision on agricultural prices should be taken by unanimity. But I do not think that should be the case in the future, and it would be a good idea if it was made a little harder than it is at the moment to claim the Luxembourg compromise on any specific issue before the Council of Ministers.

4.30 p.m.

Lord Peart

My Lords, I believe the House will be grateful to the noble Lord, Lord Soames, for initiating this debate. The noble Lord has great experience and knowledge of this subject, both as a former Minister of Agriculture and as a Commissioner in Brussels. Therefore, I believe we must listen to his words with care. I think he has made a case, and many of the parts which need an answer will have to be answered by the Minister of State, who I am sure will be in a position to answer questions. The noble Lord was critical of the way in which the Government of which he is a supporter dealt with the agricultural price fixing proposals on this occasion. I have a feeling that he does not believe that those countries in the Community which disregarded the veto and thus broke the Luxembourg compromise were wrong or unfair. I take the view that he blames Britain. I cannot accept that.

It must, of course, be noted that the Government, in the persons of the Prime Minister and Ministers, take a different view from the noble Lord. I respect the noble Lord's view and I know that he has to put a point of view, but I cannot accept it. Mr. Walker, the Minister of Agriculture, was quite outspoken in his condemnation of events. He spoke of a very important national interest being violated, and he repeated this in the debate in another place yesterday. The House will have noticed that there was considerable support for the Government's view in another place in the course of the debate. It may, of course, be argued that this was due in the main to the attitude of those who are in any event hostile to our membership of the European Community and would like us to get out as soon as possible. I think there is an element of truth in this. But the conduct of those who broke the Luxembourg compromise has also been severely criticised by members of both parties who are supporters of the Community and who are anxious that Britain should play a full part as a co-operative partner.

Lord Soames

My Lords, if the noble Lord will allow me to intervene to put the record straight, what I said was that I am sorry to say it, but I think we were both wrong. I was not saying that all the blame lay at the door of Her Majesty's Government or that all the blame lay at the door of our partners. I think that this is a matter where blame should not too easily be cast about, saying that they are to blame or that we are to blame.

Lord Peart

My Lords, that is a fair point and I accept it. Nevertheless, I have said what I really believe in. As I said, it may of course be argued that the support for the Government's view was due in the main to those people who are very hostile to our membership of the European Community—and I know there are many. I was once critical of the Community, but when I first made my way in Brussels I began to realise the importance of the CAP and the importance of being a member of the Community. So I have no worries about my own position now. Nevertheless, there is an element of truth in regard to the hostility of a group of people, but the conduct of those who broke the Luxembourg compromise has also been severely criticised by members of both parties who are supporters of the Community and are anxious that Britain should play a full part as a co-operative partner.

The Committee report on these issues which we are discussing pointed out that majority voting is laid down for the Council under the Treaties on many matters", and the practice was to be extended as the EEC developed. It was in fact the French Government which opposed the extension and boycotted the Communities. The ensuing crisis brought about by the French was resolved by the Luxembourg compromise of 1966. Because of its importance I will quote the relevant paragraph: Where, in the case of acts which may be adopted by majority vote on proposals from the Commission, very important interests of one or more partners are at stake, the members of the Council will endeavour, within a reasonable time, to reach solutions which can he accepted by all members of the Council while respecting their mutual interests and those of the Community, in accordance with Article 2 of the Treaty". It is also significant that the British Government also made clear in the 1971 White Paper, The United Kingdom and the European Communities, to give it its full title that—I quote paragraph 29: The practical working of the Community accordingly reflects the reality that sovereign Governments are represented round the table. On a question where a Government considers that vital national interests are involved, it is established that the decision should be unanimous". Paragraph 30 says: All the countries concerned recognise that an attempt to impose a majority view in a case where one or more members considered their vital interests to be at stake would imperil the very fabric of the Community … where member states' vital interests are at stake, it is Community practice to proceed only by unanimity". and the noble Lord knows that quite well.

I have quoted from the White Paper in order to demonstrate that the British Government regarded the Luxembourg compromise as of the utmost importance and that, when this country entered the Community in 1973, it was with the understanding that the veto existed and could be used where necessary.

That is the background to our discussion. One must, therefore, have a good deal of understanding and sympathy for the Government in their dilemma. This is the first occasion since 1968 for the veto to be used in this way. The Minister of Agriculture, Mr. Peter Walker, objected in the strongest possible terms when it was decided by seven countries to vote on each of the 62 clauses of the Farm Agreement. Britain, supported by the Danish and Greek Ministers, refused to vote. There were, of course, underlying factors and as we know, the discussions have been prolonged and difficult. On 14th May, the British Government agreed to talk about a one-year budget agreement and to defer the search for a longer-term settlement, but we gave no sign, I understand, that we were ready to accept a rebate for 1982 which was less generous than the past two years.

Then, as we all know, the painful talks which took place last weekend ended on Monday night with eight of the 10 Governments agreeing to extend economic sanctions against Argentina. This was an action which we appreciated very much in all the circumstances, and it demonstrated that, while there can be profound disagreement on one issue, there can also be substantial solidarity on another matter of importance. We are particularly grateful to the French Government for their consistent support on the Falklands issue.

It is of course an unhappy and unfortunate coincidence that the discussions on the budget and price-fixing had to take place when Britain is deeply preoccupied with developments in the South Atlantic, and we must be grateful to those Governments who have kept the two issues apart, because they are quite unrelated to each other. We recognise also that Mr. Francis Pym, who is relatively new in his office, was faced with a crisis on more than one front. There- fore, I think that the noble Lord, Lord Soames, takes the view that the issue involved in the agricultural price-fixing is not an issue of sufficiently important national interest to justify invoking the Luxembourg compromise and that in any event the budget and the agricultural proposals should not be mixed up. That is my view and that is the view, certainly, of those in the Community. It is, I suppose, arguable, as I am sure that the noble Lord will recognise, that both the proposals and the budget contribution are matters of acute concern in this country.

It is worth noting that Sub-Committee D, a committee of this House, were quite specific, and I quote paragraph 84 of their report on the Commission's proposals. It says: To sum up, the Committee consider that the Commission has produced disappointing price-fixing proposals for 1982–83. They do not reflect the imaginative suggestions within the guidelines. In particular, the abandonment yet again of the super levy, which would have provided a positive control of milk product surpluses, is much regretted. The proposed extra cost to consumers of storing an unwarranted beet sugar surplus reflects weak management by the Commission, as does the high initial recommended average price rise which on past experience the Agricultural Ministers may be expected to increase. The Committee fear that, far from encouraging the promotion of a thriving and technically advanced Community farming industry, which all desire, this year's price proposals will encourage the opponents of the CAP without satisfying the agricultural industry". I should like to touch on food prices. In fairness, it is not the Government alone who believed that the proposals were unacceptable. The noble Lord, Lord Soames, referred to this in his Question and in his speech. It appears that there are differing views as to the effect of the proposals on the housewife's purse. The National Farmers' Union used the words, "wildly inaccurate", about some of the figures, and went on to say that they had calculated that the increase would add about £370 million per annum to the food bill, which they said amounted to 14p per person per week.

So it will now be essential for the Council to look again at the Luxembourg proposals, because there could be very serious implications both for Britain and for the future of the Community, if they are not clarified. I hope that they will be discussed at an early date and that we shall be informed of the outcome, bearing in mind once again that from the start Britain took the compromise seriously and had it very much in mind when we entered the Community, and that for the first time in 14 years the veto has been disregarded.

Finally, I would hope that the matter can be resolved in the interests of all concerned—and I speak as a former Minister of Agriculture who had quite an experience in the Community—that our budgetary contribution can also be debated and a long-term solution found. At the end of the day, the Community can succeed only if all its members feel that they are being fairly treated, and perhaps this is the opportunity for us to put our house in order.

4.42 p.m.

Lord Gladwyn

My Lords, I must apologise to the noble Lord, Lord Soames, for missing the first few minutes of his speech. I did not know that he would rise to speak so soon. But from what I heard I can say straight away that I agreed with the noble Lord 100 per cent. or, if it will not embarrass him to say so, for reasons that I shall give in my short oration, I agree with him to the extent of 110 per cent. or even 120 per cent.

Rightly or wrongly, my conistent view has been that the famous and, indeed, totally misnamed Luxembourg Compromise of 1966 was specially devised by the late President de Gaulle to prevent the European Community from working properly and, over the last 20 years or so, it has very largely succeeded in its fell purpose. I shall explain.

In the first place, the Treaty of Rome provides only in some specific instances for what is called "qualified majority voting"; that is a voting system in which a major power can, indeed, be over-ruled if it is isolated but not if it succeeds in getting one or two smaller powers to support its view. That is only the system in certain cases, as is laid clown in the treaty.

Many other important matters are decided under the treaty by unanimity. Others, rather minor ones, are decided by majority under the treaty. Even those cases under the treaty where a qualified majority vote is possible are in any case chiefly those regarding the operation of already accepted policies, such as the common agricultural policy, which are normally, as we all know, preceded by a long process of examination in the Commission, the Parliament, the Council itself and elsewhere. Therefore, such qualified majority voting is not, as the antis always maintain, the first step towards some kind of a sinister federation; it is the only way to work a new system in international affairs called a Community. Anyhow, that is my view.

In order to induce the French to return to the Council, which, as we all know, they have been boycotting for six months because they refused to accept the explicit provisions of a treaty which they had signed and ratified only nine years previously, the other five members of the community in 1966, while maintaining their view that qualified majority voting should still be applied where the treaty provided for it—something which subsequently they seem rather to have forgotten—rather tamely recognised that it was the view of the French Government that, whenever very important interests were involved, the discussion would go on until unanimity was achieved.

Later this concession was translated in practice to mean that whenever any member decided that very important national interests were at stake it could apply its veto. As time went on this right of a member to veto anything if it felt so inclined was, as often as not, abused, with the result that the whole machine got clogged up with admirable proposals lying on the table because it was known that they were objected to by one member or another. In practice I think they were objected to by embattled national officials behind the scenes who were determined to put across their own national point of view.

This was clearly a recipe for inaction, and a sure means of rendering inoperative what would have been an admirable machine working in the interests of all concerned. In any case, why should we be afraid of occasionally being overridden in these limited circumstances laid down in the treaty? If we ever were, if we had adopted a system under which we could be, it would be likely, indeed almost inevitable, that on some other issue we could find ourselves in the majority and be able to impose our own favoured solution on, say, the Germans or French.

If the nation ever did decide that it had been over-ridden on some issue which the Government and the House of Commons felt was really vital to the national interest, then after all the nation could, if it wanted to, admittedly resign from the Community if it so desired, even granted that by so doing it might place the nation at an even graver disadvantage, as I am sure it would do. In the present instance when our partners lost their patience and overrode us—perfectly legally even if in violation of a wretched convention imposed on the Community years ago by the French—it could not possibly be argued (I think Lord Soames said this) that a vital British national interest was at risk.

It had indeed become perfectly plain that our Minister of Agriculture was reconciled to an increase of rather over 10 per cent. in farm prices, essential I believe for our own farmers, and which would only increase the general cost of living in this country by about 0.5 per cent., if I have got it right, and he was there merely applying his veto, as we know, in order to force his colleagues to give us a rebate of more than half a billion on our contribution to the Community budget, which incidentally has been pretty minimal during the last year or two. My colleague Lord Mackie will be enlarging on this aspect later in the debate.

Our colleagues who had just, as they thought, made considerable financial sacrifices in order to support us over the Falkland Islands hardly appreciated these tactics; and quite right too. I believe myself that we were to blame in this matter. We could, and we should, have fought our corner over our contribution quite separately, and incidentally the eventual result, as the noble Lord, Lord Soames, said, as it has turned out is perfectly acceptable, even if it is not entirely what we might have desired.

That brings me to an allied aspect of the whole affair. There seems to be a general impression that it is unfair that we—who regard ourselves, in spite of sitting on a mountain of coal surrounded by an ocean of oil and with an important nuclear element and quite an efficient industry at our disposal, as one of the poorest members along with Italy—should, after Germany, contribute the most to the Community budget. A lot of people in this country think it is unfair that we should. We do so of course because we still import about half our food and because, if we continue to do this after leaving the Community—as we would—we should still have to give our farmers, in the shape of a subsidy, about three times the amount that we shall now pay this year into the Community budget.

There is therefore no reason for the antis to groan and grouse about our enormous subscription to the budget as such, though there can well be a grouse, I admit, about the 66 per cent. (I think that is the figure) of the budget being devoted to agriculture, and in particular to the production of unwanted surpluses which are then sold off to the third world to the disgust of many of our trading partners, and even sold off to the Russians, thereby disturbing the market, and so on. Indefensible though it certainly is, the CAP can and will be reformed, we suspect, during the next year or two, if only because the Commission might run out of money to finance it. Nor is it wholly reprehen- sible as providing a sure market for agricultural goods and preserving to some extent the social order on the continent, which could be considered to be in the general interest. Nor would our situation be any better if, in indignation at the lack of such reform, we actually left the EEC. On the contrary, our situation would be incomparably worse.

In spite of what I have said, I do not expect the Luxembourg compromise actually to be abandoned during the next year—that would be too much to expect—but I believe it has, happily, been seriously damaged and that the veto is consequently less likely now to be applied than heretofore. In the excellent Colombo-Genscher plan for making the EEC work better—which I believe will be considered by the Council of Ministers when our present preoccupations over the Falkland Islands are less overwhelming—there are some sensible provisions not unlike the suggestions made by the noble Lord, Lord Soames, towards the end of his speech for making the compromise less deadly in its application and for qualified majority voting to become more and more the accepted rule. If we had any sense, we would welcome such a development and hasten it along. Certainly if the Community is to be enlarged by the addition of Spain and Portugal, qualified majority voting would seem to be the only way of avoiding complete paralysis. It is bad enough to have the present system when it is a question of coping with Greece.

In sum, I believe that great effort should be made to explain the facts of life regarding the Community to a public who, in recent years, have been completely bemused by the often absurd nationalistic propaganda of the antis, whose latest effort, if I read the press aright, is to demonstrate that our balance of trade with the Community is in heavy deficit, rather than the reverse. Even for manufactured goods only, I believe the figures for 1981 show that we are at least holding our own. And when we see that no less than 60 per cent. of our total trade is now with the Community and states closely associated with it, we may begin to wonder what, at any rate, the Tory antis are up to when they advocate our pulling out of the whole affair.

That Socialists of the Benn persuasion should hold those views is perfectly comprehensible—seeing that withdrawal would certainly be the quickest way to introduce that sort of Marxist-directed economy on the East German model of which the left wing dream—but that Tories should fall into that error is rather extraordinary. Perhaps it is simply that, like so many ordinary Englishmen, they just cannot bear the possibility, however remote, of miles becoming kilometres or litres taking the place of pints.

I hope your Lordships at least will not, in a nationalistic mood, side with those in another place who are apparently demanding our denial of funds to the Community out of revenge for what is thought to be a kind of humiliation, something which would simply mean cutting off our nose to spite our face. A number of people seem to think that war with the Argentine Republic is in some way restoring our pride as a nation and our self-respect. Perhaps, but it would be a pity if it also drove us, in a mood of national exhilaration, to flounce out of Europe largely because of almost total national ignorance of how the Community actually works.

I repeat that what is now wanted is a really vigorous campaign by the Government to counter the ignorance. Therefore they might be well advised to give some small additional advance to the European Movement to assist it in such an effort. They could also do well to take as their text a really admirable letter in today's Times by Mr. Robert Saunders. That would be the best way to get across to our people where our real long-term interest lies.

4.55 p.m.

Lord Kennet

My Lords, when we discussed this rumpus very briefly at "Statement time" last week I shared the view then being advanced by the noble Earl, Lord Ferrers, for the Government, that what had happened was very dreadful, and a great danger, and I think that we both used the term that we "faced a nightmare". However, after a time for reflection, I have come to the conclusion that this country probably has much to learn from the episode.

The first lesson that we have to draw is that France is a very different France from the France with which we grew up. I want to remind the House of an article in Le Monde only a week or two ago about how General de Gaulle would be turning in his grave when all at the same moment he sees a French Government invite the North Atlantic Council to meet in Paris, when he sees a French Government voting 62 times in one meeting to ignore the Brussels compromise and to proceed by weight of majority voting, and also when he sees France taking the lead in standing steadfastly beside Britain in a difficult overseas military operation, and backing us up with sanctions which hurt the French economy. That is Lesson One.

Lesson Two I would say arises from the fact of the ambush itself. It was an ambush, and naturally at first we were shocked and hurt. What person in private life who, having received the most loyal and warm-hearted support of his friends in the afternoon, and then going out in the night, finds himself set upon by seven of his closest friends in an ambush, which must have been very carefully planned over several days—what person, when he had recovered his nerve and his feelings, would not say, "Now, why was that? They must have had some reason to do something so uncharacteristic". That is what I think the country, the Government, and all the parties here have to think now—why did they do it? It was a reaction to something that we had been doing, was it not? But a reaction to what?—not I think to the mere fact of linkage. Linkage is practised by all members of the Community, all the time, and it has become an established gambit. It sometimes serves its purpose; it sometimes does not. It is a normal tool of diplomacy in this field, as in others.

But surely it was a reaction to the two elements, which were linked. I think that what we saw was exasperation with our language and our manner about the refunds and rebates, which we go for every year, and a determination to profit from their having been so nice to us about the Falklands and to teach us a lesson about our approach to the financial difficulties inherent in the Community.

We have to remember what the Luxembourg compromise was a compromise between. I think that many people do not remember this all the time. Quite simply, it was a compromise between amending the treaty, as France wanted, in order to get rid of majority voting, and, on the other hand, not amending the treaty, as everybody else wanted, in order to maintain majority voting. It is described as a compromise; of course it was nothing of the kind. What happened was that the treaty was not amended; the majority voting is still there in it, and nothing can remove it except an amendment of the treaty. It was on the compromise a mere minute stating the French position, which everybody has been decent enough to observe ever since, and now when for the first time it is not observed, we find France taking the lead in its nonobservance. There is much to be learnt from that.

What could we do? Various steps that we could take are being canvassed at the moment. There is the policy of the empty chair; we could mark our displeasure by staying absent for six months or so, and trying to paralyse Community business until our good friends came to heel. That will not do, because France tried it for six months and the result was the Luxembourg compromise itself, and to repeat the performance would add nothing to what has already been done.

We could refuse to implement the farm price increases which were voted through against us. I think the very thrust of Lord Soames's admirable speech today is enough to show that that would not be a very profitable course of action. We could refuse to collect or to forward a part of the whole of VAT for a period—the VAT levied in this country. We could refuse to forward a part, which I suspect is an idea which may be appealing to the Government at the moment, or we could refuse to forward the whole, which was advanced by the Labour Party in the House of Commons when they debated this matter yesterday. To do so I think would be to show the extent to which we had ceased to understand what the Community is about altogether. I believe that none of these things would serve very much purpose.

Three events have happened, and these things are still there. The treaty is still there, and we are still a signatory; the Luxembourg compromise is still there, the minute stands; and the events of 18th May this year have happened and will not "unhappen". It seems to me that we must proceed, on the contrary, to a fundamental reform of two things. First of all, there should be a reform of the voting system itself by amendment of the treaty. That is the only way it can be done, in fact. I suppose there is a possibility of its arising out of the Genscher—Colombo Plan. I am not sure how much help we might have about that.

On the other hand, it sounds to me as though Lord Soames's plan, which he has just introduced into this House and which was introduced into the House of Commons yesterday, also, cannot but be a good one. But I was not quite clear from the way Lord Soames introduced it, and perhaps he could tell us, what happens at the end of the procedure. There you have a country saying, "This is my vital interest, and here are my reasons for saying so", and all the others saying, "Here are our reasons for thinking that you have misjudged your vital interest, and we must not accept your own evaluation of your vital interest". Who, at the end of the day, decides? Is it a majority— because this is simply going over to majority voting—or is it, on the other hand, the country which wishes to insist on unanimity and proceed by veto? Because, in the latter case, it is not a fundamental change from what we have, and in the former case it is no change at all.

Lord Soames

My Lords, I am grateful to the noble Lord for giving way. I think this all has to be done by common sense. I do not think this can be done legalistically. What I mean is that I think it should be the duty of any Government who wish to invoke the Luxembourg agreement to come out into the open and explain why they have to do so. No Government is going to want to do that if it is palpably absurd. It certainly would not do it twice, because the Foreign Secretary has to explain it to his colleagues and they have either to agree or to disagree with him; and it will be evident after a bit whether or not there is substance to it.

If I may be allowed to say so for just one second, I did not suggest that the Luxembourg agreement should not be used, which I think the noble Lord, Lord Peart, was rather thinking. I did not say that. What I said was that it should be used properly and not misused. This is all I think I can say in answer to the noble Lord. I cannot lay down exactly—I am in no position so to do, without some assistance, anyway—how it should be done, but I think that countries should explain; and if, in this instance, it was nothing more than £10 million or £20 million, I think we should have found it very difficult to sustain that argument.

Lord Kennet

My Lords, I like the noble Lord's idea. I just wanted to clarify how he saw it, and, as I understand it, it is then to be a gloss on a gloss. It is a better way of working the Luxembourg compromise, which was a better way of working the treaty. I think that, with that explanation, it is easy to endorse. If this is followed, it will be a commonsense way of proceeding and it will make eruptions like those of last week less likely, and, for that reason, I think it should be examined in a very positive frame of mind.

The second institution whose use we have to reform or re-examine is one which has not been mentioned once in my hearing in the whole rumpus we have had, and that is the European Parliament. Because it is obvious (is it not?) that the more the Community is forced to go back on the unanimity rule and go over to majority voting the more law is going to be introduced into our country against the will of our Parliament—and the same with all the other countries. In that case, the greater becomes the value of direct European democracy and of the power of those people who have been elected to the European Parliament to exert democracy at a second level. This is a safeguard against what may be seen as the imposition of the will of a majority on a minority—without due representation of the minority. Therefore, I draw to the Government's attention the great desirability of warmly espousing every move to bring the European Parliament from the fleshpots of Strasbourg to Brussels where they can be in daily contact with the executive of the organisation called the European Community. This is an old theme; it has been flogged to distraction by so many people in all the capitals of Europe.

I think that it is evident that in this crisis the European Parliament itself had nothing to say and it is evident that some British Members of the European Parliament have not understood what was going on. I do not blame them. It is perhaps no easier to understand from Strasbourg what is going on than from Westminster. But this must be put right soon so that every improvement in the voting machinery in the Council should bring nearer the day when the agreement of the Members of the Council can be obtained to moving the European Parliament into Brussels. Also, the system of election to be adopted by all member states for their European Members of Parliament has to become a just and truly representative one—which places a heavy burden on this country because we have the least just and the least representative system of election of any country in Europe. We must get PR in situ before the next European Parliament election.

Thirdly, we must reform the CAP and the budget. This is no new idea, I know; and attempts to do so are not lacking. It remains a fact that the CAP, devised to suit six countries with a certain distribution of industrial versus agricultural balances and a certain distribution of productivity levels in agriculture, does not suit us. It does not suit us with our high industry to agriculture ratio and the very high productivity within our small agriculture sector. There is bound to be some country that it does not suit; it happens to be us.

But this is no reason to stand cap in hand year after year banging on about "our money" and the unacceptability of declining handouts or clawbacks and demanding automatic ones. It is a reason to speak optimistically, imaginatively, and courteously about concrete reform proposals to take account of the changes in those balances which I mentioned—changes which will continue, and continue in a new direction, with the accession of Spain and Portugal. Where is the Government's plan? The European Community is not a machine for paying in £1 and getting out £1. It is not a machine which can he blackguarded like a piece of bad manufacture when it does not give the right answer. On the contrary, it is a gallant, necessary attempt to ensure that, wherever else future wars may break out, they will not (like the last two World Wars) break out in Western Europe. We have to devise reforms no less imaginative and no less serious than the great original enterprise itself.

5.10 p.m.

Lord Beloff

My Lords, we should be grateful to my noble friend Lord Soames for having given us this early opportunity of looking at the events to which he referred, of trying to get clearer the course of diplomacy which led, as he pointed out, to an outcome which was and is distressing to us all: that we should, on the one hand, feel a sense of obligation to our European friends; and, on the other hand, feel a sense of irritation at their conduct.

It would be a mistake to go on from this to imagine that we can simply get over this by some more courteous diplomacy, some less rushed diplomacy—and no doubt the rush of the times partly explains what happened. There are, as the noble Lord, Lord Kennet, pointed out, some fundamental questions that will have to be solved.

The noble Lord, Lord Soames, referred to a marginal connection between the CAP and the budget. But surely this connection is more than marginal. The reason why our budgetary contribution is thought to be so heavy is largely because, as the noble Lord, Lord Kennet, pointed out, we make a different set of contributions and receive in assistance different amounts because we have fundamentally a different relationship between industry and agriculture, and a different kind of agriculture.

The noble Lord, Lord Gladwyn, who believes in, as it were, the pure milk of Brussels—if that commodity exists—talked as though our imports of food were some kind of undesirable vice, as though they were some imports of some noxious drug rather than being related to the whole way in which this country has over the centuries developed. It would be quite wrong to say that we must continue to accept this particular arrangement because if we do it seems inevitable that in most years we shall be asking for a claw-back, for some kind of budgetary arrangement to make up for this.

There is no greater recipe for continued friction between ourselves and our European colleagues, and no greater recipe for misunderstanding of Britain's position, both at home and abroad, than the idea that every year for an indefinite period of time—whether arranged year by year or quinquennially seems a matter of detail—it works only if we get the money back. As the experience of many federal systems shows, there is nothing more awkward than a system of taxation—and fundamentally we are talking about a system of taxation; that is what the Community in its economic aspect is—which leaves one unit always in a deficit position and having to be compensated in some way.

That is a situation which is bound to cause friction and it must therefore be our intention to use whatever recipe we have to negotiate some kind of arrangement which will make it unnecessary either to have the return of large sums of money or to use the language of our own resources which, as the noble Lord, Lord Kennet, rightly pointed out, our European partners find excessively irritating.

Lord Gladwyn

My Lords, I do not want to interrupt the flow of the noble Lord, but I did not suggest that it was terrible that we should import half our food; it is probably necessary that we should do so. Certainly if we left the Community we should have to do so. But if we left the Community we should still have to go on with a system of importing half our food and therefore subsidising our farmers to the extent of about £1½billion a year. At the present, we merely pay £500 million to the Community.

Lord Beloff

My Lords, I thank the noble Lord for putting me right. I do not disagree with what he said. His conclusion seems to be one that we cannot so seriously affect this—and the noble Lord, Lord Soames, pointed out that there is no prospect of going back to a deficiency payment system—as to get over the problem of having to receive monetary compensation payments. That is a recipe for disaster and for further disasters of the kind that came up this year, though possibly in a new form.

There is no political system which can really respond to a large area with very different economic interests if its fiscal policies cannot be adjusted to meet that situation. It was, after all, a proximate cause of the American Civil War. It seems to me that we are also likely to have to make use of the veto while this new system is being worked out. On the references to the Genscher-Colombo plan, I do not think that the noble Lords, Lord Gladwyn and Lord Kennet, made it clear that really what they are suggesting is entrenching the veto rather than limiting it. May I trouble the House—since many of your Lordships may not have the text of the draft European Act before them—by reading the relevant clauses? They say in order to facilitate decision-making: To this end greater use should be made of the possibility of abstaining from voting so as not to obstruct decisions. A member state which considers it necessary to prevent a decision by invoking its vital interests in exceptional circumstances will be required to state in writing its specific reasons for doing so". The scheme which the noble Lord, Lord Soames, put before us might be regarded as a variant, since he would suggest that it would be done orally at the first meeting and they suggest after the meeting that this is communicated in writing. But more important is the second paragraph, where it says: The Council will take note of the stated reasons and defer its decision until its next meeting. If on that occasion the member state concerned once more invokes its vital interests, by the same procedure a decision will again not be taken". In other words, if vital interests are pressed, the veto will survive. They do not seem to me, in the rest of the document, to get any nearer to deciding what is "a vital interest".

The trouble is that if very large sums of money are involved, as in the case of the budgetary repayments, and if governments are faced with that, they are likely to regard that as a vital interest even though somebody, looking at it externally, would say that this is a misuse of the term. So it seems, in conclusion, that we have both to hope that we can find a system in which vital interests will more rarely figure in the decision-making process and at that point accept that, if the Community is to advance, the mechanisms provided by the Treaty must come in. But, as I think the noble Lord, Lord Kennet, said, the mechanisms were devised in relation to a community whose interests were more homogeneous when they were six than they will be when they are 12.

5.19 p.m.

Lord Ardwick

My Lords, I begin by saying that I agree in almost every particular with the noble Lord, Lord Soames. I am sorry that the noble Lord, Lord Kennet, used a quotation that I was going to use from Le Monde, about General de Gaulle rolling in his tombeau. However, I might add a further one on the same date in which it was said that the trouble with Albion today is not that Albion is any longer perfide, but candide. In other words, we have ceased to use the language of diplomacy and of persuasion.

I thought that the Government were very lucky in the other place yesterday in that their best friends were the Opposition. My party, of course, is not pro-European, and so many people took this opportunity not to belabour the Government for any error they might have made, but to belabour the Europeans. Even my noble friend today did not go as far as that, but he said that he extended his understanding and sympathy to the Government. These are very rare, honeyed words from an Opposition to a Government. They are very seldom heard and they show how remarkable the situation is. I cannot go along with that, but I will try to go halfway; I will extend my understanding to the Government, but not my sympathy.

I belong to an embattled minority in my party—the Labour Movement for Europe. But, of course, it is because my party is not pro-European that they put all the blame for the farm prices and budget fracas on our European partners, so they let the Government off the hook. The Tory Government today seem to get the best of both worlds. They are intellectually pro-European, but are emotionally and rhetorically anti-European. Since they got power, they have never led public opinion in this country in a European direction, and they have not gone that way because there are no votes to be gained from being pro-European. There are only votes to be lost to Labour for not being anti-European. How do the Conservatives square this circle? Simply, they legitimately complain about the unfairness of the budget, but in such strident tones do they make their complaints that they sound to the public anti-European.

Last week, the Government made a mistake at Brussels. They received warnings. It was not an ambush that was being prepared. The other nations were visibly ready to form themselves into a gang. Farm prices are a vital interest, but you cannot claim that there is a vital national interest when it is a marginal change in those prices that you are seeking. It is only if you are dealing with the whole concept of the budget in its totality, that you can claim a vital interest. But, when your difference is narrowed to 0.5 per cent., I do not think that the claim that you are exercising a vital interest has any validity. The same was true of the budget, that we were very near a solution. It was a marginal point about the budget which we chose to regard also as a vital interest.

It seems to me—and perhaps I am biased, as are the noble Lords, Lord Soames and Lord Gladwyn, because of the years we spent in Europe—that there is a very strange lack of sensitivity about Europe. Even during the past few weeks, and even in the newspapers, people have not seen that the European nations have had some difficulty in agreeing to impose sanctions. They seem to be unaware of the strength of the peace movement in those countries. They would have been well aware of the strength of the peace movement in our country, if we had been asked to impose sanctions, in order to come to the help of France, one of whose islands had been possessed. We would have seen what a stong movement my noble friends would have been able to mobilise. I think, also, that a lot of people have no idea of the strength of the farm lobbies in some of the European countries and how important they are politically, and no feeling for the vulnerability of very narrowly-based Governments whose vulnerability has been increased by proportional representation.

The Foreign Secretary used an infortunate phrase. He said that this had shown Europe at its worst. I do not think it is a good idea to indulge in recriminations shortly after you have reached some kind of compromise. If it was Europe at its worst, we are part of Europe and we were part of the worst. In other words, there was a certain amount of contributory negligence or ignorance on our part, and for that we have to share the blame. No rational person who has looked at what happened in Europe last week believes that Britain was wholly right and that the nations of Europe were wholly wrong. That would be a paranoiac point of view.

I do not believe for one moment that Europe has written off the veto and that Europe has become overnight almost a federal State. I believe that the veto will continue and, as the noble Lord, Lord Soames, suggested, that a method of using the veto more discreetly in future and curbing its illegitimate use—the general, illegitimate use which has been made of the veto for rather small matters in the past few years—will be evolved. When strong pressure groups ask them to block something, there is a temptation for governments to accede to that pressure instead of looking at the general situation.

We hope that the events of the past week will never happen again. Europe is, I feel quite sure, good at repairing its fences and at evolving a continuing policy. I am not at all depressed about the future of the Community.

5.27 p.m.

Lord Mackie of Benshie

My Lords, may I also thank the noble Lord, Lord Soames, for initiating this debate? It was noticeable that when the Statement was made it was only my noble friend Lord Gladwyn and I who queried the Government's attitude. As a result of today's debate one can see that all noble Lords who have spoken, perhaps with the exception of the Front Bench of the Labour Party, are very worried about what has caused this extraordinary situation. I hope that Ministers are examining the Government's attitude and their reputation, very seriously. It is extraordinary that during the past 12 years this convention—it is only a convention—has never been broken until now. Therefore Great Britain should examine very carefully why our partners, who have been so supportive of us in so many other ways, should suddenly break a convention of 12 years' standing.

The Government ought to look at what Europe thinks of us. I recommend the Minister to read an article which appeared in the Economist on 22nd May. It is headed, "The day that Britain's bluff was called". It was written by the Economist's Brussels correspondent. In that article phrases like this occur: yet over the past week the already lively irritation with Mrs. Thatcher reached boiling point", and: This incensed the German Foreign Minister", and: There was also a profound dislike". These phrases must mean something. This is a responsible newspaper. Therefore we should re-examine our attitude towards Europe.

I should like very much to endorse what has been said about how this country regards the common agricultural policy. Most people who are not in agriculture regard the common agricultural policy as a nuisance which we in Britain have got to put up with and which we have got to reform. They hanker for the days when we could draw our food cheaply from all over the world. Those days will never return. The main reason why the price of food all over the world has been kept down has been the explosion of production in Europe, caused by the common agricultural policy. Although the CAP has caused many problems, it is certainly far better to be troubled by surpluses than to be troubled by shortages.

Of course the CAP does not suit us entirely. If you produce only half of your food requirements you need only to subsidise half the number of farmers—and the poor dears do need subsidising—whereas if you produce all the food you need you have to subsidise all the farmers. We worked it very nicely for a long time, but we could not do that now. We could not put up with the expense which a return to that system would cause.

To return to my original point, I think that going in parallel is a different thing from linking a settlement of the farm prices with the budget dispute. I entirely agree with the noble Lord, Lord Beloff, that one cannot go on having a system where one asks for something back. A fair system should be set. I do not quite know what a fair system is because our main complaint against Europe and the budget is that we are poor and we pay too much because we are poor. It is the GNP that we complain about, although the fact is that we spend more on ourselves out of our GNP than other countries do instead of reinvesting it, and this raises our contribution from VAT. So we are really looking at two separate problems.

If one looks at the settlement we got on agriculture, we really got an extraordinarily good settlement. Our partners agreed to a purely British device—the beef premium—going on, and they agreed to the butter subsidy remaining at about the same price. Above all, they agreed not to make Britain revalue her currency, which would have obviated much of the rise in price to our farmers. These were major concessions. Having made these concessions they said, "For heaven's sake, here are our farming lobbies pressurising us for a settlement. They are losing money every day that new prices are not fixed, and here is Britain using the veto most unfairly in this committee when she is really looking for a budget settlement." We drove them to a point of exasperation which they probably regret now, but we should learn from this.

I blame our attitude. To be quite frank, I think that the Government have been very bad about this. They bullied, or tried to bully, and one cannot do that with equal and indeed stronger partners. One really needs some form of compromise if one expects the Luxembourg compromise to work at all. When one comes to the reform of the CAP—and it is necesary to adjust it and not to reform it, because the other six want to have it reformed and they will stick to intervention prices—one has to do something to dispose of the problem of ever-increasing surpluses. One has to find a device for stopping the production of, for example, milk products.

I think that the noble Lord, Lord Soames, has one solution. There is no question that if you have standard quantities which you agree to pay for and then the farmers produce more, then they see quite clearly that the price will drop. I believe that would be effective and I think that it could be accepted. But it will never be accepted so long as one has a veto in the committee dealing with agricultural prices. It cannot be accepted because the fact that it is there stiffens every farming lobby, puts pressure on Ministers, and makes it much more difficult to get sensible solutions.

In the long run, we are not asking for a simple majority but qualified majority voting is not only reasonable but is probably the only thing that will get sensible reform or adjustment, call it what you will, of the CAP. I do hope that Ministers will swallow their feelings of hurt and that the Government will take a fresh attitude to our partners in Europe, with whom lies our only hope of prosperity and peace.

5.34 p.m.

The Minister of State, Ministry of Agriculture, Fisheries and Food (Earl Ferrers)

My Lords, this has been an interesting debate. I believe that the House is very grateful to my noble friend Lord Soames for introducing this debate, because it is a matter which has caused great concern to a great many people. It has been a quite interesting debate in one way, because the noble Lord, Lord Peart, has extended his sympathies to the Government. I appreciate that. The noble Lord is one of those who have been involved in the Ministry of Agriculture and in agriculture price fixing in Europe. He realises the complexities and difficulties. That was, from my point of view, helpful, but it did not win him many friends on the seats behind him; the noble Lord, Lord Ardwick, certainly disagreed with him; but then my noble friend Lord Soames disagreed with the Government, so we all seem to be relatively at sixes and sevens, as long as my noble friend realises that he is of the six and I am of the seven. The noble Lord, Lord Ardwick, said that he found that the Government was not pro-European. He said that since it came into office it has been totally anti-European.

Lord Ardwick

No, my Lords, I did not. What I said was that they had been rationally, intellectually, pro-European, but they had not been pro-European emotionally and they had not led British opinion down the European path.

Earl Ferrers

My Lords, in that case I apologise for leaving out the word "emotionally", which I quite see is very important. I would only like to say on that, however he feels we have or have not led public opinion, we are totally part of Europe; we are totally determined to remain a part of Europe and to make the common agricultural policy and the European Community succeed. It was the noble Lord, Lord Kennet, who said that historically Europe had been in conflict over the years, and that one of the great advantages of the European Community is that that has not been so in recent times.

My noble friend's Question referred to the effect of the settlement on retail food prices in the United Kingdom. I do not want to spend too much time on that, but I feel that I must answer that point because it was in the text even though it did not find its way into many of your Lordships' speeches. Some fairly wild figures have been bandied about, and we must not exaggerate these effects. The overall effect is to increase farm income support prices in the United Kingdom—and that does not mean cost—by 10.2 per cent. The settlement will have a nil or negligible effect on the prices of liquid milk, beef, sheepmeat, fruit and vegetables and tropical products. Even the products with are affected are affected by many other factors, such as changes in processing and distribution costs, which may easily outweigh the effect of the change in support prices. It is impossible, therefore, to give a wholly accurate figure. The Government estimate that over a full year the settlement will increase the retail price index by one quarter of 1 per cent. and the food price index by 1¼ per cent. These figures are equivalent to 45p on the weekly food bill of the average family.

I realise that your Lordships were concerned not so much with the details of the review, but the way in which the settlement was reached. I think it is right to remind ourselves of the background to the negotiation which has been completed. The starting point of this must be the budget settlement which my right honourable friend the Prime Minister negotiated in May 1980. This agreement, which was reached only after tough negotiation, provided for large reductions in Britain's net contributions to the Community budget, and they resulted in total savings of £1,500 million in the two years 1980 and 1981. The agreement also recognised that a comprehensive long-term solution was required, including measures to shift Community spending away from agriculture and towards other areas of greater interest to the United Kingdom. But it was recognised that this shift of emphasis would take time, and that in the interim continuing arrangements would be needed to deal with the United Kingdom's budgetary problem. That was a fact of great importance.

The real problem stems from the fact that the European Community was designed, as I think the noble Lord, Lord Kennet, and others said, for six, and it is now different. Everyone within the Community agreed that the United Kingdom contribution has been latterly much higher than was ever designed or anticipated it would be when we joined the European Community. There is a fundamental fact here; that is, that there are only two payers to the Community, the United Kingdom and Germany. All the other member states are beneficiaries. Yet we are one of the poorer countries.

Our gross national product per head is a lot smaller than many others. We are, in fact, from the point of view of a league table, fourth from the bottom and the three poorer countries in that respect are Ireland, Greece and Italy. Yet we are one of the two biggest payers. France, for instance, has a larger gross national product per head than we have, but she pays nothing. She actually is a net beneficiary. The simple fact is that, for us to pay less, others have to pay more or to receive less. That is a plain and pretty disagreeable fact to other member states. That is the reason why my right honourable friend the Prime Minister had such difficulties in getting an agreement and she had to push hard very hard, both in Luxembourg and in Dublin because no one else wanted to pay more.

My noble friend Lord Soames said that these negotiations—and he was referring to the last common agricultural prices—left a nasty taste in the mouth. Nobody wants a nasty taste in the mouth, but one cannot get away from the fact that we are one of the two greatest payers—the United Kingdom and Germany—and yet we are one of the poorer countries. That was how the May 1980 agreement came about in Brussels. It provided for decisions on the longer term by the end of 1981.

Lord Soames

My Lords, will my noble friend give way for a moment? I did not refer to those negotiations leaving any taste, good or bad, in the mouth. Indeed, the May 1980 decision was arrived at by the Foreign Ministers in Brussels and not the European Council. It was arrived at by the Council of Ministers, and those negotiations were excellently conducted, in my view. I was referring to the way in which our efforts on the combined group of subjects were handled in the last fortnight in Brussels.

Earl Ferrers

My Lords, I apologise if I did not make the point clear. I did not wish to attribute to my noble friend anything which he had not intended. I realise that the expression "bad taste" referred to the latter negotiations. I merely went on to say that, even if that was in his view a bad taste, nevertheless it was part of the overall position.

As a result of the 1980 agreement, negotiations took place on three points: the scope for new community policies; the reform of the common agricultural policy; and the budget. All member states concerned recognised throughout the discussion that all three subjects were interrelated and could not be treated in isolation. I think that it was my noble friend—and he will be the first to correct me if I am wrong—who said that the common agricultural policy takes up a great deal of the European budget. That is perfectly true, but it has taken up a lesser part. When we first came to office it took up 80 per cent. of the budget; it now takes up 66 per cent., so that is an improvement.

But the United Kingdom was prepared to be flexible on the individual aspects of these negotiations. On agriculture, we were ready and we did negotiate and we conceded points which we found against our own interest. But unfortunately there was less readiness on the part of our European partners to compromise over the budget. Our partners continued to insist that our refunds should decrease regardless of the Community's success in dealing with the underlying problem. The inevitable outcome, despite major efforts during our presidency, was that agreement was not reached by the end of 1981, when the Community's price fixing was about to begin. The Commission's price proposals were published on 27th January and the Council of Agriculture Ministers met seven times—I repeat, seven times—to discuss prices and to negotiate prices, which was quite correct.

My right honourable friend the Minister negotiated constructively to improve the package, and he met with considerable success. This evening I do not propose to indicate the individual methods by which that success was achieved. But by the beginning of May our partners were ready to settle, whereas the United Kingdom still had reservations. Some of those reservations were agricultural, but our main objection was to the cost of the package, which would add £120 million to our contribution in a full year. We pointed out that we could not accept such a package without a budget settlement. This is not an artificial link. I think that my noble friend Lord Soames said that it was only £10 million and asked what would the Government have liked to see achieved if what has been achieved is different from what they would have liked to see. If the United Kingdom were to say exactly what it wanted to achieve, of course, we should never achieve it because inevitably our interests are different from those of others. What we have to do is to try to negotiate.

But there was not an artificial link between the settlement of the price review and the settlement of the budget. It reflected the direct connection, which all have recognised, between the Community's spending on agriculture and the Community's budget problem. Nor was it bullying, as the noble Lord, Lord Mackie, for the second time, said. It was not bullying when we tried to negotiate further. It was a direct connection between the two, which all other member states agreed upon.

Our partners were quite understandably anxious to reach agreement on the price fixing, and it was suggested that the matter should be resolved by majority voting. My right honourable friend the Minister of Agriculture was acutely conscious of the implications which this would have upon the budget, and he then invoked the Luxembourg compromise and asked that discussions should continue until unanimous agreement was reached.

On 11th May the Agricultural Council refrained from voting, but on 18th May, following further inconclusive discussions on the budget by Foreign Ministers, the Agricultural Council proceeded to vote on the price fixing regulations. My noble friend Lord Soames, in his uncharacteristically modest way, described this as a strange occurrence. It was a very strange occurrence. It was the first time for 16 years that this had happened. My noble friend asked whether this was a correct use of the veto?—because the budget was involved, but it was only slightly involved. Of course it was a correct use of the veto. We had important national interests at stake, and I have tried to explain the reason why these national interests were at stake.

The noble Lord, Lord Ardwick, said that there was no validity in the veto, but there is validity in the veto. The noble Lord shakes his head. I accept that he takes a different point of view, but perhaps he will permit me to express mine. If there is an agreement that three aspects shall go in parallel and one is outstanding, it is reasonable for others who are the payers to say "Let us have an agreement on all three". As my noble friend Lord Soames said, if we had agreed, we should have avoided the brouhaha. That is perfectly true. But if we are always to avoid any form of brouhaha we shall agree to anything. We wish to see this Community succeed and we wish to see it succeed by negotiation. But what has happened on this occasion, the first time for 16 years, is that the other nine member states—although, in fact, only seven voted—have imposed their view on one other.

Lord Soames

My Lords, if my noble friend would allow me, he passed very quickly over the fact that the previous day the Council of Foreign Ministers had failed to agree on the budget. This was, indeed, part of my case. Was this necessary? Who failed to agree on the budget? Was it only us who failed to agree on the budget and did we get a better settlement two days later than we could have had that day? If we had had a settlement that day, I think my noble friend would have agreed that we should not have invoked the Luxembourg agreement over the price fixing.

Earl Ferrers

My Lords, of course had it been possible to have come to a settlement this would not have happened, but it takes everyone to agree what a settlement should be. It was the noble Lord, Lord Mackie, who last week, I think it was, referred to the lady who said, "Isn't it a funny thing that everyone is out of step except my Tommy?" Had it been possible to come to this agreement then the veto may not have been used, but the fact was that the agreement had not been arrived at. All I am trying to say is that there is a distinct connection between the two, and a connection which was realised.

My noble friend asked whether we had any warning. I am bound to tell him that what happened the other day happened without warning, without the agreement of all the parties concerned—only seven agreed—and without the special meeting of Foreign Ministers which my right honourable friend the Minister of Agriculture requested. There was no warning by other Governments. Even President Mitterrand, who was in England only the day before talking to my right honourable friend the Prime Minister, gave no indication that this was going to happen. My right honourable friend the Minister of Agriculture, when he saw that this was going to happen, said: "We must stop and have another meeting of Foreign Ministers to see whether it is not possible to agree this, or before we have the price settlement imposed", and our friends in the Community said, "No", and they disbanded the veto and imposed a settlement upon the United Kingdom.

My Lords, there have been in the past, many opportunities when there have been positions of 9 to 1 against a member state, and indeed sometimes against France, which has often been in the minority. There have been occasions when we could easily have altered and got agreements over various subjects which were in dispute had we used the majority ruling. It might even have been that some of the common fisheries problems would have been overcome if we had used that method. But we did not use that method. The Community has never used that method because it was always understood that you did not do that because you tried to come to agreement together. It is an odd thing when, having used this system and done away with the Luxembourg compromise, other countries turn round immediately and say, "Well, of course, the Luxembourg compromise is still in operation". We will have to see what happens in the future for that.

It is not unconnected and irrelevant to say that if my right honourable friend, who had gone and negotiated time after time to try to get an agreement and has made concessions with success, had done that, there might not have been quite the problem that there has been, if other member states had shown the willing- ness to negotiate and be more flexible over the budgetary position. In view of the Government's concern, my right honourable friend the Secretary of State for Foreign and Commonwealth Affairs told the Foreign Affairs Council earlier this week that it would have to discuss, in the light of the recent events, how Community business should be conducted in the future. He emphasised that there must be clarity about how important decisions are to be taken, and that the Community's practice must apply equally and fairly to all member states. It was agreed that all these questions should be discussed at a meeting of the Foreign Affairs Council in June. The Government hope that a clear understanding will be reached for the future.

I realise that there is much concern about the settlement and the way it was reached. I have tried—I do not suppose very successfully—to allay some of this concern by describing the background to the settlement, by identifying its positive elements, and by indicating the very moderate effects which it will have, certainly on retail food prices. Your Lordships, views on how we should overcome the problem will be helpful.

It is correct to re-emphasise that we are, and have every intention of remaining, full members of the Community. We understand the difficulties of our other partners and we want to be involved in negotiation. But neither the Community nor the CAP are static entities; they evolve and must evolve and, rather like a potter's vessel, they must be moulded to meet the requirements of the future. While the noble Lord, Lord Ardwick, disagreed almost totally with the views I have subsequently expounded, I thought his words were pertinent when he said that Europe is good at learning and good at repairing damages. So be it. I hope that will be the case and that this episode will be one from which we will learn and not one from which we will, in whatever country we happen to be, suffer grievances.