European Communities (Finance) Bill

HL Deb 28 October 1985 vol 467 cc1389-418

3.7 p.m.

The Secretary of State for Employment (Lord Young of Graffham)

My Lords, I beg to move that this Bill be now read a second time.

Moved, That the Bill be now read a second time.—(Lord Young of Graffham.)

On Question, Bill read a second time.

Lord Young of Graffham

My Lords, the Bill that we are to debate this afternoon has two main purposes: first, to implement the historic agreement reached by heads of state and government at the Fountainebleau European Council—

Lord Elwyn-Jones

My Lords, has not this matter been resolved by the decision of the House, however inadvertently it may have taken it?

Lord Denham

My Lords, I think that that is probably the case. I think that we are in a slight difficulty in that there is to be a debate taken on the Fountainebleau and After report of the European Communities Committee. My noble friend Lord Young is down to speak first on that. I think, therefore, that if the second piece of business is called, my noble friend would be quite in order to make his speech on that.

Lord Ponsonby of Shulbrede

My Lords, I would have thought that the position was that we had taken the Second Reading of the Bill and that we could now resolve not to commit the Bill and to have no Report stage, but to have the debate on the Third Reading.

Lord Young of Graffham

My Lords, I beg to move that the Bill be not committed.

Moved, That the Bill be not committed.—(Lord Young of Graffham.)

On Question, Committee negatived.

Then, Standing Order No. 44 having been dispensed with (pursuant to Resolution):

Lord Young of Graffham

My Lords, I beg to move that the Bill be now read a third time.

The Bill which we are to debate this afternoon has two main purposes: first, to implement the historic agreement reached by heads of state and government at the Fontainebleau European Council of June 1984 on the Community's VAT ceiling and an abatement system for the United Kingdom; and, second, to enable the Government to make a supplementary contribution to the Community budget for the current year, in accordance with the Inter-governmental Agreement of April 1985. It goes without saying that the first of these purposes is much the more important.

Many of your Lordships will already be familiar with the provisions of the Fontainebleau agreement, not least from the excellent report prepared by the Select Committee on the European Communities. I take this opportunity to pay tribute to the subcommittee who prepared the report and especially to their chairman, the noble Lord, Lord O'Brien, for their report, which seems to me (if I may say so) a model of clarity and good judgment. It is a particular pleasure that we have the opportunity to debate that report as well this afternoon.

As your Lordships will recall, the Government have been trying since 1979 to establish a lasting and automatic system for reducing our excessive net contributions to the Community budget. An agreement of limited duration, covering 1980 and 1981, was reached in May 1980, and there were further ad hoc agreements subsequently, covering 1982 and 1983. These earlier agreements provided for payment of refunds to the United Kingdom from the expenditure side of the budget. The United Kingdom benefited greatly from these agreements, but they were ad hoc and temporary.

The accord reached at Fontainebleau in June 1984 marked a tremendous advance on these earlier agreements. It provided for a lasting and automatic system for reducing our net contributions, implemented on the revenue side of the budget by abatement of our VAT contributions. It provided also for raising the limit on the Community's VAT own resources revenue from 1 per cent. to 1.4 per cent. These two elements in the agreement were incorporated subsequently in a new "own resources decision" for the Community, which has to be ratified by all member states before it can take effect. The main purpose of today's Bill is to enable the United Kingdom to ratify that decision.

It may be helpful to your Lordships if I say a few words first about the abatement system and our net contribution and then about the raising of the VAT ceiling. First, then, the abatement system. We shall be entitled under this system to receive back 66 per cent. of the difference between our VAT share of contributions to the Community's allocated budget and our share of receipts from the budget. We shall receive this in the form of an abatement of our monthly VAT contributions in the succeeding year. The system will begin with effect from 1986, when we shall receive abatements in respect of our 1985 net contribution. In the current year, we are due to receive a flat rate abatement of 1,000 mecu (about £590 million) in respect of our 1984 net contribution. This too was agreed at Fontainebleau and is included in the new own resources decision. The 1000 million ecus will be made available to us as soon as the new decision has been ratified by all member states. This should be around the turn of the year.

Over this financial year and the next two financial years we expect to receive abatements totalling some £2.6 billion. We expect from next year onwards to be contributing less than half of what we would have had to pay if the 1 per cent. VAT ceiling had remained and we had been unable to negotiate further ad hoc refunds—which almost certainly would have been the case.

As I mentioned earlier, the new abatement system has two crucial features: it is automatic and lasting. The United Kingdom now has an absolute entitlement to VAT abatement linked to our budgetary position. When your Lordships discussed the statement of my right honourable friend the Prime Minister about the Fontainebleau agreement, some scepticism was expressed about how lasting the system really was, since its duration was tied to that of the 1.4 per cent. VAT ceiling. I repeat the assurance which my noble friend the Lord President gave then. Because the system is embodied in the new own resources decision, it can be changed only by unanimous decision of the member governments and their national parliaments. It cannot be changed without the consent of the United Kingdom Parliament.

Earlier this month my honourable friend the Minister of State, Treasury, laid before Parliament a White Paper on the 1985 Community budget which gave an estimate of £1.2 billion for the United Kingdom's net contribution after abatement for this calendar year. As my honourable friend said in another place, that is a high figure. It is far too high. It is, however, an erratic figure, and there are three points which I should like to make about it.

First, 1985 is the last year in which we are due to receive a flat-rate correction to our net contribution. The new system is to take effect from next year. So our erratically high net contribution this year will be automatically reflected in a particularly high level of abatement in 1986. The Commission's latest estimate is for an abatement of some £980 million next year compared with some £590 million this year.

Second, this year's net contribution figure has been inflated artificially by two exceptional factors. During the year we contributed some £119 million of supplementary financing under the Intergovernmental Agreement for the 1984 budget as well as the special contribution of some £250 million in respect of the 1985 budget. We also paid an extra £75 million of VAT own resources which resulted from the change in 1984 in the United Kingdom's system for collecting VAT on imports.

Third, the £1.2 billion figure also includes some £135 million in respect of the United Kingdom's contribution to the Community's overseas aid programme. That forms part of the United Kingdom's overseas aid budget and is shown as such in our public expenditure White Paper.

The second key element in the Fontainebleau agreement, which is likewise incorporated in the new own resources decision, was the increase in the ceiling on the Community's VAT own resources revenues from 1 per cent. to 1.4 per cent. The effect will be to increase the total revenues available to the Community by some 15–20 per cent.

I do not disguise from your Lordships that this aspect of the Fontainebleau agreement was less welcome to the United Kingdom Government. There are, however, three points which I ask your Lordships to note. First, the raising of the VAT ceiling was necessary to enable the other member states to fund our abatement. It was only as part of a package that the United Kingdom was able to secure an abatement system at all. Second, the United Kingdom's own VAT rate is virtually certain, because of our abatement, to remain below 1 per cent. If the Community were to adopt the draft budget for next year recently established by the Council, together with the amendment to our abatement figure recently put forward by the Commission, the United Kingdom's VAT rate would be only some 0.56 per cent., while other member states would be paying about 1.2 per cent.

Third, the VAT ceiling cannot be raised further without the consent of the United Kingdom Government and Parliament. The reference in the preamble to the own resources decision to the possibility of increasing the VAT ceiling to 1.6 per cent. from 1st January 1988 in no way alters that fact. There is no commitment of any kind to raising the ceiling again in 1988.

Another important element in the Fontainebleau agreement was the commitment to establish a system of budgetary discipline in the Community. The report from your Lordships' Committee discusses this matter in some depth. In the light of the Fontainebleau agreement, the Council of Ministers established unanimously a system of budgetary discipline in December 1984. The system provides for the establishment of a reference framework each year to determine the overall size of the budget; a financial guideline designed to contain the rate of growth of expenditure on agricultural market support within that of the Community's revenues; and provisions for limiting the rate of growth of the other main areas of Community spending.

The Government do not claim that the new arrangements are perfect. What we claim is that they represent a considerable improvement on what has gone before. Perhaps the key element in the new arrangements is the guideline on agricultural expenditure. The Commission have undertaken to draw up their price fixing proposals and the preliminary draft budget in the light of the guideline. They have indeed done so during the course of the current year. As a result of this, agricultural market support expenditure for the 10 member states is planned to grow by only 2.5 per cent. next year. When we compare that with 27.6 per cent. in 1983, 16.1 per cent. in 1984 and 8.9 per cent. in 1985 we see the difference. Last year, real price cuts of 4 per cent. were imposed on the CAP; this year there are real price cuts of 3.5 per cent. Prices for most product régimes have been cut or frozen.

More than the guideline will be needed if the CAP is to be brought under control. Policy changes will be required as well. The scale of this task was highlighted in the Select Committee's recent report on the CAP and the excellent debate upon it which took place last week. The Government welcome the recent Commission Green Paper on reform of the CAP as a realistic attempt to address the fundamental issues. We agree with the Commission that restrictive pricing holds the key to getting the CAP under control. This will need to be supplemented by other techniques which have already begun to be introduced, such as a wider application of guarantee thresholds. Otherwise, the surpluses will continue to grow, and market support expenditure with them.

I turn finally to the second subject of the Bill before us today—the Inter-governmental Agreement on supplementary financing for the Community's 1985 budget. The background to this is that, without supplementary financing provision, the Community would have run out of money, both in 1984 and again in the current year; the raising of the VAT own resources ceiling will not take effect until next year.

The Government regret that the Community found it necessary to ask for this extra money. However, we were satisfied that it was essential and that it had been reduced to the minimum possible. Without an agreement on supplementary financing, the Community would not have been able to agree on a budget for 1985, which included the necessary provision for our 1,000 mecu abatement.

Although the United Kingdom's gross contribution under the Inter-governmental agreement for 1985 will be some £250 million, our eventual net contribution will be much lower. About half of it will come back in the form of receipts to United Kingdom farmers and traders. The rest will next year be subject to abatement under the Fontainebleau system. We expect the eventual net cost to be something of the order of £40 million.

My right honourable friend the Prime Minister described the Fontainebleau agreement as, "good for Britain and good for the Community". It has established on a lasting basis the important principle that we are entitled to automatic correction of our net contributions to the budget. Even with the new system, we shall be substantial net contributors to the budget, as will Germany and France. But the scale of our net contribution will be much less than it would have been in the absence of such an agreement. Once introduced, moreover, the system cannot be changed without our consent.

The passage of today's Bill will enable the United Kingdom to ratify the important and historic agreement which brings us these advantages. I commend it to your Lordships. I beg to move.

Moved, That the Bill be now read a third time.—(Lord Young of Graffham.)

3.20 p.m.

Lord O'Brien of Lothbury

My Lords, I hope your Lordships will feel that the second report of this Session of the European Communities Committee, entitled, Fontainebleau and After: Decisions on Future Financing for the Community, provides a useful background to the present debate on the Second and Third Readings of the European Communities (Finance) Bill. I am grateful to the noble Lord the Minister for the generous comments he made on our report. The contents of the report no doubt will be pretty thoroughly raked over in the course of our debate. Perhaps in those circumstances your Lordships will be prepared in due course simply to accede without further discussion to a formal Motion that the House takes note of the report. With your Lordships' permission, I shall so propose at the end of this debate.

The work of the European Communities Committee in the past year on the financial problems of the EC is covered in its first and second reports, in the preparation of which it employed the same specialist adviser throughout and examined many witnesses, some on both reports. To all, as well as to its clerk, the committee is grateful for much help.

The first report, which speculated on the prospects for the future financing of the Community, surveyed many unresolved problems in a time of crisis. The Community was using all the revenue available to it and needed more, not only to finance new activities but also to maintain the existing activities at the same moment. Within the budget, the common agricultural policy was demanding more and more money to support guaranteed prices to farmers. The argument about the disproportionate size of the contribution of this country to the budget was entering its fifth acrimonious year with a permanent solution nowhere near in sight. In that first report the committee recommended that we should use the need tor a solution of the first of these problems, the problem of resources, as a lever to force the Community to find solutions to the problem of overall control of the budget and the CAP, and the problem of the British contribution. We also made some suggestions as to how these problems might best be tackled.

Throughout the whole of last year, these problems were at the top of the Community's agenda. A solution to the problem of the British contribution was agreed at the Fontainebleau Summit in June 1984, and a solution to the problem of the common agricultural policy was finally agreed just after the Dublin Summit in December. The aims of the Government in these long and difficult negotiations were broadly in line with the recommendations of Future Financing, and the fact that they have now produced this Bill, which will signify our agreement to an increase in the resources of the Community, shows that they think the outcome was satisfactory. The purpose of the follow-up report, Fontainebleau and After, was to see whether we thought so too.

I propose to address, first, the formula agreed at Fontainebleau for reducing this country's contribution to the budget. It is described in the fourth paragraph of the explanatory memorandum of the Bill. It was agreed that from this year onwards our net contribution, that is, contribution minus receipts, would be reduced by two-thirds. The Government welcomed this agreement as something of a triumph, and the committee found a certain amount to say in its favour. First and foremost, it would put an end to the absurd situation whereby this country, which is far from being the richest member of the Community, is the only member state, apart from West Germany, putting more into the Community than it gets out of it. Under this new system, France would also become a net contributor to the Community. It has been pointed out to the committee that this might induce the French to show rather more responsibility about Community expenditure than perhaps they have in the past!

Secondly, it is important to understand that this formula offers the United Kingdom a reduction in her contribution, and not a repayment. Ever since 1979, as the noble Lord the Minister has said, the Government have succeeded in persuading the Community to pay us back some of our excessive contribution. But the process of repayment has been long and complicated and liable to be held up at any stage if some part of the Community is less than perfectly happy with our behaviour. Experience has shown that the easiest way to get money back from the Community is not to pay it in the first place; and that is what this formula would enable us to do.

However, although this formula may be better than the previous arrangements, it is the committee's opinion that it could have been a great deal better still. In the first place, it applies only to this country. Therefore this country alone has a direct interest in making it work and making it last; any other member state which may find itself in a similar position in the future will have to negotiate its own agreement from scratch. A general formula, as the committee recommended in their report, applicable automatically to any member state which found itself contributing too much, would have been better for Britain and better for the Community.

Secondly, this formula relates contributions to receipts, but makes no reference to relative prosperity within the Community. Neither the Government nor your Lordships' committee have ever suggested that the Community is about getting back as much as you put in—what is called, in Community jargon, juste retour, or "fair return". This country's constant complaint has been not that we are net contributors to the Community, but rather that while this has been so other richer countries have been net beneficiaries.

This situation was foreseen when we first joined the Community, since the six nations who set it up for their mutual benefit were primarily agricultural nations and we were not. The hope then was that non-agricultural policies would be developed to push a fair share of the Community's resources in our direction: this has not happened. The Fountainebleau formula makes no connection between net contribution and relative prosperity, and leans instead in the direction of juste retour.

Finally, the Fontainebleau agreement contains within it the seeds of its own destruction. It was decided to make it a part of the agreement to raise the amount of revenue available to the Community, and to lay down that it should last only so long as that agreement before being reviewed. That agreement, to which this Bill will mark your assent, my Lords, is not likely, in the committee's opinion, to last much beyond 1988. Therefore this whole question, which has so divided the Community for six years, would under this agreement be reopened in two or three years' time.

The formula I have described is to be applied initially to our contribution to this year's budget, and will therefore lead to an abated contribution in 1986. It was agreed at Fontainebleau that our excess contribution in 1984 would be dealt with by an abatement of 1,000 million ecu on our contribution for 1985. When we drew up our report, this abatement was in doubt: there was no allowance for it in the 1985 draft budget, and there were fears that instead of a reduced United Kingdom contribution to Community revenue it would have to take the form of increased Community expenditure in the United Kingdom, like the rebates of previous years, with all the problems which that can involve.

Happily your Lordships' committee were over-pessimistic: the Council has stood by its commitment to keep our 1984 abatement on the revenue side of the budget. When all ten member states have agreed to raise the ceiling on VAT contributions, our VAT contribution to the 1985 budget will be reduced, and all the others increased proportionately to fill the gap. The only reason why we must wait for the new VAT ceiling, is that the increase in the other member states' contributions needed to pay for our abatement will take their contributions above the old ceiling.

I now turn to the system, first proposed at the Brussels Summit in March of last year and finally agreed after the Dublin Summit in December, to impose discipline upon the budget as a whole, and upon the CAP in particular. The system is based on the principle that the Community should adjust its expenditure in accordance with its revenue, and not vice versa. The system has two parts. First, as regards the budget as a whole, the Council of Ministers is to begin each year's budget procedure by setting an upper limit on total expenditure, to be known as the "reference framework". This is to be done by qualified majority voting, so that we will have a veto only in combination with one other of the larger member states.

Secondly, as regards the CAP, the Commission's proposals for agricultural expenditure will be drawn up according to a guide-line laid down by the Council; namely that the rate of growth of agricultural expenditure will be less than that of the own-resources base. The concept of the own-resources base is a difficult one, and I refer noble Lords to paragraph 17 of the report for an explanation. The effect of this guideline should be that if, as is proposed, the Community's resources are increased, all the extra revenue will be available for non-agricultural purposes. The guideline could only be breached by the member states acting unanimously.

The committee could find little fault with this system in theory. Much has been made of the fact that it is not legally enforceable; but we have been advised that it could not be breached without repeated breaches of faith by member states and an undermining of the position of the Commission.

Much has also been made of two apparent loopholes in the system. First, the guide-line may be adjusted in what are deemed to be exceptional circumstances. Secondly, the Council's obligation to make up for any breach of the guide-line by making savings in subsequent years may be waived in the event of aberrant developments. How widely or narrowly the Community will interpret these expressions, only time will tell. It has been suggested that the reference framework on total expenditure might prove more effective than the guide-line for agricultural expenditure. If this were to happen and the CAP were allowed to swallow an increasing proportion of a non-increasing total, then the situation of non-agricultural policies would be even worse than it is at present.

One unmistakably alarming feature of the system is that, like the Fontainebleau formula, it is to be reviewed at the same time as the agreement to increase the Community's resources. As I said before, in the committee's opinion this may mean as early as 1987. Another cause for concern is the extreme displeasure of the European Parliament, which objects strongly both to the system itself, mainly because it adjusts revenue and not expenditure, and to the manner in which the Council devised it without prior consultation. However, it must be admitted that the new discipline has so far been respected in practice, in particular in the composition of the preliminary draft budget for 1986. We are not yet able, in this case, to say "We told you so". You will now understand, my Lords, why your committee conclude that solutions of a sort to the two problems of the British contribution and the CAP have been found, and that therefore there is a prima facie case for agreeing, by means of this Bill, to increase the Community's resources. You will also understand why we find those solutions less than satisfactory, particularly with regard to how long they will last.

I turn finally to the own-resources question itself. As the Bill's Explanatory Memorandum explains, at present, member states turn over to the Community, as its own resources, a proportion not exceeding 1 per cent. of VAT notionally levied on a common list of goods and services; and this proportion is now inadequate. It was agreed at Fontainebleau to raise this VAT ceiling to 1.4 per cent. by 1st January 1986. The ratification of the new VAT ceiling is the first purpose of the Bill which is before your Lordships. When we were drawing up our report, the hope was that, because of the Community's urgent need for increased resources, the new ceiling would be in effect from 1st January 1985.

However, the German Government insisted that the new own-resources Decision must not be ratified sooner than the accession treaties for Spain and Portugal. Their intention may have been to speed up enlargement; and perhaps to some extent this was the effect. Even so, the new treaties for Spain and Portugal will not now be ratified by all member states this year, so it will not be possible to bring the new VAT ceiling into effect until 1st January 1986. This means that only the resources available under the old VAT ceiling will be available to the Community for this year's budget. Your Lordships will remember that the original 1985 draft budget was rejected by the European Parliament because it did not balance: this was because the Council was relying on gaining access to the new resources later in the year. When this hope disappeared, the Council drew up a new budget, relying not on a hypothetical injection of new resources, but on an inter-governmental agreement to provide extra funds outside the own-resources system.

Your Lordships are well aware that a similar device had to be resorted to last year, to fill the gap in the 1984 budget. Such a device is objectionable in principle, since in theory the Community is a body with its own resources, independent of the governments of its member states; and it is unsatisfactory in practice, since it places the Community at the mercy of 10 separate national parliaments, any one of which may find a reason to hold up the payment. However, the Community is committed to expenditure beyond its means, and is obliged to balance its budget; and beggars cannot be choosers. The ratification of this inter-governmental agreement is the second purpose of this Bill.

The likelihood that the new resources would not be available until 1986 was foreseen in our report. The sums which we did then convinced us that what with the budget deficits for 1984 and 1985, the extra expenditure involved in enlargement, the question-mark over the effectiveness of budgetary discipline, and the cost of our own abatement, the new resources, even when available, would not go very far. They would pull the Community out of the red, but only for a year or two at most, whereupon all these problems would have to be tackled again. And there is no reason to suppose that what was true then is not true now.

To sum up, my Lords, as we approach 1986 the Community has some cause for satisfaction. The wrangles over own resources, budgetary imbalances and the growth of the CAP are over for the time being; and the questions of enlargement and the integrated Mediterranean programmes appear to have been settled too. It should now be possible to consider the future of the Community, and to explore new areas of co-operation, in a calmer and less acrimonious atmosphere than has existed in Europe for some years. But all the signs are that this breathing-space will be a short one, perhaps no more than a single year. It is therefore essential that we should make the most of it. To deny the Community the increase in resources for which it now asks and which it so urgently needs would jeopardise these new hopes and indeed its whole future. With that in mind, my Lords, I support this Bill.

3.42 p.m.

Lord Bruce of Donington

My Lords, the House is grateful to the noble Lord, Lord Young of Graffham, for taking us shortly through the various steps that have been taken to reconcile the £1,200 million-odd net contribution from the United Kingdom for 1985 with the £690 million that was originally set out in the White Paper. His verdict, as I understand it, is that, of the increase, ultimately we shall be liable for only £40 million extra, rather than the £600-odd million that would otherwise be so. I take it therefore that that will leave the forecasts for 1986, 1987 and 1988 as set out in the Government's expenditure plans virtually intact at their present figures, because—I quote from page 47 of the White Paper Cmd. 9428, Part 2— These estimates take account of the agreement reached by heads of Government at Fontainebleau on 26 June 1984 on the future financing of the Community". So we have the Second Reading and all the remaining stages of this Bill here today.

The House may ultimately reflect, though perhaps not today, that there was another occasion in 1972 when the European Communities Act was passed in a rush all on one day and that some time has elapsed since then. I venture to predict that the House once again in due time will have cause to regret that it proposes to pass this Bill through on one day.

We are grateful to the noble Lord, Lord O'Brien, for having dealt with the excellent report which his Select Committee has brought forward on the Fontainebleau decisions and what is likely to happen afterwards. I thought that the noble Lord was perhaps a little less enthusiastic than he has been on previous occasions. In general, the support for Britain's membership of the European Community and the advantages that are alleged to flow from it tend these days to be somewhat subdued; the myth has yet to establish itself into reality.

The House will forgive me if on this occasion I adopt the principle so frequently enunciated by Her Majesty's Government for consideration when we deal with Bills which result in public expenditure; that of cost effectiveness. There are very few noble Lords opposite, especially those on the Front Bench, and certainly including the noble Lord, Lord O'Brien, who would dissent from the propriety of our proceeding on this basis. Even on the revised estimate and reconciliation made by the noble Lord, Lord Young of Graffham, of the truths or approximations contained in this statement published during the Recess, we are still left with a £730 million burden for 1985; according to the Government's expenditure plans some £750 million net in 1985–86, some £640 million in 1986–87 and £830 million net in 1987–88. These are the figures after taking into account all those miraculous concessions that have been wrung by a young, vigorous Prime Minister from a hostile Europe on Britain's behalf.

As the noble Lord, Lord Young of Graffham, said, by way of amelioration, it is less than we would have paid. That seems to be a pretty poor apologia. Had the noble Lord, Lord Gladwyn, been present on the Liberal Benches he would undoubtedly have said. "Well, what, after all, is a contribution of £700 million?" Having his calculator with him he would probably then say, "That represents only 0.50359 per cent. of total public expenditure in the United Kingdom", on the assumpton that our public expenditure runs at £139,000 million. Even on the basis of £600 million extra expenditure the noble Lord will observe that I am giving him the benefit of £100 million in case his eloquence wins a further £100 million concession—it would still mean that if the noble Lord, Lord Gladwyn, were here (doubtless he would be supported by the Liberal Benches) he would say, "What's it all about?" It is only 0.4136 per cent. of all public expenditure".

I have commented previously on the tendency of those on the Government Benches, whenever they refer to public expenditure which they want to incur but cannot provide any other justification for it, always to refer to it derisively as only nought point something or other of public expenditure. But when considering other items of public expenditure of direct benefit to individual citizens, then the Government get on their high and mighty horse and say, "We cannot possibly afford that. We do not have the resources for it. It is all paid out of taxpayers' money".

For the avoidance of doubt, we say that to pay £600 million in relief on the local authority housing programme, so urgently put forward by the present Minister of State (if we are to believe the press), involves only 0.3164 of total public expenditure. Therefore, why should there be all that hoo-ha about refusing to spend money on housing repairs and maintenance, which, as everybody in the United Kingdom knows, is a matter of very grave urgency, if only to prevent further deterioration rather than for any improvement?

Concerning this apparent waving away in a Bill another £600 million or £700 million, which is what is being done today, may I remind the noble Lord opposite that the cost of 20 kidney machines, which the Government are refusing to supply and the absence of which has already caused unnecessary deaths in the United Kingdom, represents .0002860 of public expenditure? This puts into proper perspective the present write-off, the present gift, for the sake of agreement, of an extra £600 million. I am bound to ask this, having given the House notice of it. On cost effective grounds, what are we in the United Kingdom receiving in return for £600 million to £700 million per annum?

On past occasions we have had a reply from the noble Lord, Lord Walston, in particular, that we should remember that 44 per cent. of our exports go to Europe, which implies that without the Common Market 44 per cent. of our exports would not go there. For the benefit of the noble Lord, Lord Walston, I should say that the figure for 1984 is precisely 44.7 per cent. However, what the noble Lord did not say and what sometimes, if I may say so, his colleagues on the Alliance Benches do not always appreciate, is that some 70 per cent. of that 44 per cent. represents fuel exports to the EEC. Whether or not the EEC were in existence, it would be a fool who would not be able to export fuel to Europe, which so urgently needs it. Quite clearly, that massive export is not at all dependent on membership of the EEC.

In fact, we have a massive deficit with the EEC in respect of manufactured goods, which is running close on £4,000 million, as against the surplus we had before we went into the EEC. In addition to that, thanks to the common agricultural policy, we have the dubious benefit of paying some 10 per cent. more for our food than we should otherwise pay.

Who benefits? Of course, the agricultural interest benefits. The previous report, produced also by a Select Committee of your Lordships' House, shows it quite clearly. At page 12 it sets out the income disparities according to the most important kinds of farming. It shows quite clearly in the case of cereal farming that cereal farmers in this country receive two and a half times the EEC average net revenues from that particular branch of agriculture. Of course, agriculture benefits: and agricultural interests lie at the root of the party opposite.

As the brother of the present Secretary of State for the Department of Trade and Industry was injudicious enough to point out in his famous article of October 1983, at least six Cabinet Ministers at that time had a vested interest in the common agricultural policy, by virtue of the fact of their being farmers. I did not say it: Mr. Samuel Brittan said it in a fully documented article in the Financial Times in October 1983.

Of course, the City of London benefits from it likewise. The whole rapid spread of Euro-bonds and Euro-dollars, following the Treaty of Rome and the accession of Britain, has of course buttressed the City of London as the financial centre, of even greater influence than it had before, within the golden triangle that has been established by the EEC. Those are the benefits.

One of the most remarkable things, when considering this whole question, is the way that, when it comes to the common agricultural policy, this Government abandon the ideology they lay down for industry having to be competitive in a competitive society, competing against Korea, competing against Taiwan, competing against Brazil, competing against all low labour cost countries, saying that we must compete or die; while agriculture, under the common agricultural policy, is one of biggest protectionist devices under the sun, ensuring complete protection, not competition, so far as British farmers are concerned.

Regarding the revenue and the expense of the European Communities, it is quite clear that the bulk of the expenditure of the EEC, in fact practically the whole reason for its existence, lies in the common agricultural policy itself, which in 1985 will take some 70 per cent. of its total revenues. As the Select Committee report under the chairmanship of the noble Lord, Lord O'Brien, pointed out, agricultural expenditure is still rising. Although this country pays some £600 million or £700 million net, after all receipts, to the European Community, the moral validity of that would be on a slightly sounder basis were it not for the whole nature of the expenditure upon which quite large sums, including sums provided by the United Kingdom, are based.

If noble Lords examine the 1984 budget of the European Communities—and similar considerations apply to 1985 and I shall refer noble Lords to individual titles of the various budget items if they wish—they will find this. In relation to the storage of intervention food stocks alone—which are not the stocks held by wholesalers or retailers as a normal buttress against variations in trade and demand but are Government intervention stocks bought into intervention—the total cost for 1984 was £2,187 million and the cost for cereals alone in 1986 is likely to be £640 million. Your Lordships may be interested to know that of that total amount of £2,187 million the United Kingdom receives back £46 million for storage. That is bully for us—but that is already taken into account in determining the net contribution. It is also set out in the report that the cost of cereal storage is estimated to rise to £ 1,704 million in 1990–91. That is assuming that the price of storage of wheat remains at £19.20 per tonne and the stocks are still rising.

I have dealt with the cost of storage. I shall not weary your Lordships with the stories in the press which are verified by press comment, whether favourable to the Government or not, over a wide spectrum that these stocks are rapidly deteriorating. And those costs have still to be accounted for. Therefore we are contributing on a massive scale, not to assisting in the reconstruction of our own country; we are contributing to this massive waste of expenditure on food that is never going to be consumed and which has been put into intervention. I would point out to the noble Lord, Lord Young of Graffham, that the accounts do not yet show the extent of the financial implications of the deterioration in stocks that has taken place.

Your Lordships will also bear in mind, in view of press reports spread over a wide section of the press, that in the last fortnight it has been revealed that the Court of Auditors has unearthed some £500 million worth of fraud, details of which already have been provided in another place and with which I shall not weary your Lordships. Is this kind of expenditure, or our contribution to it, more desirable, more cost-effective, than expenditure on housing, on the National Health Service and on various other quite desirable projects which I believe all sides of your Lordships' House would prefer rather than pouring money down the drain?

The noble Lord, Lord Young of Graffham, referred with satisfaction to the budget discipline. But he also said—and I must do him justice—that it was not yet perfect. He can say that again! In doing so, he referred us to the agreements arrived at Fontainebleau; and the noble Lord, Lord O'Brien, pointed out some of the defects. I propose to enlarge upon them for the record and for your Lordships' information. The noble Lord, Lord Young of Graffham, and the noble Lord, Lord O'Brien, quite correctly said that much of the budgetary discipline depended upon the fixing of a reference framework for agricultural subsidy (for that is what it is) under the guarantee system of FEOGA.

Lord O'Brien of Lothbury

My Lords, the reference framework refers to the total expenditure of the budget and not merely to the agricultural expenditure.

Lord Bruce of Donington

Yes, my Lords. I accept that correction from the noble Lord, Lord O'Brien, though as the noble Lord is well aware the non-compulsory expenditure is already dealt with by special article in the treaty itself and is therefore largely self-controlling. Article 1, at paragraph 2, reads: In order to fix the reference framework the Council shall act by qualified majority in accordance with Article 148.2, second indent of the EEC Treaty". Yes, it is all very well and good: it shall be decided by qualified majority. That of course means, as the noble Lord, Lord Young of Graffham, was at pains to point out, that Britain is virtually on her own in this. The only way that she can object to the establishment of whatever reference framework for the total can be established is by getting one of the other major states to support her; because the revised representation of Article 148, after the admission of Greece, will read as follows: Belgium will have five votes; Denmark, three; Germany, 10; France, 10; Ireland, three; Italy. 10; Luxembourg, two; Netherlands, five; United Kingdom, 10; Greece, five; and, for their adoption, Acts of the Council shall require at least 45 votes (as it now is) where this treaty requires them to be adopted on a proposal from the Commission and 45 votes in favour cast by at least six members in other cases.

Britain's veto has in fact gone, because France and Germany are never likely to combine with the United Kingdom for the establishment of a reference framework which prevents the continued expansion of the common agricultural policy, as the noble Lord knows only too well and indeed as is reproduced in the other report. The percentage of the working population of this country engaged in agriculture is 2.7; in Germany it is 5.9 and in France it is 5.3. And they have a vested political interest, as the exercise of the German veto on the price of cereals recently portrayed. They have a vested interest in its maintenance and in its enlargement.

But even on the assumption that with the United Kingdom's agreement a reference framework was established, noble Lords should take a look at Article 6 of the same treaty: At the request of a member of the Council or the Commission … the majority referred to in Article 1/"— which I have just read to your Lordships— may amend the reference framework". In other words, whenever it suits the other members of the EC to enlarge their agricultural reference, their compulsory expenditure, they can do so; and we have given away our right of veto.

Indeed, we set a precedent for it two years ago when, under the chairmanship of a man called Gaston Thorn of Luxembourg, the Council arrived at a price fixing which was against the expressed wishes of the then Minister of Agriculture, Mr. Walker, as your Lordships will recall. It was decided it should proceed by qualified vote and Britain—be it noted—did not insist upon her veto, for the simple political reason that, on the one hand, the British Government did not wish to seem to the public to be supporting the increased expenditure involved, and, on the other hand, that they thought their silence would at the same time produce benefits to the farming population on whom they have such a political dependence.

The Select Committee's report says that in any event this solid basis, to which the noble Lord referred in his introductory speech, is not really so stable after all. I quote from the Select Committee's report: However, both the abatement mechanism and the provisions of budgetary discipline are linked in duration to the 1.4 per cent. VAT ceiling. It is widely expected that the VAT ceiling will have to be raised again in January 1988. Negotiation on this and therefore on the abatement system will have to begin before the end of 1986. Thus, although there will be a longer period before the next discussion of the 'British Problem' a permanent solution has not been found. Nor has the problem disappeared". So much for the solid basis mentioned by the noble Lord, Lord Young of Graffham.

I am sorry to have to reproach the noble Lord over this Bill, which he knows as well as I do is merely a figleaf to cover the Government's nakedness of policy in the EC, their complete absence of any constructive thought as to how the burden on this country of participation in the common agricultural policy can in fact be eased.

My noble friend Lord Ardwick will doubtless confirm, if he thinks it necessary when he speaks later, the fact that it was 10 years ago that I joined the European Parliament. Regularly every year since July 1975 I can recall our being told in the most fervent terms by most of the member states how urgent it was for the common agricultural policy to be reformed. Nothing has been done. And all Fontainebleau does is to provide a legalistic framework from which any of the member states can extricate itself at will without in any way offending the letter of the so-called law or agreement they have established or without, I must say, acting in any way at variance with the very often quite unscrupulous way in which the states have respectively acted over the past six or seven years.

These are harsh truths, but if we are going to talk in legal terms may I remind your Lordships that most agricultural expenditure is compulsory expenditure. It is therefore demand led, and farmers have a right under Community law to receive such moneys as are due to them under the regulations that now exist. Therefore no cash limits—a term much beloved of the Government—can be applied save that the legislation be amended, and that needs the full consent of the Council.

On the basis of the last 10 years' experience, it would be a very bold man indeed, even from the Liberal or the SDP Benches, who could cross his heart and say he is quite confident, on the basis of a qualified majority, of the regulations on compulsory expenditure being amended. If those people cannot cross their hearts and say that, they really have no business to shove the whole of their own impetus behind the myth they have created about the benefits of Europe, and certainly they have no business to support this Bill.

4.13 p.m.

Baroness Seear

My Lords, I also should like to thank the noble Lord for introducing this Bill and to thank the noble Lord, Lord O'Brien, and his committee for the report, which is so timely in relation to the publication of this Bill and which enables us to be far better informed as to what the Bill contains than would otherwise be the case.

The attitudes towards this Bill depend on the attitudes people hold towards the European Community itself, and I suppose they fall broadly into three groups. First, there are the people who totally disapprove of the EC as such. After the last 31 minutes, I do not think I need to elaborate on the attitudes of people in that group. (Incidentally, I wish the clock could be altered: I do not wish the 32nd minute to be recorded during my speech.) If one disapproved totally of the EC, then of course every pound spent on it is a pound wasted and every additional pound spent is an additional pound to be deplored. That is a perfectly legitimate point of view on the part of those who believe that we ought not to be in the EC.

If there has been any doubt about the position of the Labour Party in recent months, as various aspects of Labour Party policy have been somewhat blurred in the desire to improve their position in the polls, I think that after the speech of the noble Lord, Lord Bruce, there can be no doubt whatsoever about the position of the Front Bench of the Labour Party in your Lordships' House. It is a perfectly proper position. They are entirely entitled to take it, and it follows from that position that their attitude towards this Bill must be as has been stated by Lord Bruce.

The second group is the group which is represented by Her Majesty's Government. They take the view that British membership of the EC is desirable. The party came to it a little late—that was a pity but they came to it in the end—and they see it as an advantage to be there but they see it in a somewhat short-term view. They look all the time at the immediate return, year after year, of what they are going to get as a result of membership of the EC and, as was made clear by the speech of the noble Lord, Lord Young, their measure is the relationship between the amount that we put into the EC and the amount that we get out of it. This comes very near to the attitude now abandoned I think of "juste retour"—an attitude which I have always found very difficult to follow.

If all that you are trying to do in relation to the EC is to see that your own particular country gets out of its contribution to the EC as much as it puts in, then for the life of me I cannot see why you go in at all; because if all you are trying to do is to get your money back it would be very much cheaper never to put your money there in the first place. All you do by putting your money there and then trying to claw the same amount back is to lose some in the process of the transfer. So the "juste retour" attitude towards the EC has, in my view, extremely little to recommend it.

The Government, I think, have somewhat shifted their position from one of "juste retour", but they have not shifted it very far in the calculations they are making as to exactly how much has been put in and exactly how much will be got out year by year. Of course, I am not saying that the Government and this country should not be aware of what is being put in and should not calculate what is being received, but I do question, as I shall go on to do in a moment, whether that ought to be the dominant consideration in terms of our relationship with our EC partners.

However, we can from these Benches, though with qualification, welcome the fact that the Fontainebleau agreement was made and we can therefore welcome this Bill which is based on the agreement. At least it brings an end to the unseemly squabbling which had reduced our standing in Brussels to zero and which had made it extremely difficult for us to exercise the kind of influence that we ought to be exercising year in and year out but have failed for years to exercise because of the quarrels that have gone on. If the Fontainebleau agreement did nothing else but bring this quarrelling to an end—if indeed it has; certainly it has done so temporarily—then to that extent it is to be welcomed. It is also, of course, an achievement that the Government have secured the abatement that is in this agreement and which is reflected in this Bill.

It is satisfactory, too, that there is now a system of discipline for the administration of the schemes. But I must say I find it very difficult to accept the Minister's statement when he tells us that this is final and settled. The House will not expect me to agree with a very great deal of the speech of the noble Lord, Lord Bruce of Donington, but I must say I am with him in being very sceptical as to whether we shall not in a year or two's time have the whole issue of the size of contribution raised. Our attitude from these Benches towards that suggestion might well be very different from the attitude of the noble Lord, Lord Bruce, and the Front Bench of the Labour Party, but I should be extremely surprised if this really is the final, last word about what the size of the British contribution is to be. In my view, it would be surprising if that were so.

There is of course a third approach towards the EC; that concerns what our payment should be and upon what it should be based. The third approach is the Alliance approach. The Alliance believes that the future of this country is tied up with the development of an effective, vigorous and united Europe. That means that we must ensure that we are playing our full part in that Europe. Therefore we fully accept that this country has to make a substantial contribution. We do not see the benefits to be gained by making that contribution as being properly measured in the return that we receive from it year in and year out. We see many other very much more important benefits which can be obtained. However, before I refer to those benefits—which to my mind are overwhelming and, in the mind of my party, remain overwhelming—let me say that once again I agree with the noble Lord, Lord Bruce, that the position as regards the CAP remains totally unsatisfactory.

I point out that the bias towards agriculture which is built into the treaty, and from which we have suffered ever since the Community was set up, would not have been present if the United Kingdom had been in on the negotiations from the beginning. If a great country with large industrial interests had taken its full part in the negotiation of the treaty, then the countries which had so much at stake in political terms as regards agriculture would not have been able to bias the treaty in the way in which it has been biased. Indeed, it is undoubtedly true that it has been so biased. That comes out again and again in our failure to reform the CAP.

I am not saying that the CAP has been a total failure—very far from it. Let us remember that in the early years the CAP made it possible to bring about reforms in agriculture which were long overdue, strengthening the agricultural industry without the heavy social costs which, throughout continental Europe, would have been paid in terms of the development of an industrial proletariat made up of people moving out of the agricultural areas. That would have happened if the CAP had not been there to rescue agriculture. However, that time is past; it is no longer necessary to boost agriculture in the way in which it was boosted.

If we are to make real progress we must tackle the question of the CAP far more vigorously than it is being tackled at present. It is not totally true to say that no progress is being made. It is true that the increase in contributions to the CAP is less great than the increase in the size of the Community budget as a whole, but it is still too great. Unless there is a commitment to get on with solving the problems of the CAP, to see that agriculture does not dominate the policies of the EC, as it has done in the past, then the other potential benefits will not be forthcoming. The other potential benefits are undoubtedly overwhelmingly great.

So far no one has mentioned the fact that Spain and Portugal are being brought into the EC. Not long ago both Spain and Portugal may have moved into (and remained permanently in) the totalitarian sectors of the European continent. The fact that they are now democratic countries seeking membership, and welcomed into membership of the EC—albeit with some reservations in certain areas—is a great triumph. The noble Lord, Lord Bruce, referred to the fact that the Germans and the French were ganging up. Those of your Lordships who remember (and nearly everyone in your Lordships' House does so) the history of the 20th century and the relationship between France and Germany must surely be thankful for the contribution that the Community has made to the fact that it is now impossible to imagine that France and Germany will be at each other's throats, and indeed that they are accused of ganging up. Thank God for that ganging up.

We on these Benches want to see a movement of the moneys that go to the CAP for the development of social and industrial policies—policies of transport, policies of research and policies to deal with unemployment. We want to see the money channelled in that direction so that the EC can really give a lead on the problems which beset us all, so that we can do something through the EC to hold our place against the threatening competition both from the low standard of living countries and from the high standard of living countries—competition which we cannot hope to meet unless we act in unity. Those are the big jobs which lie ahead.

Let us remember that if we put this money into the development of social and industrial policies it will not be additional money that is being spent in Europe; it will be money which will not be spent in this country because by being spent in Europe it will be better spent. It will mean that we shall be able to move moneys which would be devoted to research and to industrial policies on a small scale in this country—because the national scale is no longer large enough to deal with them—into Europe in order to develop European policies of a more effective and more economic kind. That is the type of Europe for which we are looking. For that Europe we would be prepared to pay not only the 1.4 per cent., minus its abatement, but more if we were really going to get the type of Europe for which we in these parties have always stood and still stand.

4.27 p.m.

Lord Seebohm

My Lords, the noble Lord, Lord O'Brien, has included in his resume of the Select Committee's report everything that needs to be said. It was an excellent report and it is something which your Lordships' House will certainly have appreciated very much indeed. I do not think that it is important at this stage for me to make a long speech. Therefore I shall confine my remarks entirely to the particular aspect of the Fountainebleau agreement which affects the finances of this country and which, to me, sends out strong danger signals. Indeed, that is due to the fact that the agreement to reduce the contribution for the United Kingdom was an ad hoc arrangement, devoid of logic and, to my mind, contrary to the spirit of the Treaty of Rome, if not to the principles of the Treaty of Rome. It was based on the principle that the United Kingdom should not pay more than she puts in, that this refers to the United Kingdom alone and that the principle of juste retour should be applied.

We certainly gained a great deal from the agreement, but much less than we would have done if the principle of the safety net, as argued by the United Kingdom at the Brussels meeting of the European Council, had been accepted. Juste retour does not mean a fair return. In accountancy terms, it means accurate or balanced, whereas "fair", which has no equivalent word, so far as I know, in any other European language, has an element of reasonableness in addition to accuracy. The noble Lord, Lord Bruce of Donington, is a chartered accountant and he will know that chartered accountants in this country use the words "true and fair" when certifying the accounts of a company. That is done because we all know that a number of assets cannot be valued accurately and can only be valued reasonably.

On the very first day of taking evidence, the noble Lord, Lord Benson, asked Mr. Ian Stewart, the Economic Secretary to the Treasury, the following question. I quote from the Minutes of Evidence: I can see the short-term advantages to this country. But would it not be better to concentrate not on ad hoc arrangements that deal with particular Member States but on setting contributions which are clearly fair at the very beginning? That would give rise to much less controversy He asked a second question: We shall not get anything right until we get the fundamentals right. Have we not got to start at the very beginning to get it right for the future? to which Mr. Ian Stewart replied: You are more optimistic that I am, Lord Benson, about the ability of the Member States to imagine that they have a blank piece of paper in front of them and to switch from the existing system—or most of it—to something entirely new. In theory, Lord Benson, I very much agree with you; in practice, I doubt if it could be done". My feeling is that we are stuck with a bit of "ad hocery" which can last a short time only, as it appears that the 1.4 per cent. ceiling will be breached before two years are up. What is more, further ad hocery will have to be undertaken when Spain and Portugal join the Community. The principle of capacity to pay seems to have been sunk without trace, and with it any hope of a fair return. In a year's time we may see the renewal of bargaining and bickering but meanwhile we have certainly won something and so I back this Bill.

4.31 p.m.

Lord Ardwick

My Lords, we are doing ourselves rather proud. Three major debates on Europe in one week is to treat the subject on a symphonic scale. However, we got the order of the movements aesthetically wrong. This debate might well have been the opening movement, the new beginning after Fontainebleau. Then we could have gone on to the unresolved problems of agriculture; and the last movement would have been European Union and its hopeful glimpse into a hazy future.

Today's subject has not, I am afraid, attracted many speakers. The financing of the Community is an arid and arcane—almost impenetrable—subject. It has been heavy going even for the pundits on Lord O'Brien's committee, of which I was one of the humble members. There is only one man I know who has revelled in penetrating the mysteries of Community finance, one man who has an intimate knowledge of it, and that is my noble friend Lord Bruce of Donington, who served in the European Parliament as Rapporteur on the Community budget and dedicated an entire year to the subject, bringing to it his expertness as an accountant and the most remarkable assiduity. My respect for my noble friend's knowledge and admiration for his enthusiasm do not, however, compel me to share all the views that he has advanced this afternoon. In fact, I belong to something now called the Labour Movement in Europe, which consists of members of my party who still have faith in the European experiments.

The Bill which we have before us today has run into heavy weather in another place. Of course, any international agreement must do so, given our adversarial parliamentary system and the obligation on an Opposition to oppose. Any agreement concerning the Common Market must also incur passionate criticism from some people who wish either that we could leave the Community or that we could disrupt it and change it into something quite different.

But the criticism of Fontainebleau and all that is more impressively based. Both the House of Commons Select Committee on the Treasury and Civil Service and our own House of Lords Committee, which are reasonably objective bodies, have been less than enthusiastic about what has been achieved. I would describe the conclusions of our House of Lords report as sceptical and just avoiding pessimism. Perhaps we were a little too impressed by the fact that this was our second report on the subject and the Fontainebleau decisions did not meet all the criteria that we had originally demanded.

Unlike some other critics who would like the Community to spend no more in future than it is now spending, or to spend perhaps even less, we in our committee were in favour of increasing the Community's own resources. We believed that such an increase is basic to its development. But there were other criteria that we set. Agricultural spending had to be restrained and the problem of Britain's excessive contributions had to be solved, because it was exacerbating relations and preventing the Community from pursuing more constructive policies.

We had to recognise in our conclusions that a settlement on the lines we recommended was prevented by the realities of Community politics. We were apprehensive that the problems with which the Community has grappled will appear again in too short a time, as the noble Lord, Lord O'Brien, has said. It has yet to be seen how the agreed system of budgetary discipline will work out in practice. It may prevent the extra resources from being swallowed up by the CAP, but there will not be much for new policies.

We ended our report on a note of the mildest optimism. It must be hoped that at least for a year or two the financial affairs of the Community will provide a more peaceful background to its enlargement and to the vigorous thought about its future development which is clearly necessary.

I go along with all this criticism and all this lack of enthusiasm, but I also feel that I must look at it in a different perspective and in a strategic way. With all its unresolved and semi-resolved problems, the Community is in a healthier state than it was two years ago. In fact, largely due to President Mitterrand, the Community has come along with a generous abatement of the British contribution. It has even ended the anomaly that wealthy France, a land swimming in fat, as Goering enviously put it, was a net recipient of Community money and is now to join Britain and Germany as a contributor.

There is a general recognition which we all share that the CAP must be restrained, but the difficulties of doing so must not be put down to lack of political will. As the present Government of Mrs. Thatcher know, the difficulties of cutting public expenditure are immense. However flinty hearted a Chancellor may be, and however authoritative the Star Chamber that decides the disputes, in the end political necessity and not prudence will decide whether a cut has to be made. Moreover agriculture is singularly difficult to discipline, partly because of its political power, partly because of the misery that even marginal reductions in prices may cause, and partly because of the long cycle of farming operations.

One of our most impressive witnesses, Dr. William Wallace, Director of Studies at the Royal Institute of International Affairs, said: … we should be realistic in recognising that there is virtually no way in which the European Community can reduce expenditure on agriculture in the next two to three years. Even some of those potential new structural policies which will in time reduce output are likely to cost more in the short term: you pay people for going out of production and they have to be paid out of national budgets or the Community budget". I think we shall recognise in time, if we do not do so now, that Fontainbleau was an historic summit. The Community was attempting to shed the frustrations of the 'eighties and preparing for its enlargement and development.

Nobody has been more critical than I have been about the way in which the Prime Minister pursued Britain's just claim to a permanent abatement of its contribution—she did so in a way which, to put it mildly, was lacking in charm and exacerbated relations with the other member states. But it is only fair to acknowledge that the positive document which she presented to the Community, and which we now reprint in our report, was a welcome change of mood and an effort to restore the faith of the other member states in the sincerity of Britain's European commitments.

Now the Community is seeking to strengthen itself and perhaps even to amend the funding treaty. Never has the case for a stronger union been as compelling as it is today. Economically, the removal of its internal barriers is essential if our relative prosperity is to be maintained in the new world of high technology. Politically, we have need of even closer co-operation if we are to use our full persuasive influence on the two super-powers to abandon their dangerous policies of confrontation.

4.41 p.m.

Lord Stoddart of Swindon

My Lords, I have taken part in many debates on EC matters in another place but I think that this is probably the first time I have taken part in such a debate in this House. I must say that in another place the interest in the subject appears to be very low. Why that is I really do not know. Perhaps it is because the problems which we face in relation to the EC, particularly in relation to finance, are such that the honourable Members in another place cannot grasp the detail and become rather bored, but the attendance in your Lordships' House today is rather better than I had expected. I think that is altogether good because the more people who know about the EC, and the implications of the EC not only for finance and not only in relation to our own budget but in relation to the sovereignty of this nation, the better it will be.

The Bill before us is intended to enshrine into British law and to give treaty status to an undertaking resulting from this new phenomenon, the intergovernmental agreement. In 1984 we were presented with the inter-governmental agreement to provide the European Community with a reimbursable advance. This country's share of the total was some £ 119 million. This agreement was reached in spite of the fact that there is no provision in the Treaty of Rome for the Community to borrow money. Yet we agreed that we could lend them money which they had no duty to repay because they did not have the power to borrow it in the first place. That is the kind of thing we do in relation to the EC.

The Government sought to give Parliamentary approval to this inter-governmental agreement by means of an Order in Council but on being challenged in the courts by Mr. Oliver Smedley, a public-spirited gentleman who cares deeply about our parliamentary democracy, they decided to change tack and go to the House of Commons for a supplementary estimate through the Consolidated Fund Bill procedure. Mr. Smedley was unsuccessful in the courts and is faced not only with paying his own costs, which are considerable, but with being spitefully hounded by the Treasury for their costs. That is the fate which awaits anyone who dares to challenge the doling out of vast amounts of public money to the insatiable EC and the insane common agricultural policy which constitutes the main raison d'être of its existence.

Now we have this Bill and again Parliament is being asked to enshrine into law not a properly negotiated and properly documented treaty but a nasty piece of scrappy paper arising from what was not a formal meeting but an informal gathering. My Lords, if we go on in this way and the EC continues on its profligate course, the European Communities Act will be littered with addenda which will be of greater length than the Act itself.

I have read the debates in another place and what is surprising—what in fact is amazing—is that at Third Reading of this Bill no voice was raised in support of the Government except perhaps that of Sir Russell Johnston, a confirmed Euro-federalist, who gave only oblique and grudging support. So when the matter came to its finality in the House of Commons there was nobody there to support the Government in bringing the Bill into law. There were many reasons for this. First, as I have already stated, many people simply do not understand the way in which the Community works and how it is financed. I also believe that there was a lack of support for the Government because people on both sides of both Houses are becoming increasingly worried about the direction the Community is taking and about the ever increasing amount of money it takes to finance the Community, particularly agriculture.

A number of noble Lords, including my noble friend Lord Ardwick, have described the Fontainebleau agreement as reasonable and good. I do not happen to agree that that is the case for by making such an agreement, by agreeing to make these very considerable payments over a long period of time, we have seen the Prime Minister reneging on her promise in 1981 of broad balance in relation to the financing of the Community—

Lord Ardwick

My Lords, if my noble friend will forgive me—

Lord Stoddart of Swindon

My Lords, perhaps I may just finish this point. Not only have we seen that, but the British Government when negotiating this agreement threw away a very good negotiating position by failing to tie the agreement on own resources with proper financial control and reform of the CAP.

Lord Ardwick

My Lords, I just want to say that I agreed with all the reservations in our report.

Lord Stoddart of Swindon

My Lords, I heard my noble friend agree with all the reservations in the report, which is a very good one, of our own committee but, nevertheless, he paid tribute to the report and said that he thought generally the Fontainebleau agreement was a reasonable one. I happen in the most kindly and friendly way to disagree with my noble friend's view on that for the reasons that I have just given.

The fact is that there is nothing in the Fontainebleau agreement which in any way ensures that there is enshrined in the treaty or anything like it proper control of finance within the Community. As I have already said, this was the opportunity, when Community members were demanding an increase in own resources, to say, "No, there will be no increase in own resources until the CAP, which we all agree is a nonsense, is reformed, and properly reformed". Far from the financial arrangements proving satisfactory, we already know that even before Spain and Portugal become full members the 1.4 per cent. is under pressure. In 1986 with the 1.4 per cent. in place the leeway between income and expenditure will be only 900 million ecus—in other words, 1 .35 per cent. VAT. The noble Lord, Lord O'Brien, said—and I believe he was quite right—that this agreement had in it the seeds of its own destruction; and indeed by the very figures we have now and by the very progress we see, the noble Lord will be proved right in all too short a time.

I ask the Government; what assurances can we have from them that they will resist any further increase in VAT contributions? Will they themselves resist, and ask Parliament to resist, any increase to 1.6 per cent.? That is implicit in the Bill before us, but will the Government give the assurance this afternoon that having made this agreement they intend that it will last for a very long time? As the noble Lord, Lord Young of Graffham, said, it would be nearly permanent. Will he give the assurance this afternoon that the Government will not, under any circumstances, within the foreseeable future agree to an increase in VAT contributions to 1.6 per cent.? Will he also give an assurance that there will be no further "top-ups" of £250 million, or whatever our contribution may be, should the Community overspend its resources as it has so often done in the past?

My noble friend Lord Bruce of Donington asked what benefits we obtain from the Community. Those who ask that question are often accused of being destructive. But we are entitled to ask: what benefits do we receive from membership of the Community; what benefits do we receive for the expenditure of public money; and what benefits do we have in return for the loss of sovereignty which we have undoubtedly suffered as a result of our membership? We are entitled to ask those questions and we are entitled to have an answer.

Before we went into the Community we were assured that because of the large market of 250 million or 260 million people the opportunities for trade would be very much better; that because this country would feel the cold wind of competition we would improve our trade with the Community; that we would be able to send more and more goods into Europe; and that our trading relationship with Europe would be very much better than previously. Indeed, I was then the Member of Parliament for Swindon and the noble Lord, Lord Stokes, who was then head of the British car industry, wrote to all my constituents and the employees of British Leyland—BLMC as it was—in factories throughout the country, saying that unless we went into the EC the British car industry would collapse. Well, we did go into the EC and we all know that the British car industry was well nigh on the point of collapse. Indeed, at present we are running an adverse balance of trade in motor vehicles with the EC of £2,800 million as compared with a surplus of over £500 million in 1973. We are entitled to ask what benefit that has been to this nation.

We are also entitled to point to the adverse balance of trade of £9,000 million this year. I think we ought to ask, and I ask the noble Lord, Lord Young of Graffham, this question particularly: what does that deficit do for unemployment in this country? Is it not a fact that the £9,000 million adverse balance in manufacturing trade represents about 1 million jobs which he could do with to help solve the unemployment problem in this country? The Government, who are imposing financial stringency at home, seem to be willing to countenance huge increases in Community expenditure to finance the ridiculous common agricultural policy. Just think what the noble Lord opposite could do with £700 million in his fight—and I believe he wants to fight—against unemployment. Just think what he could do at home in building houses and schools and investing in manufacturing industry with the £700 million which is going on the wasteful CAP. I ask him seriously to think about that.

I ask him seriously to examine whether that money is being used to the best effect. We all know—I shall not go into this in detail—that the surpluses of wheat, butter, sugar, skimmed milk, wine, beef and all sorts of things are all increasing every year. As my noble friend Lord Bruce of Donington pointed out, not only is it costing us money to dump those products on the world market but it is increasingly costing us more to store that food in intervention stocks. As I have already said, we also sell this food at knock-down prices on the world markets to the deteriment of third world countries and, indeed, to the benefit of our perceived enemies. We sell countless thousands of tonnes of wheat and butter and large quantities of wine to the Soviet Union. The Soviet Union is waxing fat and getting drunk at our expense. No wonder the Soviets are rolling around the aisles laughing at a Community which is as stupid as that; but that is what we are doing. In fact, we in this country and the other countries of the EC are contributing to the betterment of that country, which is perceived to be our enemy.

Of course the CAP does other things too. It damages the environment. It has forced up land prices to an enormous level which prevents young farmers from going into farming. That is the kind of thing we are financing. Believe me, there are further troubles to come. The Select Committee is hopeful, and I believe it is right to be; I hope that it will not be disappointed. But there are some very real difficulties to come in the financing of the EC. Let the farming community beware of these problems which are to come, because with the accession of Spain and Portugal there will be very grave difficulties in financing the EC. Make no mistake about it: once those countries come into the Community there inevitably will have to be a shift of resources from the northern states to the Mediterranean states, and that will mean that the Mediterranean states will have more and the northern states will have less. That spells trouble for our own farming community.

Lord Harris of Greenwich

My Lords, may I ask one question? Does the noble Lord not welcome the arrival into the European Community of two young democracies? Does he not realise that one of the most hopeful features of what is happening in Europe is that those two countries are entering the Community?

Lord Stoddart of Swindon

My Lords, Spain and Portugal are now exactly where they always have been. In my opinion, we would have been in a much better position to help those two countries—which I agree were new young democracies—if we were not within the straitjacket of the EC and in particular the CAP. But, as I have already said, we are disappointed with this agreement. We do not believe that it solves any of the problems which face the Community. It does not in any way solve the problem of the runaway inflation of the common agricultural policy. It is not permanent. The Government will be back again asking for more money very shortly. I sincerely hope that when they come back, as they surely will, unless the noble Lord can give the assurance which I ask for, this House will then remember this debate and Parliament will say, "So much—no more".

5 p.m.

Lord Young of Graffham

My Lords, we have had a very interesting and useful debate this afternoon. We have covered a wide range of topics related to the Bill that is before us, and to the admirable report from your Lordships' Committee on the European Communities. The Bill is an important one. It will enable the United Kingdom to ratify the agreement reached at the Fontainebleau European Council on the future financing of the Community. I have spelled out in some detail in my opening remarks the specific benefits to the United Kingdom of that agreement, though I may have cause to repeat one or two of them in a moment.

On the Community level, too, the agreement will have several long-term benefits. I have been heartened by some of the feelings of goodwill displayed towards the Community which your Lordships have shown and by the recognition that the United Kingdom's future must be within Europe. The agreement on the British budget problem has enabled the Community to concentrate its energies on a positive approach to its future growth and development. There are signs of a new determination to achieve a genuine common market in goods and services, which is important for the creation of wealth and jobs. Europe is now beginning to look seriously at how it can make the most effective use of its economic strength and compete successfully in world markets.

Perhaps I may turn now to some of the points raised in our debate. We had a very interesting and helpful contribution from the noble Lord, Lord O'Brien of Lothbury, the chairman of Sub-Committee A of your Lordships' committee. I think that there are only two points in his speech with which I would like to take modest issue. The first is about the durability of the United Kingdom's abatement system. This is a matter which has been raised also by other noble Lords. It is because the United Kingdom's system is tied to the 1.4 per cent. VAT ceiling and forms part of the same Community legislation that it cannot be altered without the unanimous consent of all the member states and their parliaments. This is the tightest safeguard that is available in the Community. It is certainly not a weakness of the arrangement.

The other point in the noble Lord's speech on which I should like to comment is the question of the exclusivity of the Fontainebleau agreement and his suggestion that the formula made no reference to relative prosperity. It is true that the abatement formula relates to the United Kingdom and makes no allowance for changes in relative prosperity. However, the Fontainebleau conclusions themselves state that: any member state sustaining a budgetary burden which is excessive in relation to its relative prosperity may benefit from a correction at the appropriate time. The basis for the correction is the gap between the share of VAT payments and the share of expenditure allocated in accordance with the present criteria". Therefore, if other member states were to fulfil the criteria laid down in the conclusions, they too could seek to negotiate a correction of their excessive contributions.

Several noble Lords expressed criticism of the fact that the Community was being provided with extra resources when it was still failing to make any impression on the excesses of the common agricultural policy. The Government agree that the Community is still not doing enough to control and reduce its expenditure on agriculture. We made this clear in last week's debate on the reform of the CAP. As my noble friend the Minister of State for Agriculture, Fisheries and Food said at the end of that debate: The prospect of finding improvements in the operation of the CAP which will benefit producers, taxpayers and consumers is one which the Government welcome, and we intend to work for effective measures which will enable agriculture to develop on a secure but rational basis in the years ahead.". It was largely owing to our pressure that last December the Council of Ministers reached the conclusions on budgetary discipline to which several noble Lords have referred. The noble Lord, Lord Bruce of Donington, suggested that the budgetary discipline conclusions were inadequate because they allowed for the discipline to be relaxed in the event of exceptional or aberrant circumstances and for that relaxation to be decided upon by a qualified majority of the Council.

On the first point, many of your Lordships are farmers, or have been farmers, and will understand that it would have been unrealistic to seek to impose a totally rigid discipline on something as unpredictable as agriculture. On the second point, I remind your Lordships that all decisions during the Community's budgetary procedure are taken by qualified majority, which is about two-thirds. Therefore, it is natural that the Council should follow the same rules for budgetary discipline as it does for budgetary procedures generally. As to its effectiveness or otherwise, I echo the remark of the noble Lord, Lord O'Brien of Lothbury, that the new discipline so far has been respected in practice. In other words, so far, so good. I can assure the House that the Government will be doing all that they can to make sure that the budgetary discipline is respected in the future as well.

I suspect that the noble Lord, Lord Bruce of Donington, and I went to school in the same year, when calculators were not present. However, he has evidently completely mastered the use of them and we have had a demonstration this afternoon of percentages to six or seven places. But what matters is not the percentage cost of all these elements. The £1.2 billion to which the noble Lord has referred is indeed an important figure, and it is higher than it was.

I think I said in my opening statement that it was an erratic figure and that there were three points which your Lordships would wish to consider and remember about it. First of all, this is the last year in which we are due to receive a flat-rate correction to our net contribution and our erratically high net contribution this year will be automatically reflected in a very high level of abatement for 1986, when it is likely to be some £980 million compared with £590 million this year. Secondly, this year is artificially high because of two exceptional factors. We contributed some £119 million of supplementary financing to the Intergovernmental Agreement for 1984.

Lord Bruce of Donington

My Lords, forgive my interruption, but for the purpose of clarification will the noble Lord say for the record what the estimated rebate will be in the next financial year?

Lord Young of Graffham

My Lords, at the Commission's latest estimate—

Lord Bruce of Donington

My Lords, the abatement.

Lord Young of Graffham

My Lords, I think £980 million but if that it is not correct I shall let the noble Lord know. I shall check it.

Perhaps I may continue. There were £ 119 million of supplementary financing under the IGA for 1984 as well as the special contribution of £250 million in respect of 1985. We also paid an extra £75 million VAT own resources, because, as your Lordships may remember, we changed the basis of collecting VAT on imports. Of course, included in that amount is £135 million which in other cases would be in our overseas aid budget. When we look at the £250 million which is in the IGA for 1985, of that £250 million we shall in due course receive back half in receipts for farmers and traders and the eventual net cost to the United Kingdom is in the order of £40 million.

The noble Baroness, Lady Seear, raised two matters, but first of all let me declare a lack of an interest. Though I live in the green and pleasant village of Graffham in the County of West Sussex, I have no land, I have never been a farmer, and I hope never to be a farmer, so I can safely declare that.

Baroness Seear

My Lords, I was very careful in what I said and would not have dreamt of suggesting that the noble Lord had an interest.

Lord Young of Graffham

My Lords, I accept the rebuke. It was not the noble Baroness opposite who made the suggestion but other noble Lords who made the suggestion about an interest in farming. Of course, we must agree that the agricultural support expenditure in the Community takes up over 70 per cent. of the budget, which is too high. It is too much, but progress is being made which is real progress. Cuts in real prices over the last three years have been achieved and agricultural support expenditure has been increasing at a declining rate. It has been increasing but at a declining rate. Financial guidelines limit agricultural expenditure to levels below the growth in own resources. I hope very much that what we have achieved is but a start. It is absolutely necessary to keep up a momentum; otherwise productivity gains mean that surpluses will keep growing, even if prices fall. Therefore the next price fixing will be crucial. But this is not a debate on the CAP. It is there, it has to be dealt with, and I hope very much that negotiations over the forthcoming years will deal with it.

The noble Baroness, Lady Seear, agreed that Government policy on our net contributions should not be dominated by our concern about juste retour; nor is it. The Government are prepared to be a net contributor on a reasonable scale. But I do not think that we could have accepted contributions on the scale that would have occurred if no agreement had been reached at Fontainebleau; and because of Fontainebleau, the Government can now pay more attention to other Community issues such as helping to complete the internal market, helping to create jobs in Britain and in other member states, and the various other matters which the noble Lord, Lord Stoddart of Swindon, rightly said should be and are our concern. I suspect that they will best be dealt with by working within the Community framework.

I am grateful to the noble Lord, Lord Ardwick, for his support for the Bill, albeit with published reservations. He described Fontainebleau as an historic meeting; I believe that it will be seen to be such. However, I wish that I could see from noble Lords exactly opposite more support and understanding of the way that the Community works. It is important that we work within the framework of the Community. We clearly are, and will continue to be, part of it.

The noble Lord, Lord Seebohm, made a short but valuable intervention. I agree with him that if we were recreating the Community from scratch we should not start from here and we should create a fairer system of financing. But we are not in that situation. I hope that he agrees that the abatement system agreed at Fontainebleau represents a major step in the right direction.

The noble Lord, Lord Stoddart, appears to have doubts, not so much about the Community itself but about its ability to receive the 1984 intergovernmental agreement. The Court of Appeal supported the Government's procedural action. The Community and the other member states entertained no doubts about the legality of the 1984 advances. Surely he would not wish to dispute that consensus.

The noble Lord was concerned that the Government may give way on increasing the VAT limit to 1.6 per cent. My honourable friend the Minister of State, Foreign and Commonwealth Office, said in another place: Naturally, we should have to consider on its merits any request for an increase in own resources, but Her Majesty's Government would not welcome any proposal for a further increase in own resources during this Parliament. I cannot see us initiating am such request". [Official Report, Commons, 1/7/85; col. 139.] I can do no more than repeat those words.

The Bill has a second purpose—to enable the United Kingdom to pay it contribution under the intergovernmental agreement of 1985. Several noble Lords were critical of this agreement. The Government too regret that this agreement is necessary. The fact is, however, that without this money the Community will not be able to implement the budget it has now approved for this year. The United Kingdom has to pay its share.

The Government have never claimed that the Fontainebleau agreement on our abatement or the system of budgetary discipline which accompanies it are ideal. Clearly they are not. What we firmly believe is that both present a tremendous improvement on what preceded them. The United Kingdom is far better off under these arrangements than it was. far better off than it might have been if my right honourable friend the Prime Minister had not stuck to the negotiation with such tenacity, and far better off than we should have been if we had failed to reach any agreement at all and the Community had continued to live a hand-to-mouth existence within the 1 per cent. VAT ceiling. Within that ceiling there certainly would not have been any room for rebates, refunds or abatements to the United Kingdom. I commend the Bill to the House.

On Question, Bill read a third time, and passed.