§ 11.50 a.m.
§ Lord Brabazon of TaraMy Lords, with the leave of the House, I shall now repeat a Statement being made 590 in another place by my right honourable friend the Minister of State at the Treasury on the EC Budget.
"Mr. Speaker, I am glad to have the opportunity to report to the House on this week's negotiations in Brussels and Strasbourg which culminated in the adoption yesterday afternoon of a Community Budget for 1986.
"The Budget Council met in Brussels on 8–9th July and in Strasbourg on 10–1lth July. I served as chairman of the Council and my honourable friend the Economic Secretary represented the United Kingdom at the 8–9th July meeting.
"The Council reached agreement with representatives of the European Parliament at 3 a.m. yesterday, and the Parliament voted on the budget yesterday afternoon. With permission, Mr. Speaker, I will arrange for the main figures to be published in the Official Report.
"The starting point for this week's negotiations was the European Court's judgment on the 1986 budget delivered on 3rd July: copies are being placed in the Library. This found that the Parliament exceeded its legal powers in seeking to adopt the budget last December, in the absence of agreement with the Council, and declared the 1986 budget process to be incomplete.
"The Commission responded by putting forward an amending letter which consolidated the budget voted by the Parliament last December and the Commission's own preliminary draft supplementary and amending budget presented in May. Compared with Council's Second Reading budget of last autumn, the proposals in the amending letter provided for an extra 915.3 mecu (£569 million) of EAGGF guarantee expenditure, an extra 492 mecu (£306 million) for commitment appropriations and an extra 1,326 mecu (£824 million) payment appropriations for the structural funds and non-obligatory expenditure, together with an increase of 500 mecu (£311 million) for the UK's abatement.
"The outcome finally agreed between the Council and the Parliament provided for a further addition of 184.7 mecu (£115 million) to EAGGF guarantee expenditure, and a reduction of 399 mecu (£236 million) in commitment appropriations for the structural funds and other non-obligatory expenditure (including a special reserve for negative commitment appropriations, and a reduction of about 135 mecu (£85 million) in payment appropriations for the structural funds and other nonobligatory expenditure. On the revenue side, it incorporated a surplus of 49.2 mecu (£31 million) available from the 1985 budget.
"I have to tell the House that the new budget uses up all the available revenue within the 1.4 per cent. ceiling, together with the surplus carried forward from 1985.
"Compared with the 1985 budget, the increase in EAGGF guarantee expenditure is 10.8 per cent. and for non-obligatory expenditure is 14.54 per cent. for commitment appropriations and 39.18 per cent. for payment appropriations.
"Throughout the week's discussions in the Budget Council the UK's representatives made clear their 591 profound and continuing concern about levels of expenditure in the new Budget, and the implications for budget discipline. They underlined the United Kingdom's strong preference for retaining a significant margin of unused resources within the 1.4 per cent. ceiling. At the same time, they accepted that the increase of 1,100 mecu (£683 million) in EAGGF guarantee expenditure, which involves exceeding the budgetary discipline guideline limit by some 925 mecu (£575 million), could be justified by the exceptional circumstance of the abnormally rapid depreciation of the dollar since the original 1986 budget figures were prepared.
"In spite of all our concerns, the new budget has many positive features from the United Kingdom's point of view.
"First, the UK's VAT rate, which would have been 0.69 per cent. on the Council's November budget and 0.73 per cent. on the Parliament's December budget, has been reduced to under 0.68 per cent. This reflects the increase in our abatement.
"Second, we expect to receive a significant share of the extra provision for the structural funds—well in excess of our VAT share.
"Third, in consequence of these changes, we expect the UK's net contribution to the 1986 budget to be substantially lower than was implied by the Council's or the Parliament's budgets of last autumn.
"Fourth, the Council has succeeded in cutting back the growth of commitment appropriations proposed by the Parliament, thus improving markedly the ratio between commitment and payment appropriations."
§ My Lords, that concludes the Statement.
§ Following are the figures referred to in the Statement:
| 1986 COMMUNITY BUDGET AS ADOPTED ON 10th JULY: MAIN FIGURES | ||||
| Expenditure | Commitment Appropriations mecu £ million | Payment Appropriations mecu £ million | ||
| Agricultural Guarantee | 22,112 | 13,738 | 22,112 | 13,738 |
| Agricultural Guidance | 884 | 549 | 785 | 488 |
| Regional Development Fund | 3,098 | 1,925 | 2,373 | 1,474 |
| Social Fund | 2,290 | 1,423 | 2,533 | 1,574 |
| Other non-obligatory | 3,716 | 2,309 | 3,354 | 2,084 |
| Other obligatory | 2,146 | 1,333 | 2,211 | 1,374 |
| Restitutions to Spain and Portugal | 1,806 | 1,122 | 1,806 | 1,122 |
| TOTAL | 36,052 | 22,398 | 35,174 | 21,853 |
| Non-obligatory expenditure | ||||
| Total non-obligatory expenditure | 9,500 | 5,902 | 8,536 | 5,303 |
| Rates of increase on 1985 (maximum rate) | 14.54% | 39.18% |
| Revenue and UK abatement | Mecu | £ million |
| Headroom within 1.4% VAT ceiling | 0.63 | 0.39 |
| UK's Fontainebleau abatement | 1,900 | 1,180 |
| VAT rates: | |
| Member states other than Germany & UK | 1.39996% |
| Germany | 1.33697% |
| UK | 0.67663% |
| Uniform | 1.2505% |
§ Notes
§ 1. £ figures have been calculated by converting ecu figures at the 1986 budget exchange rate of 1.6096 ecu to the £.
§ 2. Because of rounding, component lines do not necessarily sum tototals.
Lord Bruce of DoningtonMy Lords, we on this side of the House should like to thank the noble Lord for having repeated the Statement. It reveals an alarming position. We have been repeatedly assured by the Government, particularly during the course of the long and controversial debate about the decision to raise the VAT rate to 1.4 per cent., that this would last till the end of 1988, and now we find that we are already pressing up against the ceiling. In whatever part of the House we sit, we are all entitled to ask: what has happened to this much vaunted budget discipline which was supposed to have arisen as a result of the conferences in Strasbourg and Fontainebleau? It seems entirely to have disappeared.
The reasons are not difficult to see. The noble Lord said in the Statement that proposals in the amending letter for an extra 915.3 mecu, or £569 million, also contained an extra £824 million payment appropri-ations for the structural funds and non-obligatory expenditure. What will the Government do about this? Where is the discipline? In the event, the final result, as we understand it and as contained in the Statement, is that the Government accepted the increase of £483 million in the EAGGF guarantee fund—the common agricultural policy. Why did they agree to that extra expenditure?
The noble Lord knows perfectly well that the EAGGF expenditure on the common agricultural policy is demand led. That means that the legislation is already in place. Under the CAP regulations any farmer can take advantage of that and can, in fact, sue if he does not get the money to which he is entitled under the regulations. There is no way of stopping this expenditure which, incidentally, includes £2,000 million spent in the storage, destruction and dumping of excess production in intervention stores, which is a shocking waste.
Why cannot the Government in Council use their powers to cut down obligatory expenditure —compulsory expenditure, as it is called; demand led expenditure? Why can they not do one of two things—either bring forward specific proposals in Council for a drastic reduction on obligatory expenditure, on demand led expenditure on the common agricultural policy, or veto—they say that they can veto—the increases that have occurred.
What have the Government done? According to the Statement, they have expressed profound and continuing concern. They have expressed a strong preference. They have been doing this for years, expressing concern about the astronomical increase in this expenditure. They are now expressing a strong preference. Moreover, they have gone beyond that. 593 They have endeavoured to justify the increase in EAGGF guarantee expenditure on the grounds that it,
could be justified by the exceptional circumstance of the abnormally rapid depreciation of the dollar since the original 1985 Budget figures were prepared".That is true, but the noble Lord knows that it is a partial truth and that all that increase is not, in fact, due to the depreciation of the dollar. In fact, if the noble Lord examines the Government's own White Paper issued on the subject, which stated the figures some three weeks or a month ago, he will find that no less than £402 million of the increase was due to this unregulated expenditure on the EAGGF guarantee fund itself.Why do not the Government use the veto? In debates in another place the Government have always insisted that in the national interest finally they have the veto. I have correspondence from the noble Lord's noble friend the Minister of State at the Foreign Office confirming that they have the veto. Either they have the veto or they have not. Which is it? Do they really have a veto; and if they have a veto, why have they not used it?
§ 12 noon
§ Lord GladwynMy Lords, the reaction of noble Lords on these Benches to the Statement, which we thank the noble Lord for repeating, differs rather materially from that taken up by the noble Lord, Lord Bruce of Donington. We think it is satsifactory that there should be agreement on the budget in the negotiations now taking place in Geneva. It is satisfactory as such. It only shows what the Community can do when it sets its mind to it; or perhaps I should say when it is really up against it.
From the perhaps rather narrow point of view of the British, the outcome also seems quite satisfactory for the time being for the reasons given at the end of the Statement. But from a long-term point of view, more especially as a result of the recent depreciation of the dollar, to which the noble Lord, Lord Bruce of Donington, rightly drew attention, is it not pretty clear that we shall be incapable of balancing the budget in the future, more expecially if, as seems likely, the depreciation continues, unless there is some increase in the 1.4 per cent. VAT allocation which we make to the Community? Is it not also clear that if that does occur, such an increase in our contribution will be fully unacceptable from the point of view of our own financial resources?
§ Lord Brabazon of TaraMy Lords, I am grateful for the reception to the Statement given by the noble Lord, Lord Bruce of Donington, and in particular by the noble Lord, Lord Gladwyn. I am not quite so grateful to the noble Lord, Lord Bruce of Donington, I must confess.
The noble Lords, Lord Bruce of Donington and Lord Gladwyn, both touched upon the VAT rate of 1.4 per cent. This is fixed as an absolute limit for 1986–87, and was fixed at Fontainebleau in 1984. In 1988 this can be raised only with the agreement of all member states and their Parliaments—to go over 1.4 per cent. This Government see no reason why they should do so, and, as the noble Lord, Lord Bruce of 594 Donington, reminded us. we have the power of the veto.
With regard to the common agricultural policy, the agricultural over-run, as we discussed, was due to a dollar decline of 25 per cent., which is a fairly marked amount. On non-compulsory expenditure (the structural funds) the increase was mostly to accommo-date the accession of Spain and Portugal into the Community. I can only emphasise to the noble Lord, Lord Bruce of Donington, that we are doing what we can to reform the agricultural policy, but of course there are many other interests involved besides our own.
I am grateful to the noble Lord, Lord Gladwyn, for what he said about reaching this agreement. Much hard work was done in a short time from the judgment of the European Court. This Government, with the presidency at the moment, played their full part in getting that through. In those circumstances they have done extremely well.
§ Lord O'Brien of LothburyMy Lords, the noble Lord the Minister will doubtless recall that I had the privilege to present to your Lordships' House not much more than a year ago your Lordships Select Committee Report on Fontainebleau and after In that report we made it plain that we felt that the Government had about only a year before problems would arise again. From the Statement which has been made today it is quite clear that that judgment was correct.
Would I be right in thinking that a renegotiation of the VAT ceiling, which now stands at 1.4 per cent., to increase it to some higher level will soon be necessary? Can the House be assured that when that negotiation takes place the Government will continue to try to secure the arrangements for abatement of the United Kingdom contribution which were secured at Fontainebleau and after?
§ Lord Brabazon of TaraMy Lords, in answer to the noble Lord, Lord O'Brien, the VAT ceiling of 1.4 per cent. is fixed again for next year's budget. But as I said earlier, this is up for review in 1988. This Government do not believe that the ceiling should need to rise above 1.4 per cent., and we shall be making those views very clear at the start of negotiations.
§ Lord Bruce-GardyneMy Lords, can my noble friend tell us what precisely is exceptional about exchange rate movements? Does he not feel sometimes, in the light of what has happened to the 1.4 per cent. ceiling, that giving extra drink is not usually the best way to cure an alcoholic?
§ Lord Brabazon of TaraWell, my Lords, I think the 25 per cent. depreciation of the dollar was a fairly exceptional movement in currencies, but in general I can only repeat what was said in the Statement:
The UK's representatives made clear their profound and continuing concern about the levels of expenditure in the new budget, and the implications for budget discipline".
§ Baroness EllesMy Lords, will the noble Lord the Minister confirm that, despite the general 1.4 per cent. VAT rate for the budget for member states of the Community, the United Kingdom, thanks to the 595 negotiations carried out by the Government at Fontainebleau, will in fact be paying only 0.7 per cent. VAT for 1986?
§ Lord Brabazon of TaraMy Lords, I am grateful to my noble friend Lady Elles. In fact, it is better than that; it is only just under 0.68 per cent.
§ Lord John-MackieMy Lords, since my noble friend raised the question of the common agricultural policy and the surpluses, and others suggested that nothing was being done, I should like to point out—and I only have the figures in my head—that the levy which is being raised in order to deal with those surpluses will cost EC farmers somewhere in the region of £330 million. British farmers' share of that will be £50 million, and I have just worked out that J. Mackie's share of it will be about £2,500.
§ Lord Brabazon of TaraMy Lords, I am grateful to the noble Lord, Lord John-Mackie. The noble Lord has the better of me. He has the figures in his head, but I am afraid that I do not have the figures at all.
§ Lord Stoddart of SwindonMy Lords, is the noble Lord aware that we find a strange contrast between the Government's approach to government expenditure in this country and public expenditure within the EC? In relation to public expenditure in this country they are very stringent; but so far as the EC is concerned it seems that the sky is the limit.
In relation to the 1.4 per cent. ceiling the Statement says:
I have to tell the House that the new budget uses up all the available revenue within the 1.4 per cent. ceiling, together with the surplus carried forward from 1985".Does that mean that without that surplus the 1.4 per cent. ceiling would have been, or will be, exceeded in 1986? Am I right in assuming that the figures the noble Lord gave for the increase in the EAGGF guarantee expenditure is four times the RPI; for non-obligatory expenditure five times the rate of RPI; and for other appropriations 14 times the RPI? That surely is not reasonable.Finally, in relation to increased expenditure being due to the decline in the value of the dollar, can we assume that if the dollar appreciates in value, the money which will then be saved will be rebated to the member states, or will it be used up in additional expenditure?
§ Lord Brabazon of TaraMy Lords, the noble Lord, Lord Stoddart of Swindon, asked me three questions. The answer to the first one is, yes. In his second question the noble Lord quoted some figures in comparision with the retail price index. I have no doubt that he has done his sums; he will be able to do them just as well as I can. This is a European matter. I am not quite sure what is the overall RPI in Europe, but it is probably much the same as our own. If the dollar now appreciates instead of depreciating, that will of course have good effects with regard to CAP expenditure. I am afraid that I cannot tell the noble Lord at the moment what will happen to any surplus that arises from that.