HL Deb 09 November 1987 vol 489 cc1206-16

Lord Kearton rose to move, That this House takes note of the Report of the European Communities Committee on Financing the Community. (4th Report, 1987–88, HL Paper 14).

The noble Lord said: I beg leave to move that the House takes note of the report, Financing the Community, submitted by the Select Committee on the European Communities. In so doing, I must first thank the noble Lords who were members of Sub-Committee A and who worked so assiduously on the considerable volume of papers and tables of figures with which they had to deal. In particular, I should like to record the contribution of our late colleague Lord Rhodes. He studied and commented on the documentation and the transcripts of evidence, although he was unable to attend the committee. He will be greatly missed, especially for his wisdom and his great good nature.

The sub-committee was also much indebted to its specialist adviser. Professor Stephen Holt, and to its indefatigable clerk, Mr. Andrew Makower.

The report concerns itself with a series of Commission papers which deal with the deterioration of the Commission's finances in recent years. They also put forward initiatives and specific recommendations to improve the situation. Those recommendations take account of significant new developments in the role of the Community. As the minutes of evidence show, the sub-committee was fortunate in the very high calibre of those witnesses appearing before it and in the frankness of their answers to questions.

It is a pleasure that one of the witnesses, the noble Lord, Lord Plumb, who was a president of the European Parliament, has chosen the occasion of this debate to make his maiden speech in this House. We look forward with the keenest interest to hearing him.

The future development and prosperity of our country greatly concerns us all. It is now generally accepted across the political spectrum and in the country that our economic future is indissolubly tied to that of the European Community. In that future, the programme introduced two years ago to complete the Community's internal market by 1992 and the ratification last year of the Single European Act were major advances. As the Committee's report reminds us, those giant steps involved the Community in new commitments, both moral and financial.

The present difficulties with the Community budget must be kept in proportion. They are symptoms of changing circumstances and priorities within the Community. They should be approached rationally and not emotionally. Excesses are to be deplored and must be corrected. But let us not forget that the Community budget is, in relative terms, a modest affair. It is a very small percentage of the total of national budgets and even if it is reformed and enlarged, as it will be if the Commission's proposals for the future are accepted, it will remain relatively modest.

Obviously we all want Community funds to be spent wisely and constructively. That is a purpose which is strongly evident in the Commission itself. With the lessons of the past painfully learnt, wiser spending is a firm prospect for the future. The forthcoming Copenhagen Summit gives us the opportunity to make that prospect a reality.

The Commission's proposals for a reformed budget—the so-called Delors package, named after the president of the Commission—are summarised in paragraphs 7 to 17 of the committee's report. The reform of the Community's common agricultural policy—the CAP—is absolutely fundamental in the package. The CAP fulfilled its purposes and had great success in the past. But in recent years it has produced services which are costly to Community taxpayers and Community consumers, and it has been put into effect by complex and costly administrative procedures.

The present defects and excesses of the policy, both in the round and in detail, have been fully disclosed in the series of reports from the agricultural subcommittee of the select committee. The Commission now puts forward measures to bring agricultural output under control by a comprehensive system of stabilising mechanisms. Those mechanisms would control both output and product prices. A key feature of the new system is that the mechanisms would have legal force and would he administered by the Commission.

The failure of previous efforts to reform the CAP in any effective way lies with a basic defect in previous budgetary arrangements. The collective Council of Agricultural Ministers regularly agreed measures for agriculural support not covered by the EC budget. The Council of Finance Ministers did not bring them to order. The adoption of support measures meant that the Commission was legally committed to the spending consequences without having sufficient funds to meet the bills. As a result, unfunded deficits built up and the Commission and the member states had to take special steps—one might almost call them dodges—to close the books each year. Those were steps of a nature which repeatedly brought strongly adverse comment from the Community's Court of Auditors.

The committee fully supports the Commission's intention to bring agricultural spending under control and to make budgetary discipline legally enforceable. Since the committee reported, details of the Commission's proposals on output ceilings and on prices have been released. Whether they are sufficient to bring spending under control as quickly as the committee, from a financial standpoint, would deem desirable is still a matter of consideration. The views of the agricultural sub-committee will no doubt soon contribute to the debate on that matter.

It must be recognised that the new measures, however sensible and constructive, will not have much effect on the present level of agricultural spending. They will be largely concerned with preventing further runaway growth in such spending and in preventing the building up of unwanted stocks. The committee hopes that further developments will ensure that the present level of spending will be directed in future, as the noble Lord, Lord Plumb, suggested in his evidence, more to people than to product. It would be a disastrous and unacceptable output of the reforms if they led to rural depopulation and dereliction.

Although the reform of the CAP is, in the committee's view, a sine qua non, the Delors proposals have many other aspects for the Community's development. As a package, they are dedicated towards making a success of the many facets of the Europe of the Twlelve, a community of more than 300 million people. That is a vision that has been profoundly and deeply expressed by many national leaders, and by none more than our own Prime Minister.

Perhaps I may say at this point that in my view, praise is due to the right honourable and learned Foreign Secretary and his department for the patient and tireless way in which they have pursued the path forward to turn aspirations into reality. I feel also that Members of this House can take pride in the fact that it is one of their own number—the noble Lord, Lord Cockfield—who, as a Commissioner, has produced the detailed plan and timetable of the measures needed to make a reality of a true Community internal market by 1992.

A complete internal market will be a major component of our future economic growth. It will require the relinquishment of national exclusivity in many areas not least in matters of tax and fiscal harmonisation. In the immediate context the actions which need to be taken will not in themselves directly affect Community spending.

A key area which has budgetary consequences is the development of the Community's structural policy. The goal is further convergence and improved cohesion between member states. Paragraph 10 of the report of the Committee summarises what is intended and paragraph 32 touches upon some of the considerations which are relevant. The structural proposals are developments on which the poorer members of the Community place great store.

The Committee supports the Commission's proposals and supports increased Community spending, competently managed and controlled, to meet the stated objectives. The report of the Community's Court of Auditors, which is largely accepted by the Commission, has highlighted past deficiencies in the carrying out of structural policy. It is clear to us that there is now a determination within the Commission that in the future monitoring of spending will be much tauter and much more up to date than it has been in the past.

There are other policies and programmes which are part of the Delors package which will affect budget expenditure. The Committee did not consider these in detail. It contented itself with observing in paragraph 45 that in such fields as research and protection of the environment Community spending could be encouraged if it offered better value for money than spending at national level.

So far I have discussed the Delors proposals in terms of the direction and control of expenditure. Equally important are the proposals to change the basis upon which revenue is raised. The main change is that the present VAT revenue, consisting of a variable levy on a notional base, should be replaced by a fixed levy of 1 per cent. on each member state's actual VAT base, plus a new resource levied at a variable rate on that part of each member's GNP which is not subject to VAT.

The amount of Commission revenue would be limited by reference to a ceiling expressed as a percentage of total Community GNP. The Commission proposes that this ceiling should rise to 1.4 per cent. of Community GNP by 1992. There are other minor changes and the effect of all the changes together is that by this date, namely 1992, resources available to the Community would be up by about 50 per cent. on the 1987 level.

A corollary for Britain of the new system is that the calculations would be changed in which Britain's budgetary refund, agreed at the Fontainebleau Summit in 1984, is calculated. This would not affect the 1987 refund receivable in 1988, but it could mean a reduction in future years, especially in the earlier period of such a re-arrangement.

I refer the House to the report itself for the evidence and the discussions relating to the totality of the new budgetary proposals. I am sure that noble Lords speaking later in the debate will take up specific points and amplify them.

The Committee itself was satisfied that the Community needed more resources and that the build-up proposed by the Commission was broadly right. The financial settlement of 1984, which was intended to set the course for the future, was, in the event, fatally flawed. The accumulated liabilities of the past and the measures needed to ensure progress in the future—a future which will bring very considerable economic and structural benefits to the community—inevitably means that new revenues will have to be provided.

The Committee thought that the plans of the Commission to relate contributions to each member state's GNP were fair. This main conclusion and others are set out in paragraph No. 49 of the report of the Committee.

It seems clear from generally published information that all the 12 member states and the European Parliament look reasonably favourably on the Commission's proposals. The individual states have different reservations about various aspects of the package as does the European Parliament. These differences are almost certainly soluble without sacrifice of larger aims.

However, there is a particular sticking point of principle for Her Majesty's Government. Where Her Majesty's Government differ from fellow members is in their absolute insistence that the debacle of Fountainebleau should not be repeated. This debacle in budgetary control was not the fault of the Commission in Brussels. As I have made clear, it was due to the power of the Council of Ministers to commit the Community to legally binding expenditure without increasing the receipts to meet the expenditure. Her Majesty's Government wishes to see firm, precise and legally binding budgetary discipline a fundamental part of any changed way of raising, let alone increasing, the level of Community resources. The Committee unreservedly agrees with this objective of Her Majesty's Government which, when it is achieved, would be a major factor in strengthening the Community.

Where the Committee does have some misgivings is about the wisdom of insisting that any future system of budgetary refund arrangements for the United Kingdom should be at least as favourable as those which at present exist. It is also a matter for regret that the impression is sometimes given that an extension of Community spending in any field is inherently likely to be extravagant and inefficient.

With regard to the first of these points the Committee naturally welcomes the desire of Her Majesty's representatives to protect British interests. The Committee also hopes that longer term considerations which offer a much greater prize are fully taken into account when negotiations about the rebate are conducted in earnest.

With regard to the second point, the Committee feels that, it is right indeed to insist upon proper monetary accountability. It also believes that a positive acknowledgement by Her Majesty's Government that some transfer of wealth within the Community is essential for cohesiveness and solidarity for the future, would be realistic and constructive. The richer members of the Community have special responsibilities. The recent progress and growth of the United Kingdom economy is relevant in this regard.

The Committee earnestly wants the Government to win their argument at the Copenhagen Summit for proper budgetary control for the EC. With such control they trust that the Government will go along with an expansion of budgetary resources on the lines proposed by the Commission. They feel that obtaining success in the budgetary control argument is likely to be helped by the Government stressing even more than they have done in the past the deep commitment which they have to the future development of the Community, with an acknowledgement of the moral and financial obligations such a deep commitment entails. My Lords, I beg to move that the House takes note of the Committee's report.

Moved, That this House takes note of the report of the European Communities Committee on Financing the Community (4th Report, 1978–88, HL Paper 14) —(Lord Kearton.)

3.19 p.m.

Lord Plumb

My Lords, if it is not too presumptuous of me as a newcomer and as a member of another parliamentary institution—a mere infant by comparison with this noble House—may I first of all congratulate the noble Lord, Lord Kearton, and the noble Lords on his Select Committee for their excellent report, the conclusions of which I heartlily agree with.

I should also like to thank them for affording me the opportunity of giving evidence to the committee last July. I therefore welcome in particular this opportunity today to speak to the report following the excellent presentation by the noble Lord, Lord Kearton.

On that occasion when I was privileged to give evidence I was asked whether I thought that the next five or six months were critical, particularly on financing the EC. I had no hestitation in saying that they were critical; indeed, they were crucial. As is so well stated in the report, the 1987 budget procedure was unusually lengthly and involved a tortuous dispute over a relatively small sum of money. Since then we have grappled with a supplementary budget, but for 1988 the situation is far more desperate since the deadline has passed when Council should have placed a draft budget before us.

Therefore, the need for progress, for the exercise of political will by governments and by member states, is today all the more urgent and all the more crucial. As the noble Lord, Lord Kearton, said, the forthcoming Copenhagen summit must break the back of the problems before it if the European Community itself is not to slide backwards with a detrimental effect for every one of our 321 million citizens.

When I spoke at the last European Council, the last summit meeting in Brussels, I concentrated on four main points. I believe they remain valid today. First, there is the achievement of the internal market in Europe and the closer identification of our economies. That is not just a vaguely desirable objective but a commercial and economic necessity. It is indeed the motor of economic growth, especially in these uncertain times, and it sits squarely with the priorities of the economic policies of Her Majesty's Government. It seeks to liberate the European market from the unnecessary constraints often imposed by nationalist objectives. In all of this, of course, protectionism within Europe as well as anywhere else is in the long run self-defeating, illusory and negative. However, an extension of free trade, on the contrary, holds out the glittering prospects of more prosperity and more jobs.

Secondly, and at the heart of the many problems we face in the Community, is the overwhelming need to modernise the common agricultural policy. Our surpluses damage the Community's reputation while paradoxically failing to give sufficient benefit to many of its farmers. The present situation damages our trading system and therefore we must take resolute action to correct the many imbalances. When 50 per cent. of the money spent in supporting the common agricultural policy goes towards the cost of storing or disposing of surplus stocks, it is of no benefit to the farmer or the consumer and is a useless burden on the taxpayer.

The central element in all this, therefore, is a managed market, particularly in the cereal sector where we need an effective set-aside scheme to reduce the volume of production. This is not just a British problem and not just a European problem, but a problem of world-wide proportions. That is why I have initiated a world food conference to be held next April in Brussels; a conference hopefully drawing together the experts from every continent and every link in the food chain, to search for a coherent set of proposals and to help to bring the food equation into better balance. This is a matter of high degree and high importance on the agenda of GATT, and I hope we are in a position to make a substantial input into those deliberations.

We in the European Parliament have proposed a clear shift in agricultural expenditure towards structural support. Therefore we must think not only of products but also of people. We must think not only of technology but of the very life of rural societies which depend not only on an economically healthy farming community but on employment in rural areas. However, we must do so in cost-effective ways. We obviously must operate under budgetary control and under budgetary discipline.

Thirdly, and against this background, the Community will need to finance its existing commitments and new obligations which it has taken on with the Single European Act. Additional resources will be necessary. The Community simply must be put on a sound financial footing, one that is sensible, adequate and fair. It is indeed longer-term proposals which we are looking for. We cannot afford ad hoc annual budgets. Each failure to agree adds to uncertainty and frustration; and it certainly adds to confusion. In all this, it is the ordinary people in member states who end up suffering—those who are involved in small organisations, the beneficiaries of the social and regional funds.

Lastly, we must concentrate on the positive aspects of building the Community. It is time to put aside the deplorable waste of time and energy which for so long Europe has suffered over the budgetary questions. There are many other important tasks to consume our energy, not least the building of a politically united Europe. Yesterday we remember; today we must concentrate on the peace and security of our people. These therefore are the main items of immediate concern.

In my other institutional incarnation, we are energetically coming to grips with our co-legislative role under the Single European Act. I shall be privileged on behalf of the European Parliament to put its views forward to the European Council when it takes place in Copenhagen. Today I welcome this report and welcome in particular the interest of your Lordships on these many issues which are of such importance to us all.

3.27 p.m.

Lord Banks

My Lords, it is a particular privilege this afternoon to follow the noble Lord, Lord Plumb. I congratulate him most warmly on his maiden speech, both on the way in which he delivered it to the House and on its content. It is appropriate that the President of the European Parliament should take part in this debate in this House this afternoon. I am sure that the whole House wishes to congratulate the noble Lord on having been elected to such an important position of leadership within the Community. His speech was made with all the authority of his years in the European Parliament since 1979 and his leadership for five years of the European Democratic Group, together of course with his distinguished service to the National Farmers' Union in many capacities and latterly as its president. We look forward to many equally authoritative contributions from him in the future.

I join him in thanking Sub-committee A of the Select Committee for this most valuable report. It is indeed a particularly significant one since it deals with matters which have been at issue between our country and the other countries in the Community. I also thank the noble Lord, Lord Kearton, for his clear and comprehensive introduction of the report to the House.

I believe we have three views outlined in the report. First, there is the Commission's view in two documents; the immediate subject of the report supported by the evidence of Commissioner Christophersen. Secondly, there is the British Government's view as expressed at the Brussels summit and in the evidence to the committee of Mrs. Chalker and Mr. Brooke. Thirdly, there is the committee's view which takes a middle way, upholding the Commission on some points and the Government on others. I am glad that the report places the blame for the present financial situation of the Community firmly on the shoulders of the Council of Ministers, the 12 Governments, and not on the Commission. It is clear that there are many complicated aspects of the problem. Three overriding issues are raised in the report. The first is: does the Community need further resources? The second is: how can budgetary discipline be established, particularly in view of past failures? The third is: should the implementation of budgetary discipline precede any agreements on increased resources for the Community?

First: does the Community need further resources? I think it is widely felt that the effect of completing the internal market by 1992 will, among other things, be to accentuate regional disparities within the Community, and that that will need rectification. Such rectification will involve Community expenditure. The importance which the Government of Ireland give to that aspect of the development of the completion of the market was demonstrated by the recent speech of the President of Ireland to the European Parliament. I think that he was probably expressing the views of many of the 12 Governments in what he said.

It is generally agreed that the admission of Spain and Portugal has placed further burdens on the Community's budget. The Single European Act has legitimised, if that is the correct word, many aspects of Community expenditures and has given rise to the supposition that those will be further developed. In his evidence before the committee and in his speech this afternoon the noble Lord, Lord Plumb, has made it clear he is convinced that further resources are necessary; and so did the noble Lord, Lord Kearton, in his introductory remarks this afternoon. The Commission has suggested a change from basing contributions on VAT to basing them on Community GNP. I was glad that the committee approved of that. The total level of expenditure, as the noble Lord, Lord Kearton, explained, which the Commission recommends is 1.4 per cent. of the Community's GNP.

Lord Harmar-Nicholls

My Lords, will the noble Lord give way? Out of kindness to my noble friend Lord Plumb, I do not remember that he said that extra resources had to be forthcoming, irrespective of whether the vital economies and greater efficiency in running the Community had been first brought about.

Lord Banks

My Lords, I was merely saying that, as I understood it, the noble Lord, Lord Plumb, said in his evidence and in his speech this afternoon that he believes there will be a need for further resources. I have no doubt he believes that many other things must be achieved as well. One may possibly depend upon the other. He has expressed a view in favour of an increase in Community resources.

As I was saying, the Commission has suggested that the total level of expenditure should be 1.4 per cent. of the Community's GNP. That would involve a 50 per cent. increase in resources. That has of course led some people to point out that in recent years there has already been an increase in resources. The point we must bear in mind is the point made by the noble Lord, Lord Kearton, that the Community's total budget is less than 1 per cent. of the GNP of the EC. The British Government will no doubt be satisfied if they can hold their own expenditure at something like 40 per cent. of the country's GDP. Community expenditure is less than 1 per cent. of the GNP of the EC, which, as the noble Lord, Lord Kearton, said, is a modest affair. It is about half of what we spend on social security in Britain alone.

It is 10 years since the McDougall Report suggested 2.5 per cent. of GNP as an appropriate target level. Against that, 1.4 per cent. appears to be rather modest. Hearing all the talk which one hears from time to time of inflated Community expenditure, the public may not realise that the Community of 12 nations spends only about 15 per cent. of what the United Kingdom Government alone spend. It may be argued that the expenditure could be better applied, and that we do not receive the value for money that we should like; but that is another matter.

I welcome the Committee's statement: The Committee agree with the Commission that the financial settlement of 1984 was woefully inadequate, and that the Community needs more resources". I am sure that is right. It seems that the Government hesitate to agree with that.

Lord Bruce of Donington

My Lords, I am most grateful to the noble Lord for giving way. Will he clarify the position by saying he appreciates that if the 1.4 per cent. were applied to GNP it would need, according to the Treasury, an extra £900 million net per annum from this country to accommodate that?

Lord Banks

My Lords, I fully accept that that was the Treasury estimate. It seems to me that the Government hesitate to agree, although Mrs. Chalker said in evidence: We have never ruled out a further growth in funds". She went on to say: One point four per cent. of GNP is equivalent at the present time to 2.25 per cent. of VAT…. Certainly, 1.4 per cent. of GNP is not acceptable". Mr. Brooke said of the Commission's proposals: Increases on this scale are totally unrealistic". We are entitled to ask why those measures are regarded as unrealistic, and, if that is the opinion, what the Government feel is the appropriate level for Community expenditure in the years which lie ahead. The Government may be persuaded by the committee's view expressed in this report to give us some indication of their feeling on this matter. It would ensure a better hearing for the Government's case on control of expenditure if it were clear that they were not opposed, in principle, to a significant increase in resources.

My second question was: how can budgetary discipline be established? The noble Lord, Lord Kearton, pointed out that even if budgetary control were established it would not necessarily and immediately mean a reduction in expenditure. It means control of expenditure—keeping it within limits. If a reduction is to be achieved it no doubt would mean lower prices and targets. To establish control the Commission proposes the introduction of a system of stabilisers—quotas, cut-off points, co-responsibility levies and so on.

The committee likes some of those proposals; it does not like others. I think that is also the Government's view. As I understand it, the Government are in favour, in principle, of a system of stabilisers, but the point which the Government and the committee make is that control must be legally enforceable.

I should like to ask the noble Lord who is to reply on behalf of the Government whether he is confident that an agreement on that point will be achieved at Copenhagen. I am bound to say that is a point which seems to be eminently sensible. But how far does that system of control have to be in operation before any increase in funds can even be considered?

It seems as though the Government are requesting reductions in the CAP without any commitment to increase resources. In that context, I should like to quote again an article by Derek Prag, a Conservative Member of the European Parliament, which I quoted in the debate on the Address. He wrote this article in the May/June issue of the European.

It was an article in which he was putting forward what he thought were the good points of the Government's policy with regard to Europe, but he ended on this critical note: What is criticised above all"— that is, by others in the Community— is the locking of further expenditure in desirable policy areas until the CAP has been reformed. Since as everyone knows, reform of the CAP without a major social upheaval would have to be spread out over a minimum of three years—and probably nearer five—this looks suspiciously like holding up the development of the Community. The aim of reforming the farm policy is impeccable—the method, perhaps, in this case, too harsh". It seems that the whole exercise ought to proceed together. For example, farmers whose incomes are reduced below an acceptable level should have a means of directing the support available; and that, if it is to come from the Community, involves increased Community expenditure. The Commission has suggested a plan on these lines which the committee thinks is inadequate. However, that scheme, or an improved scheme as the committee wants must be in place as lower prices targets and budgetary discipline begin to bite. While the Government should seek agreement on budgetary discipline, including legal enforceability, I think that they should indicate the increase in funds that they feel could accompany the introduction of such a regime.

Finally, in presenting the United Kingdom view to the Community, why do the Government have to represent it in such a way as to antagonise all our partners? We seem to have done the same thing in the Commonwealth. Surely much clearer support for the development of the EC budget, coupled with a more diplomatic attitude, might make some of our other views more acceptable to our partners.