HL Deb 03 February 1988 vol 492 cc1120-57

5.50 p.m.

Lord Ezra rose to call attention to the case for more rapid progress towards the completion of the internal market of the EC by 1992; and to move for Papers.

The noble Lord said: My Lords, in moving the Motion standing in my name in the Order Paper, I should like to say how delighted I am to see that the noble Lord, Lord Rees, has chosen this as the occasion on which to make his maiden speech. I dealt with him on many occasions in the past during his activities as a Member in another place and as a Minister. I have unfailingly pleasant memories of those occasions.

I have tabled the Motion because I believe it to be timely that we in this House should be considering what potentially could be one of the most important developments in Europe in the years ahead. The completion of the internal market in 1992 could offer this country and other members of the European Community an unrivalled opportunity to expand their economies, improve the social well-being of their inhabitants and compete effectively with the other strong industrial groups throughout the world. At the same time there have been reports of delays in the procedures for approving the various measures needed to bring this integrated market into operation by the due date. I think that it would be helpful if we looked at that and in particular heard the views of the noble Lord, Lord Beaverbrook, about that aspect when he replies for the Government.

It might be asked, as members of the European Community why are we now having to concern ourselves with the completion of the internal market. After all, that was one of the main objectives of the Community when it was first set up by the original six signatories to the Treaty of Rome in 1957. It was a factor which motivated us as a country to join in 1973. I believe that that happened for the simple reason that, although the tariff barriers were removed expeditiously in the movement of goods within the Community, very soon a complex of non-tariff barriers was erected. They were barriers which related to differing standards, health and safety regulations, frontier delays and so on. There was a whole plethora of impediments against achieving the objectives of the Community. So it is that we are now taking the necessary steps to deal with that.

The other day I was reminded by Mr. John Drew, the Head of the UK office of the Commission, of a wise saying by Jean Monnet, the architect of the European Community. He said, if I may quote the French: L'Europe se fait par des petits pas". The English translation reads, Europe is created in small steps. Indeed he was right and we cannot be rushed into these matters. The fact that it has taken us three decades to face up to the realities of the integrated market may not be a subject for concern so long as we now get on with it.

I should like to remind the House that this year is the centenary of the birth of Jean Monnet. I had an opportunity to meet him when I was a member of the UK Delegation to the High Authority of the Coal and Steel Community in Luxembourg, during the early 1950s. As far as Britain was concerned, he always took the view that we should take some time to make up our minds about membership but that once we had made up our minds we should take it seriously. We now have an opportunity so to do.

The plans that have been made for the completion of the internal market are extensive and meticulous. As your Lordships will recall, it began in 1985 when the Commission was asked to draw up a plan for its completion. The plan was presented in what was known as the White Paper, which was pepared in a most comprehensive way. The noble Lord, Lord Cockfield, as Vice-President of the Commission, played a large part in that. The objective is to make sure that in all the necessary details actions are taken to introduce the free movement of goods, persons, services and capital within the European Community. The subsequent passing of the Single European Act, which was ratified in 1986 and 1987 by the various member countries, should facilitate this process.

Turning to the present position, the Commission has tabled two-thirds (which is approximately 200) of the various actions which need to be taken to make this integrated market a reality. It considers that by the end of this year it will have introduced virtually the totality of the actions that need to be taken. On the other hand, the approval of these actions by the Council of Ministers has been somewhat slower, as one might reasonably expect. I should like to ask the noble Lord, Lord Beaverbrook, whether he considers that the speed at which the Council of Ministers is now approving the various actions is in line with the objective of completing this whole endeavour by 1992. The impression I have received is that during the British Presidency in 1986 a good deal of progress was made but that subsequently progress has not been quite so fast.

I think that it is desirable to turn next to the broad objectives which the Commission has set itself for achievement during the course of this year. As I understand it from an important speech made by the noble Lord, Lord Cockfield, at a gathering of ELEC, of which the noble Lord, Lord Rippon, is chairman, he was not so much concerned at the number of measures which were agreed at any one time as with broad groupings of objectives. He set out four objectives which it was hoped would be achieved by the end of 1988. The first was in connection with standards.

Standards have been a real problem within the Community. The differing standards have acted as an obstacle to the free movement of goods. The attempt to bring about a total harmonisation of standards has been extremely difficult. The Commission has introduced what I believe to be a big move forward: it is the concept of mutual recognition of standards. That is that when a standard is agreed in a member country it should be accepted throughout the Community, it being agreed that the basis on which it is done will be a reasonable basis.

At the same time, one naturally hopes that some of the standards that we have established here will be accepted generally. I speak with some knowledge of this subject because I was president of the British Standards Institution. For example, there is a BS5750, which is the national standard laid down for quality management systems, and that has been a big breakthrough in Britain achieving a much improved approach to quality. We may be able to have that accepted generally. We must hope that this question of mutual standards will be adopted by the end of this year.

Secondly, the Commission is aiming for the opening up of public procurement. Obviously that cuts both ways. We would hope that our capital goods manufacturers in particular will win many more markets abroad but obviously it opens up the markets here. I have sufficient knowledge from my experience in one sector of industry in Britain to feel that we can stand up to that competition successfully and we ought to press for this opening up. Indeed, the noble Lord, Lord Beaverbrook, was kind enough to write to me the other day as a result of a supplementary question I put recently and he assured me that the Government are keen to secure this opening up of public procurement.

Thirdly, there is the question of professional qualifications. So far there has been a real impediment to people possessing professional qualifications in the UK, for example, accountants, doctors or whoever it might be, practising in the other countries. Again the Commission's proposal is that there should be mutual recognition and I believe that that would be a very big step forward.

The fourth point that the Commission wants to see introduced in this period is common directives on banking, on which details have recently been published, and the liberalisation of financial services, which of course is a matter of great interest to this country because of our expertise in that sector. Those are the four broad objectives which, as I understand it, the Commission would like to see introduced during the course of this year, and no doubt we shall hear later whether that is possible.

Next I should like to turn to the problems which we understand from reports in the press have been encountered by the British Government in their negotiations. These seem to cover two issues. First, there are certain aspects of the freedom of movement of individuals which appear to have raised difficulties, and it would be useful for us to hear about those. Secondly (and this has achieved much more public notice), there is the question of what is known as fiscal approximation. There are new phrases which emerge from time to time and this is one of them: fiscal approximation. It deals with the vexed question of VAT and, as I understand it, this could be a negotiable proposition. The lines are not drawn hard and fast but it would be useful to know where Her Majesty's Government stand in this matter.

Finally, I should like to turn to the awareness of British industry regarding this big opportunity. For the moment I regret to say that, as far as I can tell, it is fairly low. A comparison was made with French industry by the President of the CBI recently and he put the awareness of British enterprise at something like 5 per cent. compared with about 80 per cent. in France. I know that the noble Lord, Lord Young of Graffham, is leading a vigorous campaign to increase awareness. There is to be a meeting in London in April followed by regional meetings to bring this about. That perhaps is the most important issue of all.

What is the point in removing all these barriers if we are unable to take advantage of the resultant situation? Therefore, we have no time to lose and we must make it clear to industry that it must recognise that 1992 is something that exists on the calendar and there are only a limited number of years before we can prepare ourselves for taking advantage of this great open market—320 million people and £1,600 billion of combined GNP—which is opening up on our doorstep.

If we can combine pressing forward with the removal of the barriers and the awareness of British industry of the opportunities which this would present, this could be very much to our' ultimate advantage and to the ultimate advantage of Western Europe as a whole. The fact is that in spite of the existence of the EC for many years, a great deal of the technological advance in the world has occurred in other countries. It has occurred in other countries because they have combined their efforts, as in the United States, Japan and the various countries in the Pacific Basin. We now have an opportunity to combine our efforts effectively with our European partners. It is an opportunity we must seize. I hope that it is an opportunity in which Britain will lead the way. I beg to move for Papers.

6.5 p.m.

Lord Rees

My Lords, I hope I may begin by thanking the noble Lord, Lord Ezra, for his very kind references to myself. I also congratulate him not only for a singularly lucid, powerful and comprehensive speech but also for his impeccable sense of timing in introducing this debate in a week when Herr Pohl of the Bundesbank has issued, or perhaps reissued, a pressing invitation to this country to become a full member of the EMS, when our own governor of the Bank of England has stressed the need for convergence in banking regulations and when my noble friend Lord Young of Graffham has indicated his support for emphasis on the internal market during the German presidency of the EC.

I hope that the House will be indulgent to this my first intervention in its debates, particularly since it will inevitably cover ground that has been well tilled before. In particular, perhaps I may express my admiration for the work of the Select Committee and in particular for its 14th Report of the Session of 1984–85.

The deadline of 1992 approaches. Its realism has been doubted but certainly the work and enthusiasm of M. Delors and my noble friend Lord Cockfield must command recognition. Of course, progress has been made, and the United Kingdom Government have made a notable contribution in this field. Indeed, I hope I may recall that I played some modest part, when Minister for Trade, in the early internal market councils. It may be that we did not have a comprehensive agenda of 300 proposals, but at least we reinstated this critical question on the agenda of the Community. As the noble Lord has reminded the House, there are a wide range of matters to be addressed. Of the proposals of my noble friend Lord Cockfield more than half have been achieved, but I want tonight to concentrate on one sensitive area which promises exceptional difficulties: the field of fiscal harmonisation.

Every country is naturally jealous of its autonomy in this field. There are particular sensitivities, historical, social and economic. If we take the case of the UK in the field of VAT, its basic rate of 15 per cent. is comfortably in the middle of the European Community range. Our particular difficulties derive from the narrowness of the scope of our tax and from the zero rate. To extend VAT to, for example, food, children's clothes or even books must occasion keen debate and I am certain that your Lordships will wish to contribute to that debate. Powerful voices in the course of the last election and thereafter have indicated the position that the Government are likely to take up. Having had some hand in the 1984 Finance Bill, I know the sensitivities aroused by even a modest extension of VAT to take-away foods. I have debated keenly the impact of such a measure on the economy of Chinese take-away restaurants and the meaning of ambient temperatures in relation to food. I have felt the power of the publishing lobby in relation to any extension of VAT to books, magazines and newspapers of whatever merit. I have felt the scourge of the family lobby when any question of an extension to children's clothes has been mooted.

The conclusions which I offer the House are that, whatever the political sensitivities, the case for a wider base for our indirect taxation, particularly VAT, is structurally and economically sound. If the VAT and Excise duties were harmonised round a European norm, the Chancellor of the Exchequer would be likely to be slightly in credit. Under our parliamentary system special interest lobbies are enabled not only to be highly articulate but to mobilise, if momentarily, an often disproportionate amount of support.

The only possibility of advance in this field which I can see depends, therefore, on the construction of a package. A piecemeal advance will, I believe on past experience, be defeated piecemeal. I commend to the House the example of Senator Packwood's package of fiscal reform in the United States some two years ago. A well-balanced package can often balance gains and losses over the whole of our society. The social security system and, in particular for example, child benefits, could be invoked to cushion some of the consequences.

The administrative advantages of a single rate may have to be sacrificed and in more sensitive areas a lower rate or rates constructed. I believe that if the internal market is completed we are particularly well equipped as a country to take advantage of the opportunities offered, particularly, as the noble Lord, Lord Ezra, reminded us, in the field of financial services—specifically banking and insurance. I believe that these prizes are worth a greater measure of flexibility in the field of fiscal harmonisation than has yet been shown.

I conclude with a reference of no particular originality to another relevant factor in this field—full United Kingdom membership of the EMS. Since 1979 we have encountered practically every combination and permutation of fiscal and currency circumstance. We have had a pound weak against the United States dollar; we have had a pound strong against the United States dollar; we have had a pound weak against the deutschmark; we have a pound strengthening against the deutschmark.

The official answer—I admit to having given it myself several times from the Dispatch Box—that we will join the exchange rate mechanism at the appropriate time is, I believe, no longer a credible statement of government policy. I believe that present circumstances are not unfavourable to our responding to Herr PÖhl's invitation and joining the exchange rate mechanism.

Our economic base and our national self-confidence have immeasurably increased over that of a decade ago. I hope the Government will play a yet more central role in the affairs of the Community; not just in matters such as the budget of the common agricultural policy, critical though they may be, but positively in the advancement of the goals of the European Community and a move towards the free movement of goods, capital and labour which must contribute, I believe, to the political and economic health of this country.

6.14 p.m.

Lord Jay

My Lords, though I do not wholly agree with the noble Lord, Lord Rees, in all that he said this evening, I congratulate him all the more warmly because in another place I often enjoyed his financial expertise and, indeed, agility of mind. I hope they bloom merrily here too.

The noble Lord, Lord Ezra, has today painted a somewhat rosy picture of the proposed common internal market of the EC. However, though he spoke of facing realities he did not, if I may say so, face some of the less rosy realities in this prospect. Of course there are some special cases—the insurance and banking service is one he mentioned—where the present EC rules have certainly discriminated against Britain and ought to be amended. However, there is danger in believing that that is true also of manufactured goods generally where the picture to date and the prospect is much less rosy.

The noble Lord, Lord Ezra, spoke of this great market—was it 200 million, 300 million or 1,600 million people?—but we heard all those expressions many years ago and we were promised that if we joined this wonderful market our trade balance would greatly benefit. For a moment tonight we should look at what has actually happened in hard facts rather than ringed with those rosy hopes.

The hard facts are that as far as concerns manufacturing trade the removal of tariffs from our manufactured imports from the Continental EC simultaneously with the raising of food prices has pushed what was previously a small surplus in UK visible trade with the EC to such an extent that, despite invisible earnings on our balance of payments as a whole of about £7 million, last year the UK was in overall balance of payments deficit of nearly £3 billion.

The White Paper published by Mr. Heath's Government in July 1971, using very similar language to that used by the noble Lord, Lord Ezra, this afternoon, said that that Government were confident—"confident" was the word used—that if we entered the EC the effect on our trade balance would be positive and substantial. Those are the words used in paragraph 45 of the White Paper, Cmnd. 4715, and meant, if they meant anything, a large visible trade surplus.

Those of us at that time who believed that the removal of tariffs on manufactured imports and the forcing up of labour costs at the same time by artificially raising food prices must cause a deficit modestly estimated then that the future visible deficit would be about £250 million or perhaps £300 million. At current prices and current sterling that would be about £1.5 billion today compared with the small surplus that previously existed up to 1970. However, the actual UK deficit in manufactured goods with the rest of the EC in 1987 was £11 billion, so I am afraid that those of us who made those estimates must apologise for having been insufficiently pessimistic. It is that £11 billion deficit, partly offset by a surplus in trade with the rest of the world, which is now dragging our whole balance of payments steadily into deficit.

The course of this debacle has been that between 1973 and 1976 we removed tariffs and raised labour costs at the same time. We might with less damage have done one or the other but not, I regret, both. EC food prices which the UK consumer has to pay are now, at the wholesale level, 100 per cent., 200 per cent. or at times 300 per cent. above world prices for grain, dairy products and meat. This raises our retail food prices by about 25 per cent. above what they would otherwise be and increases the cost of living by a not negligible amount. That forces up the level of money incomes and industrial costs throughout the whole of our economy.

The most striking and revealing effect has been that on the British car industry. United Kingdom car output—and people sometimes forget this—was rising until 1972, with a record of 1.9 million vehicles in that year, so you cannot blame everything that has happened since that time on the alleged inefficiency of the industry; that did not start in 1972. However, from that year output fell year by year to under I million by 1984, when it was about half that figure. Imports rose from 15 per cent. of our market to about 58 per cent. Those are the cold facts of the story in the car industry.

From now on our oil earnings, which at the peak a few years ago eased our balance of payments by between £10 billion and £20 billion a year, will steadily fall. We now have to meet an overall visible deficit of £10 billion which is entirely due to our visible trade with the EC. Before we embrace those rosy hopes too easily, perhaps we should ask ourselves: what is going to cover this gap as the oil earnings decline? A more open internal EC market, on all the evidence so far, is likely to widen that gap rather than close it. We are told that invisible earnings will come to our rescue, but our invisible earnings are only running at approximately £7 million a year which is not even enough to cover the EC visible deficit.

Only the other day the Secretary of State for Trade and Industry boasted about our £130 billion or £140 billion of overseas investment, and said that that improvement would help. However, the income from that is apparently only £4 billion to £5 billion a year. I should be most grateful if the Minister who is to reply to the debate could say whether that is correct.

The only escape from this dilemma is to rid ourselves of the crippling burden which the common agricultural policy is now increasingly imposing on our living standards and labour costs. In my view it is a common external market that we need just as much as a common internal one. Otherwise we shall be faced with an almost insurmountable payments problem in the years ahead. Therefore, in conclusion I say that the only remedy would be either to deflate and raise our unemployment levels or to lower the exchange rate. I suggest that whatever .happens the most immediate, practical moral is that we should keep in our own hands such control as we still have over the sterling exchange rate.

6.23 p.m.

Lord Broadbridge

My Lords, to the idealist the European Economic Community is a most plausible concept as, indeed, is communism. But the reality of life is that someone would always want to be in charge to exercise control and to shape events for their particular interest.

The main difference between most nation states is how the people who are in charge came to be in charge. To generalise, it ranges from democracy to the machine gun. But, once in place, the fact is that they have it in common that they vigorously support causes—in generality, again—ranging from a perception of the professed good of their people to a totally selfish perception of their own good.

In advance of its formation, my main problem in contemplating the proposed European Community was that each nation state that joined would selfishly seek for its own perceived good and, without much qualm, abandon the concept of the unified community of principles and actions. In broad terms, my concern seems to have been borne out. For instance, the area which has generated most heat in recent years is the common agricultural policy. I truly believe that the French have repeatedly torpedoed many other countries' best efforts in support of advancing its peasant farming industry. However, the CAP is merely a detail, albeit a rather large one. If it is not accepted that the essence and purpose of forming a community was to effect a frontierless block of nations to counter the USA and the Far East, then I do not see any purpose in forming it in the first place; nor is there any benefit to be gained from an organisation that costs a mint of money to run.

But perhaps, to be realistic, one has also to be cynical. Undoubtedly there were votes to be gained by joining. A seductive prospectus can easily be put together showing how the enlarged market, thus created, can benefit, for example, our farmers, manufacturing industry, the professions and many others. So the story runs that your benevolent country's government is going to gain all these advantages for you by taking this great step forward. As with many idealistic proposals, it is only when confronted with the nitty-gritty of what he has taken on board that the patient begins to choke and say, "Oh well, striving for unity is all very well but this particular idea is ridiculous and goes against the basic traditions of a thousand years of history". That seems to be, in some measure, where we have arrived at now.

A major article entitled "A Europe Without Seams" in the Independent last Monday began: The European Commission Vice-President, Lord Cockfield, stands accused of plotting to destroy the British way of life. He is, according to Labour and some Conservative MPs a bureaucratic ogre who wishes to impose VAT on children's shoes. He is the dangerous visionary who plans to throw open Britain's frontiers to terrorists, rabid dogs, drug smugglers and foam-filled sofas". But, after three decades of its existence, all he is trying to do is achieve a frontierless Community by 1992. Perhaps his sin is putting a date on it. It is indeed far easier, and lucratively employs far more people, to travel hopefully than to arrive. For example, tomorrow I could give up smoking or drinking or lose weight. But to actually put a date on it and do it is often disagreeable. It is far easier to strive towards the light at the end of the tunnel than to arrive there. Simply by striving in Community affairs, those anxious for a change are pleased while the conservative traditionalists—and here I mean conservative with a small "c"—are not upset.

I am something of a believer in the biblical precept, that which thou do, do quickly". Lock Cockfield exemplified that precept. He was appointed in 1985 and in June of that year published a White Paper, already referred to by the noble Lord, Lord Ezra, listing 300 steps to what he called a "seamless" Community by the end of 1992, not simply diminishing internal barriers but removing them entirely. That action would stimulate trade and sharpen competition. A common policy of indirect taxation would be required to remove the need for tax checks at frontiers. There would need to be closer co-operation between security services, and common approaches to immigration, terrorism and drugs trafficking.

In truth, by his energy, Lord Cockfield has merely put teeth into what was surely implied by the Treaty of Rome and last year's Single European Act. The rather academic point has been raised that the Act was strongly politically binding but not perhaps legally enforceable. But, surely, having come all this way—the Community, as I have already said, is in its third decade—we should get on and do it quickly. I say "quickly" because affairs that drag on rapidly lose authority and commitment.

In Italy, France and Germany, procedure to a single market is seen as inevitable and irreversible. During its presidency of the EC Council of Ministers in 1986, this country was able to force the pace of innovation more than any other country had managed to date. Lord Cockfield is quoted in the aforementioned Independent newspaper article as saying that his critics claim that it is idealism for a Community totally without internal frontiers that is taking matters too far and forming a sticking point. He says that his opponents claim that 90 per cent. of the economic benefits of a single European market can be achieved by a concerted effort to simplify frontier controls and deal with hidden trade barriers and that to abolish frontiers completely will require a disproportionate amount of political energy and risk. He states that if you maintain the frontiers you perpetuate the unnecessary burden on business of delays and bureaucratic checks.

I believe that most important of all is the psychological aspect. Abolition of the "frontier mentality" would persuade industry to operate on a European basis; it is an argument accepted by many UK industrialists. It has helped to generate great enthusiasm on the Continent where surveys last year showed a big majority awareness of the proposals among businesses, while in the United Kingdom similar surveys showed widespread ignorance. However, I understand that the Government have plans, mentioned in greater detail earlier, for a business information campaign this spring on the opportunities provided by the unified market.

VAT and excise duties have been put forward as a stumbling block. But the principle of exemptions for countries in particular difficulty has been built into the plan. I should like to ask the Minister whether they are a major impediment. As we have already heard, member governments are already falling well behind the timetable laid out in 1985. That is surely the reason for the debate opened by the noble Lord, Lord Ezra, in which he called on us to move more rapidly.

The end of this year will be the halfway mark from 1985 to implementation by the end of 1992. This country has joined the Community, not only joined, but confirmed that decision in a referendum. Having gone that far, I believe that we should put all our efforts into trying for a unified market to make the Community work. EC overheads are enormous. Let us try to reap the benefits.

I have already quoted from the Bible, that which thou do, do quickly". Although a thoroughly multi-racial society now, let us all follow that excellent biblical precept.

6.32 p.m.

Baroness Elles

My Lords, I should like to thank the noble Lord, Lord Ezra, for putting his pertinent question to the Minister. I hope that we shall hear an equally pertinent reply. I should also like to express my warm thanks to the noble Lord, Lord Young of Graffham, who is not here but who has made a great many statements about the formation of an internal market and has begun a campaign to raise awareness of this matter among this country's business community.

Some figures for awareness in other countries have been given. A figure that was quoted in a newspaper today brings the argument closer to home. It stated that 87 per cent. of French companies were already including within their forward planning the position as it is hoped to be by the end of 1992. That is surely a graphic warning for us, if nothing else is. Although I could not follow the opening sentences of the noble Lord, Lord Broadbridge, I entirely agreed with him when he said, effectively, "Hurry up and get on with it"

Those of us who have to deal with some of the problems that arise from the fact that we do not have an internal market should draw attention to them. First, the noble Lord, Lord Ezra, was right: the Single European Act is a legally binding treaty. The one policy to which all member states agreed when they signed that Act was the formation of the internal market. Of course, as a lawyer I turned to the end of the book, where it says that the date of 31st December 1992 does not legally bind anyone. That was to be expected. Nevertheless, it was an objective which member states agreed to aim for.

The noble Lord, Lord Ezra, asked the Government to take all possible steps, when opinion from the Parliament and draft proposals from the Commission come to the Council, to ensure that the British Government take the lead in seeing that the proposals are adopted as quickly as possible.

I welcomed the speech made by my noble friend Lord Rees. It was enchanting to hear him recant the words he so often used from the Treasury Box in another place and to know that this noble House can effect such a rapid transformation as regards what for many of us is an essential policy for the good of the United Kingdom's economy; that is, joining the European monetary system. It is a great joy to know that we shall no longer hear such words from my noble friend.

It is worth thinking for a few minutes about VAT. It has caused a great deal of confusion and alarm. I shall put just two or three points to your Lordships' House. First, immense difficulties and hold-ups are caused by different rates of VAT when business people are trading with other countries. My noble friend Lord Bethell and myself, and I am sure other MEPs, continually receive complaints from businessmen about the difficulties they have when grasping this nettle. That is to say nothing of complaints from people who travel to the Continent with the tools of their trade or equipment. They are held up at Calais or on the Belgian frontier. They ring up and say, "For goodness sake, help me because my Toshiba computer has been confiscated by the Customs and I have had to pay a fine." That is because the VAT base and rate are different. I could quote many cases. I am sure other Members of your Lordships' House who are interested in such work could also do so.

Thirdly, this country's drink trade suffers from different rates of excise. Drinks form a large part of our exports. Companies are put at a major disadvantage in many EC countries because of the lower rates of excise on some types of alcohol due to the way alcoholic strength is calculated.

For all those reasons, it would be beneficial to have a reasonable approach. The rates need not be identical. That was never the proposal put forward by the noble Lord, Lord Cockfield. There should be a rate band with a variation of 5 per cent.

Some leading articles have appeared recently which have confirmed what my noble friend Lord Rees has said—that there could be a broad package which includes widening the VAT base. At the moment, I think we have the lowest base in the Community. It is about 40 per cent. It is suggested that we should take on board a lower rate. At the moment 15 per cent. VAT is paid on pet food, which makes up 6 per cent. of all grocery purchases. If the rate where brought down to 4 per cent. it would make an enormous difference to the small purchaser who goes to an ordinary store. The price of drink would also come down. As my noble friend said, one would have to take into account at the same time those people on family credit (or whatever the new form of supplementary benefit is) or old age pension so that people at that income level could be compensated, possibly by lower income tax thresholds and other income tax packages. That would make sense, because we should be able to spend what we have in our pockets.

I understand from a recent study by the Institute of Fiscal Studies that the benefit of exemption or zero rating goes to 63 per cent. of the population which has above average incomes. It would make sense to some extent to put a low rate of VAT, possibly 3 per cent. or 4 per cent. on food and widen the VAT base. That would of course bring down VAT on those elements of food on which we are already paying 15 per cent. Those proposals would have to be studied. They would need what I would call a multi-departmental study. The DHSS, the DTI and the Treasury would look together at models which would specify the various criteria to be met so as to make the idea sensible.

It always amazes me when I come back from Calais to see the thousands of British people at Dover who cross cheerfully from Dover to Calais to buy French food in French shops, on all of which of course there is VAT of at least 5.5 per cent. Regrettably, I never see people coming from France to England to buy food which does not bear VAT. One must wonder what justification there is for not putting VAT on food. If it were to happen, and if there were any change in the weekly expenditure of those people on supplementary benefit, old age pension or child benefit, it would be essential that these benefits should all be raised in line with what would be the calculated increase in the price of food caused by VAT.

The noble Lord, Lord Ezra, raised the question of recognition of diplomas and professions. I should like to put in a plea on behalf of students. We in this country are suffering very greatly from skill shortages, as are other countries. Yet we have the opportunity to send our students abroad to take part in training courses in high technology which would be immensely valuable to them. However, until the universities and polytechnics recognise that six months in a college abroad can be counted into the time that students have spent on their course it will remain impossible to say to a student, "Go and spend six months in France. Learn French. You will have an opportunity to learn this or that subject". They subtract that six-month period from the total spent at the polytechnic. It is absolutley essential that this should be considered as quickly as possible. Perhaps we could then revert back to the Middle Ages, when this nonsense did not exist. Such a change would be of great benefit to the student population in this country as well as to those who wish to come to this country to take up vacant places in polytechnics. We have vacant places in polytechnics, yet the same problem applies to them.

Finally, perhaps I may refer to points raised by the noble Lord, Lord Jay, on manufactured goods. Fifty per cent. of all our exports go to the EC. If we did not have the European Community as a place to which to sell our exports we should be very much worse off than we are. Regrettably one has to remember the period 1974–79, when taxes and increases in prices had an effect on our industries and manufacturing goods.

In conclusion I should very much like to support the Motion put to the Government and to recognise that fiscal, technical and other barriers to trade have been enormously costly to this country. The sooner they are removed the better.

6.42 p.m.

Lord Parry

My Lords, I thank the noble Lord, Lord Ezra, and congratulate my noble countryman, Lord Rees, on his splendid maiden speech. I would have paid a glowing tribute to the noble Baroness, Lady Elles, on her determination in Europe if she had not taken two minutes of my time.

I rise as prejudiced a witness as is the noble Baroness. At the time of Britain's entry into the Common Market I was a dedicated, even fierce, opponent of our entry both at that time and on those terms. I have seen no reason in the last few years to change my mind substantially. My reason at that time—and it was a major one—was that when one goes into a system that is incompletely organised one probably has an extended opportunity to contribute to that body, but the way out is very difficult indeed. My fellow countryman, Aneurin Bevan, made a whimsical and typical response to the argument that going into a wider market of 320 million people would necessarily solve the difficulties of the British economy when he said that one does not tame the forces in the jungle by planting more trees.

The Common Market was then, and is today, a chaos of competing national interests. We cannot gainsay the fact that we ourselves—for example, in our recent debate on the fishing industry quotas—represent our own interests when we come to argue about what position we should take within Europe. Even when I was opposing entry I was schooled in doing so by the fact that I grew up in a western extremity of these small islands. The imbalances that occur within a small nation such as Great Britain, and within the nations that make up the United Kingdom, taught me that unemployment in those circumstances becomes endemic in a system that leaves the extremities exposed to the better concentrated interests of the communities that naturally attract development. In that sense I could not see that we as a nation were going to improve our chances in the immediate five-year period simply by going into a Common Market in which our influence was already eroded by the fact that we had been late in entering.

It would be quite wrong for anyone to assume that there is a consensus in Britain at this hour to our remaining a member of the Common Market. There is not. If many British people could see a way out and could have leadership to lead them out, they would follow that leadership. Many of them are not convinced that there have been great advantages to Britain in our membership.

There are disadvantages in our membership. I shall give one or two examples. However, before I do so, in order that I shall not be accused of going overboard on this issue—which I am inclined to do—let me read out what advantages there have been, for example, for Wales. I speak often about Wales and make no apology for doing so.

On 27th March 1987 in another place Dr. Marek, a political friend of mine, asked the then Secretary of State for Wales, another friend of mine, Mr. Nicholas Edwards, now the noble Lord, Lord Crickhowell, what financial advantages accrued to Wales from membership. The then Mr. Edwards answered—and I repeat it now—that the European Regional Development Fund quota had begun in 1975 with a £6.2 million allocation to Wales, which had risen by 1986 to a £59.5 million, and to a total of £387 million. If I were to take the European Regional Development Fund non quota, the amount had risen by that year to £19.1 million in total. The European Coal and Steel Community—in which my good friend, the noble Lord, Lord Ezra, the generator of this debate, had such a large part to play—up until 1985 had made a contribution of £405 million. The figures were not available for the two subsequent years.

I shall not go into all those sections; time does not allow. However, it is a very subtantial financial contribution to changing the nature of the British economy and one which compensates for some of the imbalances that I outlined at the beginning. But at what cost? As my noble friend Lord Jay has said today, and for 30 years, against that contribution has to be offset the very high tariff per head of the British population—the population per head of Wales, Scotland, England and Northern Ireland—for membership.

Having given those figures let me return to my own script, as it were. In the advantages that I have listed—and I do this very carefully—one great advantage to accrue to Wales has been this European investment to make up for the deficiencies in the old coal-based heavy industrial economy that was so clearly and historically running down. There has been an additional advantage. In that regard I must pay tribute to successive Secretaries of State and to at least two political parties in office. There has been a determined attempt to woo inward investment into Wales from sources outside Europe. The notable success of the Welsh economy in attracting the Japanese is a very important matter.

On the disadvantages, my noble friend Lord Broadbridge mentioned the common agricultural policy and the damage done to indigenous agriculture by our mandatory funding of less efficient foreign farmers and by the regressive and nationalistic attitudes, again of the French.

This very day the national newspaper of Wales, Papur Genedlaethol Cymru (the Western Mail), said this: Welsh farmers' leaders hailed last night a victory in the long-running Anglo-French sheep war". I shall not read the whole article. British farmers had complained it was an artificial tax aimed solely at limiting their exports to France"— the national interest. The NFU, together with the meat trade, took this to the European Court and we are delighted we have been proved right", said Mr. Maurice Trumper. It will help the export of mutton-ewe meat to the Continent. It's good news for the abattoirs and good news for the farmers", and of course it is also good news for Wales. There have been obstacles put in the way of exporting our sheep meat and we produce more than we can eat, so anything that eases the problem of selling it would be welcomed". In West Wales, as in the whole of Britain, the quotas imposed on milk farmers have forced some of the best of them from their land. Land values have halved; units and herds built up over generations have come under the hammer and once-wealthy farmers have been bankrupted. There is the retraction of the industrial base, the degradation of communities based on coal, the decline of deep-sea and middle distance fishing. None of this has been more than peripherally improved by our membership of the Common Market.

The noble Baroness, Lady Elles, said that the French do not come to Britain. That is quite wrong. A major part of the economy of tourism is based on the fact that from time to time when the pound is in the right kind of balance with other currencies a great deal of money is spent in this country by people coming from Europe.

I sit down after eight minutes with an hour and a half left to expound.

6.50 p.m.

Lord Bethell

I should like to join with other noble Lords who congratulated the noble Lord, Lord Ezra, on introducing the debate at a timely moment when the Government and Members of your Lordships' House are right to concentrate on the whole question of the internal market and particularly on the issue of fiscal approximation tabled by the Commission in August last year which has been the subject of so much misrepresentation in the media in recent weeks. I congratulate my noble friend Lord Rees also on a most charming maiden speech, in particular the way in which he described in modest and engaging terms his path along the road to Damascus on the vexed question of the exchange rate of the European monetary system, Like my noble friend Lady Elles, I welcome him to those who have taken the more European line on this point.

It is disappointing to find noble Lords opposite in essence making the same speeches as I remember hearing or reading in 1972, or indeed in some cases last year when we were debating the Single European Act, making our flesh creep with all kinds of dire prognostications of what will happen if the horrible foreigner is allowed to come within our shores and sell his goods and peddle his wicked ways. Do we really find that Britain has suffered the invasion predicted by noble Lords opposite and some of their friends in 1972? I look forward to the speech by the noble Lord, Lord Williams of Elvel, who I trust will take the far more reasonable line approved in recent months by the Leader of the Labour Party, which is totally at variance with that apparently supported by some of his noble friends.

The noble Lord, Lord Ezra, was right to point out the heavy burden that we bear through not properly moving forward towards a true common market. We decided 15 years ago to join this organisation. Surely we must once and for all decide that we are going to make the best of it and make it work 100 per cent. in the interests of the British people. It is not enough every time some little step is taken—even a petit pas, as M. Monnet said—to come up with the same objections that were adduced 10 or 15 years ago. The decision has been made. I wish that Members of your Lordships' House would accept it and co-operate in a positive way towards making the whole thing work better rather than complaining that it does not work as well as it should.

I think we must bear in mind the cost of non-Europe; the cost of all the Customs barriers, the paperwork, the 38 documents that a truck driver has to fill in before he is allowed to proceed across a frontier, the hours, sometimes the days, that the driver and his goods are kept waiting at frontiers adds billions of pounds on to the burden borne by the British consumer. It is estimated by the group that represents consumers, the Kangaroo Group, that barriers of this nature add 8p in the pound to the cost of goods imported into this country.

However, as the noble Lord, Lord Ezra, pointed out, what really counts is the bigger market that will be created once these measures are passed and the progress that British manufacturers will be able to make in the production of steel, aircraft, computers and space programmes. In these areas it is impossible for a country of our medium size to work without a big market and without the help in research and development that we would have if we had a true co-operation with the other 11 countries, not to mention insurance, banking, mortgages and other areas where Britain is supreme and where even the noble Lord, Lord Jay, agreed there would be some advantages.

I invite my noble friend Lord Beaverbrook to clarify as much as he can certain points on the Cockfield White Paper. I know that it is early days and that the paper has been tabled for only six months. Sometimes proposals from the Commission take years in gestation both in the European Parliament and in the Council working party. It would be very helpful to some of us to have an indication at this stage of government thinking on the proposals put forward by my noble friend Lord Cockfield. It is a pity that he is not allowed to attend to explain himself, but those are the rules.

A proposal that food, children's clothes, fuel, electricity, gas and books should be subject to value added tax, whereas excise duties on alcohol, cigarettes and mineral oils should be done away with or replaced by the standard value added tax rate, cannot be presented to the British people with any great ease. There is of course the fact that the Government in their election manifesto pledged that in this Parliament value added tax would not be imposed on food, children's clothes or fuel. Does my noble friend feel able to confirm that that pledge still stands and that in this Parliament at least those items will not bear value added tax at any rate whatsoever? This would be a welcome reassurance if he feels able to give it.

As for other items, will my noble friend let us know, if he can do so, that we are not in any way ready at this stage to accept the two bands put forward by the Commission? There may be something to be said for two bands, 4 to 9 per cent. in the lower level and 14 to 20 per cent. in the higher level, but this is surely only a suggestion. I hope that the Government will be able to indicate that they have not yet accepted it. We in the European Parliament certainly have not. Many of us believe that a band from zero to six would be more appropriate. Can he also clarify if possible the question of value added tax on travel, particularly in the light of an article in The Times of 30th January, which said: Eurotax may put 15 per cent. on airline fares". My understanding is that there is no question of 15 per cent. being put on airline fares. I should be grateful for my noble friend's clarification.

In other respects I much agree with the sentiments expressed by the mover of the Motion. It will indeed help to bring about a true common market from which the people of this country will benefit tremendously.

6.59 p.m.

Lord Banks

My Lords, I think that it is generally agreed that my noble friend Lord Ezra has provided a most valuable service by raising this important matter tonight. In common with my noble friends on these Benches I look forward to the completion of the internal market by 1992 in the belief that it will bring benefits to the Community as a whole and to our own country, particularly in respect of financial services.

I often disagreed with the noble Lord, Lord Cockfield, when he was a Minister in this House. We had some friendly argument about social security, but I congratulate him most warmly on the initiative which he has taken in this matter and on the determination with which he is seeking to carry it through. Like my noble friend, I regret the delays in achieving our targets. I regret that we are behind target and I hope that the operation of the Single European Act will facilitate quicker action by the council.

However, it is widely recognised that the completion of the market, desirable as it is, will tend to accentuate the divergencies among the different member states and among the different regions within the Community. Therefore, I believe that a substantial increase in the structural funds to help correct those divergencies is essential.

The Select Committee of this House on the European Communities in its report on financing the Community, which was published last July, warned that the poorer member states may not consent to completion unless there is such a substantial increase in the structural funds. It went on to say: In view of the vital importance of the completion of the internal market for the Community and the benefits which will undoubtedly accrue to all member states, the Committee recommend that HM Government agree to such an increase in stuctural funds as will help to secure this objective". It went on to say that an improvement was needed in the management of the funds and in their targeting.

I understand that that is something which the Commission now has in hand.

The Commission has proposed that the structural funds should be doubled in size. I believe that the British Government consider that that is excessive. I am wondering whether the noble Lord who is to reply can give us any indication of the degree to which the Government would be prepared to support an increase in the structural funds. For example, would they agree to a 50 per cent. increase? Do the Government recognise the need? The disparities among the Community's regions are getting wider, not narrower. Twenty per cent. of the European Community's 320 million population have a gross domestic product per head of less than three-quarters of the Community's average. Gross domestic product per head is below average in well over half the European Community's regions.

The Commission has also proposed that grants from the European Regional Development Fund, which is one of the structural funds, one which takes 9 per cent. of the Community budget—a budget incidentally which is less than 1 per cent. of the gross domestic product of the Community—to areas of industrial decline should be reduced from 30 per cent. to 20 per cent. of the total and that grants to underdeveloped areas should be increased from 70 per cent. to 80 per cent. I understand that that principle has been approved by the European Parliament.

That would hit the United Kingdom unless total funds increase. William Dawkins, writing in the Financial Times last Thursday, pointed out that it was ironic that if the Commission's proposals are adopted the United Kingdom has a vested interest in an increase in structural funds; yet the United Kingdom Government are seeking to scale back the Commission's proposal to double those funds.

The purpose of my brief intervention in this debate is to emphasise to the House that the completion of the internal market, which most of us believe will be to the benefit of this country, makes an increase in structural funds essential in order to help remove disparities, to maintain the United Kingdom's share in the structural funds and to secure the full co-operation of the poorer countries for the completion of the internal market by 1992. I hope that the Government will recognise that.

7.6 p.m.

Earl Cowley

My Lords, I should like to join others in the House in congratulating the noble Lord, Lord Ezra, on bringing this important issue to the attention of the House and giving us an opportunity to debate it tonight. I should also like to congratulate my noble friend Lord Rees on an excellent, well-informed speech. We look forward to hearing many more in the future.

The long overdue realisation of a common EC internal market envisaged in the Treaty of Rome over 30 years ago is now in sight. At last EC citizens have reason for enthusiastic anticipation, tinged with regret and frustration that the process has taken so long. The bringing together of the world's largest trading bloc represents a momentous undertaking, an undertaking with a promise of attaining the economic power and efficiency to compete both within the EC and in the world's market on an equal footing with the United States and Japan.

On the basis of integration accomplished to date EC members already conduct 50 per cent. of their trade internally. To the extent that that proportion can be increased and market share gained in the rest of the world, a large proportion of the EC 16 million unemployed have the prospect of employment. As in all peaceful evolutionary but also revolutionary change, the politics of implementing economic and political integration in the culturally diverse and nationalistic mosaic of the EC slowed progress to a snail's pace prior to 1985. However, progress has quickened dramatically over the past two years under the leadership of Mr. Delors and the work of the noble Lord, Lord Cockfield.

The passage of the Single European Act in 1986 embodied the concept of majority voting, partially widening democracy from a national to a Community level, and permitting agreement where previously special interests had been able to prevail over consideration of wider Community benefit. The second major revolution has been the acceptance that the laws of any one member state, if properly constructed and constituted according to accepted principles of consumer protection, will be accepted by the Community as a whole. This avoids bickering on thousands of minor technical details and has permitted major initiatives which had previously been impossible.

Thirdly, the setting of the 1992 deadline finally to harmonise the internal market has established a definitive goal and permitted an organised approach to its attainment, with an appropriate sense of urgency which had previously been lacking. The urgency is fully justified. Until now American companies, with their large unified home market and greater capital resources, have been able to compete across the EC more advantageously than their European counterparts. By 1992 integration will in large measure help right the balance although there will still be a long way to go.

All these factors make valid the case of the noble Lord, Lord Ezra, for more rapid progress to completion of the internal market. In the event, the 1992 timetable has been jeopardised by delay in several respects. The first is the delay until last July in the member governments' ratification of the Single European Act and in the adoption of executive powers as provided for in the Act by the European Commission. As a result, the process is behind schedule.

Of the 300 directives required to implement the internal market, 80 had been adopted by the Council as at the end of 1987, and another 50 are expected to be adopted by the end of this year. This would leave about 170 directives to be published and enacted after 1988. Once enacted by the Council, they must be implemented by national governments. Included are many contentious issues outside the internal market, including the common agricultural policy and the budget. As a result, meeting the 1992 schedule, let alone speeding up the process, appears to be very difficult, however commendable.

Nevertheless the realisation that integration will in fact occur in the early 1990s has created considerable commercial momentum, either in anticipation of future directives or in reaction to those already adopted. In two areas of which I have some knowledge and experience—investment funds or unit trusts and insurance—European firms are developing and implementing business strategies designed to position themselves for the integrated market. Both are businesses in which Britain has considerable expertise and a competitive advantage and in which firms with the foresight, resources, mettle and initiative to take action early should benefit substantially from the larger, albeit more competitive, EC market.

Non-believers in my opinion will tend to suffer at best a loss of opportunity and at worst a loss of competitive position and relegation to diminishing local markets. In that connection, the noble Lord, Lord Ezra, mentioned the surprising lack of awareness. I found that awareness in Britain in both those industries. I wonder whether my noble friend Lord Beaverbrook could comment on anything that the Government might be able to do to increase awareness because competition will become extremely intense. However, we have the opportunity to take advantage of it if we are ready.

The currently fragmented EC investment fund market is scheduled to be harmonised in October 1989, based on the implementation of the collective investment for transferable securities or UCITS direction adopted in 1985. Simply, the directive provides that an investment fund registered under the laws of any EC jurisdiction which has previously adopted UCITS guidelines can be marketed in all EC member states subject only to local marketing laws. Britain, with the Finance Act 1985, was the first EC government to adopt UCITS legislation. The second will be Luxembourg which is scheduled to complete its legislative process this summer.

Luxembourg, with flexible and uncomplicated regulations, is likely to be the primary pan-European investment fund registration jurisdiction and is already benefiting from the influx of fund registrations directly related to harmonisation. There are approximately 150 UCITS funds either in registration or awaiting clearance in Luxembourg with the number expected to expand strongly after the Luxembourg law is adopted. These funds started to be registered early last year; for comparison, there are slightly over 1,000 unit trusts registered in this country.

The Department of Trade and Industry has said that Luxembourg funds will be eligible for sale in the UK as soon as the duchy adopts UCITS legislation and well before the 1989 date established for UCITS implementation throughout the EC. Other European governments have indicated that they will permit proper UCITS funds to be distributed in their countries as well.

I cite that history as an indication of the momentum towards unification. All that seems to be needed is the publication of a suitable directive and the required legislation. Then the commercial entities, or at least those with foresight, will be in a position to take advantage of that unification as rapidly as possible.

With regard to insurance, the harmonisation is on a long timetable. It has resulted in a number of acquisitions. In October, Compagnie Du Midi purchased Equity and Law and Allianz the largest German insurance company, has purchased Italy's third largest insurance company and a very large French company. Those acquisitions represent the wave of the future, not only in insurance but across the scope of commercial activity. The next 20 years will witness major mergers and acquisition activity as companies enter markets which they could not enter by more direct means.

In conclusion, I wish again to thank the noble Lord, Lord Ezra, for introducing this timely debate. The issues are large and it is incumbent on the Government to use their considerable influence to accomplish the internal market as rapidly as possible. We in Britain can only benefit.

7.15 p.m.

Lord Carter

My Lords, may I begin by joining other noble Lords in thanking the noble Lord, Lord Ezra, for putting down this Motion to enable a debate to take place on this extremely important topic. A number of noble Lords have referred to the common agricultural policy. I wish to deal very briefly with the agricultural implications of the proposals for a common internal market and then perhaps to spend a few moments on the wider lessons which might be learnt from the agricultural experience.

I must say a few words at the beginning regarding the complicated subject of the green pound and the monetary compensatory amounts. As your Lordships will know, at the heart of the common agricultural policy is the principle of common support prices. But if there were no mechanism to restrict the effects on prices of the day-to-day variations in national currencies, the upsets in the market would he considerable. Therefore, there is a complicated system of green currencies which are designed to even out those fluctuations. There are no fewer than five green pound rates from different sectors of the agricultural industry in this country.

The basis of the common agricultural policy is that intra-Community trade should take place without any barriers between farmers. But obviously, a farmer will be able to export from a country with a weak currency to a country with a stronger currency because the intervention prices in the second country will be higher. Therefore the system of the monetary compensatory amounts, which in effect is a tax paid at the border to even out fluctuations, has been set up. I am having to go extremely quickly over a very complicated subject because I have received a note from the Front Bench to speed up. The noble Lord, Lord Williams of Elvel, is shaking his head. I am sure that he understands the green pound and the MCAs much better than I do.

One of the major implications of all this is that MCAs can be applied only in a way which acts as a barrier to free trade. Therefore, the Community is committed to removing all MCAs in four years' time at the latest so as to comply with the Single European Act. if MCAs are abolished, this will have a substantial effect on agricultural and food prices in this country. If the pound is weak in 1992 compared with the currencies of the other member states, then agricultural products would flow into the member countries with the stronger currencies. Without the green pound adjustment to stop that, the inexorable conclusion is that we would have to join the EMS if the agricultural support system were to survive.

It is just not possible to abolish the green currencies and the MCA system unless the market rates of currencies are kept in a very closely controlled relationship, namely the EMS. I ask the Minister when he replies to comment on that and to say whether he agrees with it.

The other major area where there is concern in agriculture over the effect of the common internal market is the long-standing attempt by the Community to harmonise animal and plant health standards and procedures across the Community. The Single European Act would allow for decisions to be made by a qualified majority and with more influence in the hands of the European Parliament than is presently the case under Article 100 of the Treaty of Rome whereby everything has to be agreed unanimously.

The harmonisation of animal and plant health regulations should take place at the highest standard, I think we would all agree, in order to protect the United Kingdom's plant and animal health. Of course we have the enormous benefit of being an island in that respect. The harmonisation of plant health is, I believe, on schedule, but the timetable for animal health harmonisation has fallen behind. Will the Minister assure the House that the necessary derogations from the EC regulations will be applied for and allowed if animal and plant health in the UK is threatened by the imposition of the common internal market?

I turn to wider issues. Perhaps other industries can learn from the agricultural experience. Despite 30 years of trying to create a common internal market in agricultural goods, mentioned by the noble Lord, Lord Ezra, there has not been a common internal market and the CAP, with the whole of the paraphernalia of the green currencies and the MCAs, has been expressly designed to prevent this. The reason is simple. Every time the implementation of the CAP in a member country has affected the voters, be they farmers or consumers, that member country has made internal adjustments and cushioned the blow. What will happen here when the common internal market starts to hit certain industries, particulary if they are heavily represented in marginal constituencies? What happened in agriculture? Member countries adjusted the social security taxes for farmers and the way they collected VAT from farmers. There was the border overtime tax imposed in Italy to stop the import of foods and all the rest of the adjustments that were made to prevent the CAP from hitting the voter.

My conclusion is that just as membership of the EMS is essential if the system of agricultural support is to survive in Europe, so harmonisation of indirect taxes and social security taxes will be essential if the common internal market is to work. At the moment there is increasing interest in the idea of repatriation of agricultural policies to bring them back to member states as a way of solving the problems of the CAP. It would be the final irony if the problems of the CAP were finally dealt with by repatriating agricultural policies to member states while at the same time the common internal market in industrial goods and services was being born, no doubt to be repatriated in turn when it was found to be unworkable.

7.23 p.m.

The Earl of Stockton

My Lords, a number of noble Lords have raised the question of fiscal approximation and I must declare an interest. As a publisher of books, magazines and journals, I am one of that happy band who so far have enjoyed the approbation of my right honourable friend in another place, the Chancellor of the Exchequer, and who so far have escaped the imposition of VAT by Her Majesty's Customs and Excise. I hope that in replying to the debate my noble friend Lord Beaverbrook will be able to firm up the assurances he gave the book trade that there are no plans at the moment to bring books, magazines and newspapers within the net of VAT. Surely with a surplus estimated at between £5 billion and £11 billion, this is not the moment to change.

As many of your Lordships may know, I have the honour to assist the noble Baroness, Lady David, in organising the campaign to ensure that the completion of the internal market does not involve the imposition of a tax on knowledge, which would be the effect of levying VAT on the printed word.

It is perhaps solely on that one point that any words of praise I may have for the otherwise admirable maiden speech by my noble friend Lord Rees may have a hollow ring. During an earlier campaign against the possibility of VAT being imposed on published material, the noble Lord was Chief Secretary to the Treasury in another place. I take this opportunity of asking his forgiveness. I believe that my mobilisation of the energetic and prolix literary community produced such a wealth of correspondence that the Treasury word processors overheated. I hope that the noble Lord will accept my apology as a manifestation of my sincerest congratulations on his speech.

As a member of the Periodical Publishers Association, I have to say that in the case of some magazines I find the cultural argument for keeping books and magazines without the taxation ambit hard to support. The problem is that if we try to draw a line between the culturally desirable, the culturally acceptable and the culturally undesirable, we find ourselves in danger of treading into the minefield of censorship which we ventured into earlier in the week. Cultural desirability, like social acceptability and beauty, is, I suspect, in the eye of the beholder.

The same problem goes for educational content. For intellectual and professional persons such as noble Lords opposite, Ladybird books may not be very educational. For a mere tradesman such as myself, I have to say that I have learnt a great deal from them.

My concern is about tax approximation centred on the notion that it is a sine qua non for the completion of the internal market. Does not the United States of America have a single market within which each state is free to set its own sales tax and excise duties? Agreement on common standards and simplification or elimination of Customs paperwork would do far more to facilitate (not to mention speed up) the free movement of goods, services and people between Community members.

I remind your Lordships that while the European Commission has argued that a zero-rate of VAT disrupts competition between member states, it conveniently ignores the wide range of differing provisions inside the Community to support book, magazine and newspaper publishing by various systems of subsidy or tax relief. Subsidy implies choice. In the area of publication, choice is again dangerously close to censorship. I hope that my noble friend the Minister can see that while he might be happy to offer a subsidy for Yachting World or Fast Car, others might find putative rejection of such a similar subsidy for the Lancet or Nursing Times less felicitous, especially if such journals might at that time be taking one or more of his ministerial colleagues to task.

The answer to all those problems, as raised by the noble Lord, Lord Bethell, is within the Minister's grasp. All he and the Government have to do is amend the proposed lower band of VAT rates to include zero-rating. That way the British Government could maintain their proud tradition of refusing to tax knowledge, and still find themselves in harmony—or approximately so—with the Commission in Brussels.

Such a policy would commend itself also to the electorate, for as noble Lords on the Alliance Benches will certainly recall, the announcement of a proposal to put VAT on essentials was very badly received both by the rank and file of the two parties concerned and by the public at large. I therefore commend that course to the Minister.

The Earl of Buckinghamshire

My Lords, before making what will be a modest contribution to the debate, I have three tasks to perform. First, I should like to thank the noble Lord, Lord Ezra, for initiating this important debate, which will be well read in Europe and the United Kingdom. Secondly, I congratulate my noble friend Lord Rees on his maiden speech; it is a great relief when it is done and we bid him welcome. Thirdly, I must declare an interest. I am a director of a financial services company that is at the forefront of the expansion into Europe and intends to take full advantage of the liberalisation of the internal market.

As your Lordships may have guessed, I shall be concentrating in my speech on the third part of the 1992 package—the liberalisation of financial services within the Community. It is an initiative in which we in the United Kingdom can play a full and constructive part. I am not speaking of the controversial fiscal proposals which have come to public attention recently, but rather of the technical proposals which will enable our banks, stockbrokers and insurance industry to operate in a market of some 320 million people as easily as they do in the United Kingdom.

We in the United Kingdom have a considerable history of financial management. We have developed an expertise in international dealings which is the envy of many of our European counterparts. I have no doubt that we shall take full advantage of those large markets on our doorstep.

The negotiation and approval of the Single European Act gave a new impetus to the freeing of the internal markets in financial services. The Treaty of Rome has now been amended to strengthen its provision on the free movement of capital, which has been very important in that area. However, it is an important point that not all member states are as well placed as we in the UK to benefit from those moves. We must be aware that there are many structural and technical difficulties for some member states which make them more vulnerable and cautious about radical changes in those fields.

Developments such as the Second Banking Directive which was published last month and the Transferable Securities Directive, published in 1985, have been critical in providing the financial framework enabling goods, services and people to move freely throughout Europe, living, working and travelling without hindrance. However, it must be acknowledged that such a freeing-up of financial markets exposes the private investor to unknown risks. In parallel with the freeing of the market, we must ensure that adequate controls are built in to protect investors and investments alike. The Commission has recognised the importance of that and has pointed out that unrestricted capital movements, combined with the emancipation of financial services, will enable banks and savings institutions to offer their expertise and advertise their services to savers and depositors throughout the Community. However, it maintains that it is important that this takes place in a framework which allows a satisfactory level of protection—whatever that may mean—for both savers and depositors, provides for equal conditions of competition, and ensures the solvency and stability of banks and other institutions.

As we are all well aware, the UK Government have been very vigilant on this front, having spent much energy on the Financial Services Act to ensure that the self-regulatory bodies that have been established have rules for investor protection. This country is well placed to demand a high standard from the EC proposals in this field—many EC member states are far behind us and have some way to go—and our own institutions should not be placed at a competitive disadvantage compared with their European counterparts. This has particular relevance to the Commission's proposals for harmonised solvency margins and harmonised definitions of capital which are to be published shortly.

The freeing of the internal markets is not just another piece of legislation—I hesitate to say boring legislation. It is very important legislation that is coming out of Brussels and there are important implications to be grasped. Among many, there are three that I wish to bring to the attention of the House. First, I believe that, unlike the financial centres and institutions, there is a serious risk that UK manufacturers will be unprepared for 1992 compared with our Continental partners. We have heard this evening about the strategic work done in France particularly and in Germany in preparation for the relaxing of the internal market. If we speed up the whole initiative, do we run the danger of increasing the possible unpreparedness of our manufacturing industry? That, clearly, is a rhetorical question and maybe the answer is, "Too bad—they simply have to get on with it". It is a fact that 1992 will see the relaxation of the internal markets and if we are to survive we had better do our best to compete properly.

The second question that I should like to ask is whether we have thought through the full implications of freeing these internal markets? For instance, will the influence of the Bank of England over the regulation of our own national banks be diminished? Will we have 12 national regulatory authorities or one in Brussels? In relation to the point first raised by the noble Lord, Lord Rees, will membership of the EMS no longer be a choice for us—will it no longer be a question of joining when we think it appropriate but of having to join?

My third question is: will all member states—or particularly those which are unlikely to gain immediately from this freeing of the markets—allow their markets to be accessible to much stronger competition? If they do not, will the Community be given resources by the member states to enforce this legislation on the recalcitrant?

Finally—I have one minute left in which to speak, I believe—the freeing of these internal markets is not a simple matter. National and geographical issues have to be considered—a point which the noble Lord, Lord Banks, brought to our attention. It is not solely a matter for national governments. I suspect, for instance, that the Council of Ministers will have to take on board the full implications of the open frontier policy for immigration policies. I wonder if it has done so.

To my noble friends in the Government I say, "bonne chance" in what is a very difficult area. I hope they will adopt an appropriate speed in relaxing the controls on the internal markets and will balance our national interests with those of the Community.

7.34 p.m.

Baroness Seear

My Lords, in this debate, which has been so ably introduced by my noble friend Lord Ezra, all Members have spoken in favour of going ahead with the development of the internal market except those speakers from the Labour Benches, where the noble Lords, Lord Jay and Lord Parry, and to a much lesser extent the noble Lord, Lord Carter, declared themselves unreconstructed anti-Marketeers. They were quite straightforward and honest about it.

I ask the noble Lord, Lord Jay, who says that the great difficulty is that our manufacturing industry will not be able to compete, why has he so little confidence in the ability of our manufacturing industry to hold its own with its European competitors? There were times when it might have been more difficult—for reasons not altogether unconnected, I think, with the policies pursued by the government which he supported—

Lord Williams of Elvel

—and you supported.

Baroness Seear

I beg pardon, my Lords—indeed not!

Lord Williams of Elvel

What about the Lib-Lab pact, my Lords?

Baroness Seear

My Lords, we did not support—I do not think that this is the moment to have an argument about the Lib-Lab Pact. I shall claim another minute for that interruption.

So far as I can see the noble Lord, Lord Jay, intends to retreat into a fortress economy in which there can be no future at all. If we were to pull out of the Common Market, where would we go? He has not told us. Perhaps the noble Lord, Lord Williams, will tell us.

Lord Jay

My Lords, what I actually said was that I thought we ought to remove the barriers to trade which were preventing us from importing foodstuffs from all the countries of the world best able to supply us.

Baroness Seear

My Lords, the noble Lord is indeed an optimist if he thinks that importing foodstuffs will deal with our entire trade problems. No doubt the noble Lord, Lord Williams, will be able to explain his position and reconcile it with the attitude now taken—in, I understand, a most welcome change of heart—by his honourable Leader.

The fact is that we made the decision to go in. On these Benches we always believed that that was the right decision. The trouble is that we have dragged our feet and been anything but wholehearted. The opportunities are plainly there. It is a market of 350 million people. If we remove the barriers—the transport barriers at the frontiers, for example—that will reduce our costs.

As a country—though not as a Government—we are putting a great deal of money into the Channel Tunnel. The whole point of the Channel Tunnel is that it takes us to these growing markets where we can develop our trade to very good effect. The opportunities are there and it is up to us to seize them by going ahead with the Common Market and having the single internal market which we have for so long supported in theory but done little to support in practice, partly because of continuing Gaullist attitudes (now beginning to change) on the government side of the House.

We must take advantage of all the opportunities that exist. We have to have the courage of our convictions and know that we are able to compete—and why not? Our productivity is going up although we have to recognise that it is still lower than that of most of our competitors. There will be real difficulties. Nobody pretends otherwise, but they are difficulties which we have to face and to overcome.

The question of VAT has been discussed by almost every speaker this evening. We have to negotiate the right kind of settlement. We are talking about approximations, not about the unification of those standards. Let us not lose sight of the object, which is to have genuine competition. What have to be removed are real obstacles to genuine competition. One can have genuine competition and still retain considerable variation, or at least a degree of variation, in many of those matters which cannot be completely unified.

I understand, and the noble Lord, Lord Bethell, referred to it today, that one proposal has been put forward to have VAT bands ranging from 0 to 6 per cent. Surely that is the way to approach it. We must find out what the variations are in order to make a package and get a settlement which allows for genuine competition without upsetting too greatly the practices and traditions of particular nation states.

The single nation state is no longer the important economic unit. We have moved into a global economy. One cannot run a successful economy today purely on the basis of a nation state. We must recognise that we have to collaborate outside the nation state and that narrow economic nationalism will lead us absolutely nowhere. There is a great deal of such collaboration in Asia. We have to go into this with complete confidence that we can make it work.

The noble Lord, Lord Cockfield, who is, after all, one of our number, has given a magnificent lead. I had the opportunity not long ago to listen to him speaking to the European League for Economic Cooperation. I am sure we would all agree that the noble Lord, Lord Cockfield, is not a man given to purple patches. He is not a romantic. He said: If you belong to a community, you have to accept that at the end of the day it is the community interest which must prevail. We are far from accepting this. We are not alone in this, but that is not the company we ought to be keeping. The leadership of the Community is passing into other hands". Alas, we never really had it though we had the opportunity. There are many people in this country who will view that with indifference. I do not. I am sure you do not. Our history shows that we have both valour and vision. The time to exercise them is here and now". So said the noble Lord, Lord Cockfield, and surely he was right.

7.42 p.m.

Lord Williams of Elvel

My Lords, the House will be most grateful to the noble Lord, Lord Ezra, for bringing forward his Motion at this particularly opportune moment. All your Lordships will agree that the internal market is an issue which between now and 1992 will pre-occupy us more and more. I am sure that noble Lords recognise that we shall return to this subject on many future occasions.

I was also glad to welcome the maiden speech of the noble Lord, Lord Rees, a very distinguished Member of another place. If I may speak as a Welshman, I know that, although our joint origins are obscured in the mists of history, my noble friend Lord Parry will recognise that anybody in Wales who refers to Lord Rhys does so with considerable respect, though the spelling of the great Lord Rhys is rather different from that of the noble Lord, Lord Rees, from whom we have heard today.

There is one point arising from the debate on which your Lordships will all agree. We are members of the European Community and will remain so for the foreseeable future. It follows that it must be realistic to acknowledge—and I advance this, for what it is worth, as my personal view—that the integration of the United Kingdom economy with the other European economies will even by the end of this decade, let alone the middle of the next, have proceeded so far that economic withdrawal, leaving aside political relationships, would be the economic equivalent of shooting ourselves in the foot. We have to start from that principle. The community is there, warts and all. Indeed the warts are fairly plain for all to see.

British membership of the Community has brought few of the advantages widely predicted by its more extreme advocates. My noble friend Lord Jay was very pertinent on this point. The common agricultural policy is expensive, inefficient and unjust. My noble friend Lord Carter was quite right on that point. Community finances are at the point of collapse. Political leadership in the Community is reduced to quarrels about the minutiae of Community budgeting instead of dealing with the major issues of unemployment, North-South relations, technological and scientific co-operation, environmental protection or regional economic and social disparities.

However, it is not enough for me to point to the warts. We must consider whether it is possible to develop a strategic initiative that will give the required impetus to the Community, bearing in mind that any such initiative should not be judged by the reference to this or that ideology but by its likely impact in Europe on those who live, work, consume and invest their savings—in other words, the people throughout Europe who in their daily lives will either support the Community or reject it.

I am by no means certain that the strategic initiative of the internal market—for strategic initiative is what it is—will by itself satisfy that major criterion. I am under no illusion; and I want your Lordships to be under no illusion. The noble Lord, Lord Cockfield, is not engaged in a simple exercise of removing outdated restrictions or of promoting international co-operation. He is engaged in an effort to extend the so-called supply side measures of deregulation and labour market flexibility across the whole Community, the objective being to ensure that, in the words of his White Paper, Completing the Internal Market, the market is flexible, so that resources both of people and materials and of capital and investment, flow into areas of greatest economic activity". We all know what that means; at least those of your Lordships who in previous debates have commented at length on the North-South divide will know what it means. Without compensating action, wealth and economic activity will be even further concentrated into what is frequently called the golden triangle of Northern Italy, Western Germany, Eastern France and South-East England, and into what is called equally frequently by sociologists the coffin, a rectangular area whose four points are Milan, Lyons, Birmingham and Amsterdam. In other words, the programme of the noble Lord, Lord Cockfield, is Thatcherism with a European dimension.

It is time that we talked about compensating action. It is certainly true that the White Paper suggests, a full and imaginative use of the European Community structural funds". The noble Lord, Lord Banks, and the noble Earl, Lord Buckinghamshire, referred to the problems to which I am going to address myself. The noble Lord, Lord Banks, in an impressive intervention, drew attention to the structural problems that will arise from the internal market if it is applied without any compensating action. But there is nothing in the timetable advertised by the noble Lord, Lord Cockfield, which activates this full and imaginative use of the structural funds. As the noble Lord, Lord Banks, pointed out, a recent proposal by the Commission to double the structural funds was blocked by Her Majesty's Government in the Council of Ministers.

At this point I have to turn to the Government and ask what is their real attitude. What is the substance of the argument between the noble Lords, Lord Young and Lord Cockfield, about which we hear so much? The internal market strategy is entirely based on the operation of free market forces. I understood that both noble Lords supported that principle. But the Opposition point out that such a strategy, and what it implies, restricts national policies for regional aid, restricts government support for disadvantaged areas, even when that is judged to be socially necessary, throws open public procurement, and there is no provision even hinted at in the White Paper either for European economic planning or for allowing the continuance of national programmes to alleviate hardship among the disadvantaged.

We do not believe that that is good enough. Let me recommend to the Government that they read, mark and inwardly digest a recent report from a group of experts headed by Dr. Padoa-Schioppa of the Bank of Italy. From its many conclusions I choose just one: it is essential to design and implement—at this early stage of the 1986–92 process—the complementary programme needed to set the evolution of the Community on a balanced course…greater Community involvement in stabilisation and redistribution policies is the indispensable complement of the ambitious project of completing the [European] Internal Market". That hits the nail on the head.

Either there is a complementary programme which sets out the action necessary for the Community to intervene constructively in all the areas where the creation of the internal market will work to social and economic disadvantage where, in the past and now, national governments have striven to prevent hardship, exploitation and waste which result from the operation of unregulated markets, or there is not; and if not, is the answer then that we as the United Kingdom must preserve the right, in whatever manner may be appropriate and legal, to pursue those policies in the area over which the British Parliament has sovereign power? This inevitably means not rejecting the internal market but rejecting the restrictions on our ability to support our population and to implement our regional policies and the restrictions that the internal market programme implies.

None of what I am saying is essentially negative, although in all realism I have to accept that it is against the thrust of the Motion moved by the noble Lord. But there are positive elements which I wish to pursue. First, we in the Labour Party are hoping to join our fellow Socialists in preparing a manifesto on which we can campaign throughout the Community in the 1989 European elections. If we can all agree such a manifesto it will look forward to the kind of Europe that will exist in the 1990s, the opportunities of the internal market and its limitations and dangers if it is not subject to social control and geared to social objectives.

I have to remind your Lordships that the Socialist group is the largest group in the European Parliament. If we arrive at an agreed platform and we are returned on it, that will carry considerable weight. I remark in passing that the noble Lord, Lord Bethel], has returned to hear what I have to say, but unfortunately the noble Baroness, Lady Elles, had to leave and so I am unable to address myself to two Conservative Members of the European Parliament but only one. I hope the noble Lord will be satisfied with the response that I am giving him.

Secondly, we shall work for greater co-ordination and direction of macro-economic policies within the Community. That seems to be quite obvious. It makes no sense whatsoever for Europe to complain about the US balance of payments deficit or the Japanese balance of payments surplus unless we as Europe are prepared to do something as a Community to confront those problems seriously. Furthermore, I agree entirely with Mr. Edmund Dell when he wrote in a letter to the Independent published yesterday that: If economies are integrated in the absence of sufficient economic policy co-ordination, the result may well be a systematic deflationary bias". These are the policies which I believe constitute the way to make the internal market a success. But they are policies for the long term. Who would believe that the Community as at present organised could run a successful programme of social and economic redistribution, or, even more, a programme of closer co-ordination of macro-economic policies? Some would say it could not even run a whelk stall.

It will certainly be a long haul, but because it is long it does not mean that it should not be attempted. In the meantime I have to tell your Lordships that we are not in sympathy with the move to speed up the programme. On the contrary, we might like to slow it down. But in any event, knowing how the Community works, it is a fair bet that it will slow down of its own accord.

7.56 p.m.

Lord Beaverbrook

My Lords, I should also like warmly to welcome the debate introduced today by the noble Lord, Lord Ezra, and also to congratulate my noble friend Lord Rees on an excellent maiden speech. He brings with him enormous experience of economic affairs and we hope to hear him on many future occasions.

Since we joined the European Community 15 years ago our pattern of trade has undergone a remarkable and startling transformation. At that time the 11 other countries which are now Community members took 34 per cent. of our exports. By 1982 that figure had risen to 44 per cent. Today one-half of our trade is with our Community partners. This is the point from which I should like to begin. No one can seriously doubt our economic as well as our political commitment to the future of Britain in Europe.

That is not to say that we are satisfied with the Community as we presently find it. But agriculture and future financing are not the only issues on which we must insist that realism prevails. We want the Common Market to mean precisely that: a market in which there are no barriers to trade. But that has not yet been achieved. The creation of a single market in Europe is an objective which goes back to the establishment of the Community some 30 years ago. We have made progress. Tariffs and quota restrictions have virtually been eliminated, but the free movement of goods is still impeded by technical barriers, and the growth of a free and competitive market for services is blocked by a range of national restrictions.

Unlocking this market—which we and other member states have pledged to do by the target date of 1992—is essential if we are to build the industrial capability which will enable Britain and Europe to compete successfully in the world of the 21st century. With the accession of Spain and Portugal, we now have a potential domestic market of some 320 million people, very nearly as many as the United States and Japan combined. That is why—in keeping with our realistic approach to the Community—we want to make and accelerate progress towards completion of the single market.

I have seldom heard British companies say that, so long as trade is fair, they are unable or unwilling to compete. The single market will present them with the opportunities and the challenges which they are seeking. But companies throughout the country must be given the chance to make the most of them.

I agree fully with the noble Lord, Lord Ezra, that we have to increase awareness of the changes which the single market will mean in every part of industry and commerce. I say to the noble Lord, Lord Jay, that I do not accept that British manufacturing industry will necessarily lose out.

American and Japanese success owes much to economies of scale, particularly in new technologies and access to a market of 320 million people is essential to our industry. That is the reason for the awareness campaign which my noble friend the Secretary of State recently announced. I can tell my noble friend Lord Cowley that this will be followed by a sustained campaign throughout the country to reach companies both large and small in every sector and encourage them to consider the implications of the single market for their businesses. The developments which are already taking place in Europe will change the economic and commercial life in this country and in other member states. We need to ensure that we all fully understand and respond to them.

But how are we to achieve the target date of 1992? It can only be by hard work. There are so many aspects to the single market, all of which we need to address. The simplification of frontier formalities is one. I welcome, from 1st January this year, the introduction of the single administrative document which replaces with one form up to 70 different customs documents used by member states. I agree with the noble Lord, Lord Ezra, that progress has been slow so far with the Commission unable to keep to its original timetable.

However, there have recently been encouraging developments. The directive on simple pressure vessels has been adopted and agreement is near on toy safety. In addition, a number of other directives are under discussion and the Commission is expected to introduce yet more during 1988. We welcome that and will press for the momentum to be increased in order for the 1992 single market goal to be achieved.

Therefore, I do not accept that the Council of Ministers is significantly behind schedule. After all, member states have to negotiate directives. The Commission's progress reports concentrate on measures in the 1985 White Paper, but many other measures reducing barriers have also been agreed by the Council of Ministers. More than 100 measures have been agreed over the past 18 months alone, including 48 during the UK presidency in the second half of 1986. I believe that we are on target to achieve the 1992 date.

The noble Lord, Lord Broadbridge, raised the issue of the Commission package. I should like to thank the noble Lord for his acknowledgement that the UK has forced the pace and achieved more rapid progress in 1986 than ever before. I should like to assure him that there has been no lessening of commitment since then. As I have indicated, we are talking about literally hundreds of measures and neither we nor other member states can accept that these constitute a package which we must take or leave in its entirety.

Public purchasing is another aspect. Narrow national preferences not only penalise the consumer but make for inefficient producers and so help no one in the long run. We believe that European public procurement should be opened up to give better opportunities for suppliers to sell into other member states and to enable public authorities to get better value for money.

I have already mentioned different product standards which fragment the single market. I welcome the Community's new approach in this area which ought to speed up progress by concentrating on essential health and safety requirements and seeking mutual recognition on other matters. The testing and certification procedures in different member states are often as great an obstacle to trade. Making progress towards their mutual recognition—much remains to be done—is very much a priority for the UK.

The noble Lord, Lord Parry, pointed out that trade in agricultural and animal products is an important constituent part of the single market. I am confident that progress can be made to remove trade barriers without prejudice to the high health standards which we enjoy in this country. While dealing with agricultural matters, I should like to turn to a point raised by the noble Lord, Lord Carter. MCAs are an integral part of the current system of agricultural pricing in the Community and we should like to see them abolished in a phased way. However, a number of our partners would not be able to accept that easily. The single market will not be achieved while MCAs remain.

I agree with my noble friend Lord Rees that the long overdue liberalisation of the Community market in insurance and other financial services is another priority area. I am delighted that in December the Internal Market Council was able to reach agreement on the main aspects of the non-life insurance services directive. In many cases it will enable companies to sell insurance from one member state to another without the need to establish a local presence in the host market. Developments in new technology and systems of electronic transfer increase the opportunities for doing business in this way. It is important that national restrictions should not prevent companies from taking advantage of them.

Another subject which must be tackled is the right of professional people to practise their professions throughout the Community. For example, an accountant would need to spend a working lifetime in pursuit of the right qualifications if he wished to practise in all member states. A directive on professional qualifications is now under discussion in Brussels which will provide the right of establishment to most professions requiring three years' university-level training. Of course, there will always be some legitimate differences in the requirements of different member states and this suggests the need for an adaptation test on which the United Kingdom is insisting. However, there are greater areas of overlap than there are dissimilarities among the professions in Europe. It is inconsistent with the principles of a single market that professional people should need to duplicate their qualifications and submit themselves to a period of training in subjects which they have already mastered.

Many noble Lords have referred to the Commission's tax approximation proposals. I should like to emphasise the fact that there is no commitment to approximate VAT or excise duties as part of the single market programme. We have said that we will discuss the role of approximate tax measures in the completion of the single market but, in line with the Brussels European Council last year, we do not see it as a priority area. As did other member states, we have some fundamental difficulties with the present proposals but these cannot be adopted except by unanimity. We have made it clear that VAT will not be extended to food, gas, electricity, or young children's clothing or footwear. Equally, we have made it clear that we shall not accept proposals which restrict our right to apply VAT zero rates.

I should like to point out to my noble friend Lord Rees that although the Commission's package of proposals on indirect taxation would increase revenue overall, increases in the price of necessities such as food would be offset by a substantial reduction in the price of alcoholic drinks and cigarettes with potentially serious problems for health policy.

The noble Lord, Lord Broadbridge, suggested the possible use of derogations; for example, in relation to UK zero rates. The Government are likely to wish to consider that suggestion during the course of negotiations. However, many if not all member states face particular problems. If all serious difficulties gave rise to derogation the amount of harmonisation that actually emerged could be rather limited.

My noble friend Lord Bethell asked about the article which appeared in The Times concerning possible VAT on air fares. We understand that the Commission is preparing a draft directive which would end the exemption currently applied to intra-Community air fares. However, this proposal has not yet been put forward for discussion and we have not yet seen any text, so it is difficult to comment on exactly what the Commission has in mind. I can confirm that a proposal of this kind would require the unanimous agreement of the member states. We understand that the Commission is not proposing a 15 per cent. rate in this case but as we have not yet seen a text there is little more I can say in that regard. My noble friend Lord Bethell also commented on the proposal of the noble Lord, Lord Cockfield, that excise duties should be replaced by VAT. This is not true. What has been proposed is the harmonisation of excess duty rates. It is not a wholesale abolition and replacement by VAT standard rates.

Turning to the point made by my noble friend Lord Stockton, I can go no further than the assurance I gave in your Lordships' House about two weeks ago on extension of VAT to books. Changes in taxation are entirely a matter for my right honourable friend's Budget judgment. I also say to my noble friend Lord Stockton that he will not be surprised that his suggestion for a lower rate VAT band which starts at zero has been duly noted.

Turning to the matter of the White Paper as proposed by my noble friend Lord Cockfield, we make no apologies for seeking the best results for this country. But what is significant is the amount of common ground which we share with the Commission, although of course there are some differences of perception. Completing the single market will mean a large number of individual measures which member states will have to negotiate and decide. We cannot accept that there is a single Commission package which we will have to take or leave. Member states have never endorsed every measure in the Commission's White Paper—nor for that matter would the Commission claim that the White Paper is exhaustive. There is no prior commitment to adopt Commission proposals on their own terms. I agree with the noble Baroness, Lady Seear, that my noble friend Lord Cockfield has been able to add a great deal of impetus to the single market campaign, but that does not mean that we should be uncritical of some of the proposals.

Perhaps I should mention the European monetary system. I do not intend this evening to reiterate the argument that I have put to your Lordships and also my noble friend the Secretary of State. That is a well-known text. I think that all I can say is that our view has not changed.

Turning to the important point made by the noble Lord, Lord Banks, on structural funds, this question touches upon the future financing of the Community on which we want a general resolution. While we agree that there should be a greater concentration of structural funds on the poorer member states, budget discipline must be respected. We want to do more than make free trade in Europe a reality. We want to do it by a process of liberalisation which will allow market forces to work. Business flourishes in a competitive and open economy. This means creating a climate that stimulates enterprise, and ensuring that economic activity is not subjected to unnecessary and burdensome regulation.

Creating the single market involves adopting a substantial volume of new Community legislation. It is essential to do so in a way which avoids adding unnecessarily to the burden of regulation on business. The creation of a genuine common market must mean removing the barriers to business without creating new obstacles in their place. It means not imposing requirements for which there is no justification or which add excessively to business costs, constrain competitiveness, or inhibit the ability of firms to expand and employ more people. It also means avoiding measures which make European business less competitive in world markets.

The noble Lord, Lord Williams of Elvel, and the noble Lord, Lord Banks. raised the question of structural funds and compensation. We believe the completion of the single market will in itself be to the advantage of the entire Community. The key issue is the ability of British and European firms to compete in the wider world. That is why the completion of the single market can never be accompanied by a resort to external protectionism. Not only would it be contrary to our interests as a trading nation and our obligations under GATT, but it would undermine our very objectives for the Community. We need the single European market in order to expand our horizons, and in doing so we will ensure that our horizons go well beyond the Continent of Europe.

8.15 p.m

Lord Ezra

My Lords, we have had a vigorous and informed debate on a subject which, as the noble Lord, Lord Williams, said, we shall no doubt return to many times. I think it is right that as we are nearing the half-way stage of the preparations for the single market, we should have had this debate tonight. I am very pleased that we had our deliberations enhanced by the impressive maiden speech of the noble Lord, Lord Rees, and also by the presence of two MEPs, the noble Baroness, Lady Elles, and the noble Lord, Lord Bethell.

In conclusion, I was very heartened by the continuing commitment of the Government to achieve this single market by the due date and by the vigorous campaign which they will be waging throughout the country to increase the awareness of industry. With that, I beg leave to withdraw the Motion.

Motion for Papers, by leave, withdrawn.