HL Deb 15 February 1988 vol 493 cc427-38

4.10 p.m.

The Lord Privy Seal (Lord Belstead)

My Lords, with the leave of the House I should like to repeat a Statement on the European Council that is being made in another place by my right honourable friend the Prime Minister. The Statement is as follows:

"With permission Mr. Speaker, I shall make a Statement about the European Council held in Brussels on llth–13th February, which I attended together with my right honourable and learned friend the Secretary of State for Foreign and Commonwealth Affairs.

"The Council's detailed conclusions are being placed in the Library.

"Mr. Speaker, this meeting concluded a major and far-reaching review of the Community's finances and policies. At the outset, the United Kingdom made clear: first, that any further increase in Community resources must be accompanied by effective and legally binding controls on expenditure; secondly, that there would have to be effective measures to reduce agricultural surpluses to bring supply and demand much more into balance and that automatic price penalties on individual commodities would be the principal weapon; thirdly, there should be no oils and fats tax; fourthly, that we were determined to preserve in full the system of abating Britain's budgetary contribution agreed at Fontainebleau in 1984 which has saved us some £3,000 million in the last three years. All of these objectives have been achieved.

"I shall summarise the main elements of what has been agreed. First, agriculture; we are now setting in place what have become known as stabiliser measures necessary to control both output and spending. The detailed arrangements vary from commodity to commodity. But the central concept is an automatic price penalty if an agreed quantity of production is exceeded.

"For cereals this will mean that, if production exceeds a threshold set for the next four years at 160 million tonnes—that is 8 million tonnes below the expected 1988 harvest—there will be price cuts of 3 per cent. a year; and the full 3 per cent. cut will apply to the whole crop if production exceeds the threshold by a single tonne. These cuts will be cumulative so that if harvests continue to exceed the threshold there will be a 12 per cent. price cut by the fourth year. In addition there is provision for an increase of up to 3 per cent. in the co-responsibility levy.

"For oilseeds, where in the last three years there has been a colossal increase in Community production, even more severe measures have been adopted. The forecast harvest for rapeseed for this year, for example, is 6.3 million tonnes. Nevertheless, the guarantee threshold for rapeseed has been set much lower at 4.5 million tonnes. If the harvest is as forecast, it will mean a price cut of 8 per cent. this year, on top of 10 per cent. in 1987. The price cuts become even larger in following years if production nonetheless continues to rise.

"The Council had also expected to confirm agreement on stabilisers for eight further commodities—including olive oil, wine, tobacco, fruit and vegetables, milk products and sheepmeat—on which we had decided in principle at our Copenhagen meeting. This agreement has been delayed by France until the meeting of the Foreign Affairs Council on 22nd and 23rd February. The Dutch Prime Minister and I made clear that our agreement to all the measures before the European Council last week was conditional on the adoption of these eight stabilisers as they are.

"In the light of past experience we have insisted that all these controls should be in legally binding form. This is provided in paragraph 19 of the detailed conclusions adopted by the Council, which reads: 'All the elements set out above are legally binding decisions on the general principles of budgetary discipline. Corresponding legal texts will be adopted to replace the 1984 decision and will remain in force for the duration of the Own Resources Decision. The stabilisers will be incorporated into the agricultural market regulations'. "To complement the stabiliser arrangements and further discourage overproduction, the Council has agreed to the general principles of a set-aside scheme to take agricultural land out of production. In order to qualify a farmer must set aside at least 20 per cent. of his arable land for at least five years. Detailed agreement was reached on the maximum premium payable and the level of Community contribution.

"To improve overall control of the common agricultural policy we have also tightened the discipline of the financial guideline for agricultural spending. The guideline base for 1988 has been set at a figure of 27.5 billion ecu (about £19 billion) and its application has been reinforced in four separate ways. First, it is agreed that the Commission's price proposals must in future always be consistent with the guideline.

"Secondly, we have eliminated the general provision for expenditure in so-called exceptional circumstances. In future a specific and limited financial reserve will be established to take account of one factor only, namely substantial in-year changes in the dollar/ecu exchange rate, with a budget effect of more than 400 million ecu. If the dollar goes up in value by more than this, there will be an automatic reduction in the amount spent on agriculture.

"Thirdly, it has been agreed that the cost of depreciating and disposing of existing surplus stocks will be financed outside the guideline but within the budget and that new stocks will be systematically depreciated as they are established.

"Fourthly, it has been agreed that the guideline itself will in future rise at a rate significantly lower than the total resources available for Community expenditure. The new rate will be three-quarters of the rate of growth of Community GNP. Over time this will reduce the proportion of Community expenditure taken by agriculture, so reversing the trend of the past.

"Next, the Council completed the review of the level and objectives of the Community's structural funds—the regional, social and agricultural structures funds. The Council concluded that commitments on the structural funds should increase annually over the period 1989 to 1992 by 1.3 billion ecu a year. This is equivalent to a total real increase over 1987 of some 80 per cent. and will permit doubling for less developed regions. Particular provision is being made within these funds for a programme of industrial modernisation in Portugal.

"Next, we have secured a tightening of arrangements for budgetary management. This will limit the use of carry-over provisions and creative accounting devices, such as what are euphemistically called negative reserves, to which there has in the past been excessive recourse and which have been particularly unwelcome to us.

"Next, we decided on an increase in the resources available to the Community. These will in future be expressed in terms of Community GNP rather than, as now, VAT.

"The Commission originally proposed that the own resources ceiling should be raised from 1.4 per cent. of VAT to 1.4 per cent. of GNP, equivalent to 2.3 per cent. VAT, in other words a 50 per cent. increase. The Council rejected this proposal. We decided instead that the Community's own resource ceiling for the Twelve should be 1.2 per cent. GNP, which is an increase of some 25 per cent. over the current figure and is realistic in the light of recent trends. This ceiling will last until 1992 at least. In future the cost to other member countries of the United Kingdom's abatement will be outside the agreed own resources ceiling.

"Lastly, as the House knows, a key United Kingdom objective throughout these negotiations has been to retain our Fontainebleau abatement in full. The need for it and its scale were challenged on various grounds, not least the recent rapid growth of the United Kingdom economy; and proposals were made to confine the correction in future to the gap between our share of Community GNP and our share of agricultural expenditure and progressively to reduce it.

"I made it clear that I was not prepared to contemplate any reduction in the benefit we receive as a result of the Fontainebleau mechanism. I am glad to tell the House that the Council agreed to this. The Fontainebleau mechanism will therefore remain totally intact, and it will once again last as long as the new own resources arrangements. In practice, thanks to the abatement, Britain's gross contribution should remain a little over 1 per cent. of GNP—well below that of other member states.

"The decisions reached will now be translated into firm and legally binding texts. Only when those texts have been agreed will the Government recommend to the House the new level of own resources.

"Our achievement in securing more effective control of farm spending should benefit consumers, through lower prices, and farmers, through greater certainty about future market conditions. The share of agriculture in the Community's budget will decline. The British taxpayer will continue to get the full benefit of the Fontainebleau abatement. The way is now clear for the Community to concentrate on its most important goal: the creation of a genuine single market by 1992. I commend these substantial results to the House."

My Lords, that concludes my right honourable friend's Statement.

Lord Cledwyn of Penrhos

My Lords, we are grateful to the noble Lord for repeating that long Statement. The agreement reached at Brussels will need a more careful analysis than we shall be able to give it in this comparatively short exchange. Furthermore I believe that it is right to recognise that the Prime Minister and her colleagues had a complex and difficult task to perform. The Prime Minister's stated objective—this is summarised in the Statement—was to achieve an effective farm spending policy which would control surpluses: the acknowledged central weakness of the common agricultural policy. One gathers that the Prime Minister's negotiating technique was not universally popular and that the language around the conference table was sometimes colourful. But what in fact was achieved? Let us begin with one achievement, namely that Britain's budget rebate was secured. Of course we welcome that. After that, I am not sure that much was gained. The Statement is, I fear, overconfident. First, is it not the case that the cereal quota of 155 million tonnes, which the Prime Minister herself had insisted was the right and fair production ceiling, was at the end abandoned for a ceiling of 160 million which she had described as totally unjustifiable. It will certainly cost us a great deal more.

Secondly, on the question of the guideline base, which the Statement again deals with in some detail, did the Prime Minister not concede a higher base line for farm spending? The Statement mentions £19 billion. In fact I understand that it was 19.3 billion, rather than 18.9 billion and a higher rate of growth, both of which had been described earlier by the Prime Minister as impossible.

Thirdly, does the Minister not further agree that the modest cuts of 3 per cent. will not in fact control the planting of cereals? If they fail to do so, the Community will be in very real trouble again very soon. That is unlikely to reverse the trend, as the Statement describes it. Can the Minister say a further word about the regional and social funds? Is it again not the case that Her Majesty's Government had set a target of 50 per cent.? The plain aim when the Prime Minister and the right honourable and learned gentleman set out for Brussels was a target of 50 per cent., the final agreement was 80 per cent. by 1992. That detail is not mentioned in the Statement. But this is a case of compromise going rather far. Is it thus not the case that the Prime Minister has agreed to very substantial compromises, very much beyond what appear to have been her own personal judgments when she set out for Brussels?

Finally, does the noble Lord not agree that the procedures whereby these crucial matters affecting over 300 million people in Western Europe are discussed in a short space of time in an acrimonious atmosphere into the early hours of the morning are in need of urgent and radical reform? Will the Lord Privy Seal give very careful attention to that question?

Is it, lastly, not the case that sadly it will be another four years before Ministers and heads of government can have the opportunity to discuss a possible radical reform of the common agricultural policy?

Lord Diamond

My Lords, we on these Benches also wish to offer our thanks to the Leader of the House for repeating this Statement, to which we can generally give a warm welcome. However, we do not believe that we can welcome it as warmly as the Statement itself welcomes the achievements of the Prime Minister. We think that the Statement has been set forward in terms which make it really quite surprising that it took more than two minutes for everybody to agree. Reading the Statement, we cannot understand why there were all these all-night sittings and so on. However, we understand from other sources which are not, as they should be, fairly put forward in the Statement, that there were other targets which the Government were attempting to achieve but which they felt on balance that they ought to compromise on in order to achieve the greater objective of being in a position to move forward without difficulty, without irritation and in happy co-operation to a common market.

I want to say one word about that. In a matter of this kind it is always easy to evaluate those matters which are capable of measurement and very difficult to evaluate those matters which are not. What are capable of measurement are all the detailed figures that have been given here. Some of them, like the increase from 55 to 60 million tonnes are unwelcome, but what has not been attempted is the evaluation of something which we on these Benches think is of value and importance—that is, the ability to negotiate harmoniously and constructively towards a common market, which was one of the main purposes of setting up the European Economic Community. We think that is a very important step indeed which we welcome very much.

My task is more difficult than usual today because there are so few matters on which I could offer constructive criticism and ask the Government questions. There are many issues which we should like to welcome. In particular we welcome the comment in the Statement that any further increase in Community resources must be accompanied by effective and legally binding controls. Indeed it was astonishing that so much was agreed previously which, when an attempt was made to bring it to reality, vanished into thin air. We are glad that we can place reliance on what has been agreed now on the basis that it will not only be agreed but achieved. We welcome the reversal of the trend also referred to in the Statement of the proportion of Community expenditure taken up by agriculture. I should like to ask the Government why this has been expressed only in the form of a minimum instead of both a minimum and a maximum. It appears that on this basis we are committed, no matter what unknown circumstances arise, to a percentage which, albeit less than had previously been the case, will put a minimum figure on our contribution.

We welcome, of course, the Statement that the Fontainebleu arrangements are intact. We note particularly that none of the things which we are attempting to welcome can be counted on for certain until the agreement with France has been reached and the whole of this can be given effect to.

Having said that, I come back to the main point of our response to this Statement. We are very glad indeed that we can now look forward to the energies of the Government being devoted to the wholly important priority of securing a comon market.

4.30 p.m.

Lord Belstead

My Lords, I am grateful to the noble Lords, Lord Cledwyn and Lord Diamond for their reception of my right honourable friend's Statement in another place.

The noble Lord, Lord Cledwyn, mentioned what has been achieved and suggested that the maximum guaranteed quantity for cereals was a great deal higher than the United Kingdom had wanted. It is the case that my right honourable friend argued for a threshold of 155 million tonnes with a price cut reaching 3 per cent. when output would exceed 159.65 million tonnes (155 million tonnes plus 3 per cent.) and that my right honourable friend, along with all the other colleagues, settled for 160 million tonnes with a 3 per cent. price cut when output exceeds that figure by any amount at all. However, let us be quite clear about this. This is for four years instead of three; an extra year's price cut in exchange for what amounts to only 0.2 per cent. on the quantity. It is hardly, I think, a concession. I should have thought that it was a very reasonable result.

The noble Lord said that he felt that the guideline at about £19 billion/27½, billion ecu, was a great deal higher than we had wanted, and that the increase in subsequent years at three-quarters of what would be GNP of Community resources was again something which the United Kingdom had not wanted. Once again, it is an agreement which we have which is legally binding. I think it is fair to assume that not only is it legally binding but that it will stick, because the Commission's agricultural price proposals are going to have to be consistent with the guideline. Exceptional circumstances which have been called in aid by some countries in the past two or three years, and have really very often driven a coach and horses through the guideline, are now going to have to only take account of dollar/ecu exchange rate mechanisms. They must be what is called "symmetrical" in Community jargon. In other words, if the ecu/dollar changes mean that they are beneficial to the Community, you will find money being paid into that reserve and not out. Disposal of surplus stocks must be financed outside the guideline but within the budget and the guideline must increase at three-quarters of the rate of growth in GNP, so reducing the percentage of expenditure on agriculture.There were two sides to this coin. The very important side is the fact that it was legally binding—and I believe will stick.

The noble Lord also said that he felt that the price cuts at 3 per cent. were too modest. I have to say that farmers have to expect a price cut in this year probably of 2 per cent., followed by 3 per cent. price cuts for four years, plus an extra 3 per cent. co-responsibility levy if the maximum guranteed quantities are exceeded. I do not think that the farming community will be overjoyed at the prospect of a 17 per cent. drop in support, especially on top of significant cuts in each of the last two years. It is absolutely clear that the heads of state at this Council had in mind not only the need for absolute financial probity but also the future of agriculture in the Community.

The noble Lord questioned the increase in the size of structural funds. Once again the noble Lord is quite right: an increase of 80 per cent. is a high increase, but the funds have an important role in helping poorer regions of the Community—for instance, Portugal. Let us not forget that the United Kingdom will also benefit. I expect that our receipts from these funds will increase. We have been the second largest recipient from the social fund in the past. Our receipts from the three structural funds totalled £750 million in 1987. I think we can expect these to increase to some £1,000 million in 1992 at current prices as a result of the agreement which was reached.

Finally, the noble Lord said that perhaps the Community ought to look at its procedures. I take great comfort from the fact that this agreement is legally binding and that it is going to stick for at least the next four years.

The noble Lord, Lord Diamond, in effect said that he was pleased that agreement had been reached, that it was agreement which was legally binding and that it was indeed agreement which could give us some degree of stability in the foreseeable future. The noble Lord asked me about the figure for the guideline. It is of course the maximum for expenditure. It could, however, be less.

I think that that answers the questions which were put to me by the two noble Lords.

Lord Bruce-Gardyne

My Lords, my noble friend referred to the essential purpose of curtailing agricultural surpluses. Since the growing consumption of the Community runs at about 135 million tonnes a year and the price cuts, if and when they materialise, do not begin to apply until 160 million tonnes a year or over. is my noble friend anticipating a very large increase in cereal consumption in the Community? If he is not, there is the prospect that the cereal surplus will continue to grow dramatically. Since it is apparently proposed that the disposal of these surpluses will be insulated against any deterioration in the dollar rate against the ecu, what sort of impact is this going to have on the pressures for protectionism in the United States?

Lord Belstead

My Lords, perhaps I may take the last point first. I should have thought that the United States would look with some approval on agreement which has been reached by the member states of the Community for something which is legally binding and which is going to last for the next four years. If I may say so, my noble friend very rarely forgets anything when he is making any mathematical computation, but I think that in this case he may perhaps have forgotten exports. The community heads of state have taken into account in the figures which the noble Lord has just given to the House the fact that there will be up to about 25 million tonnes of exports of cereals. That, I think, puts in context the agreement for the 160 million tonnes maximum guaranteed quantity.

Lord Carter

My Lords, I wonder whether the noble Lord the Leader of the House can explain whether, if the harvest in Europe this year exceeds 160 million tonnes, the 3 per cent. price cut and increase in the co-responsibility levy are to be applied from harvest 1988 on the 1988 crop? If so, presumably that will be on the price levels which are agreed at the price review which is about to take place. Will the noble Lord also confirm that, since the set-aside proposals and the stabilisers are linked, there will have to be a set-aside scheme in force in this country for harvest 1989?

Finally, if in the future a member country decides to try to cushion its farmers from the effect of these measures—for exampl,e, in the past the Germans have adjusted the VAT arrangements and the social security taxes on farmers—will it be prevented from doing so?

Lord Belstead

My Lords, I think the answer to the second and third questions of the noble Lord, Lord Carter and the point about set-aside are matters to be thrashed out over the next few months so far as the details are concered. I do not deny that the noble Lord, like all farmers, wants to see certainty, but there are details which still have to be fixed, and although the amount of Community contribution to set-aside and the amount of premium which farmers can expect has been settled over the last weekend by the Council there are to be settled details of set-aside and details of the last question which the noble Lord asked me.

With regard to the first question about price cuts coming into effect so far as concerns this harvest year, those will come into effect in the next marketing year.

Lord Bruce of Donington

My Lords, will the noble Lord confirm—notwithstanding his reply to the noble Lord, Lord Bruce-Gardyne—that European farmers under these arrangements will continue to overproduce cereals? Secondly, will he not agree that notwithstanding the generality of this Statement and its very careful wording, total expenditure on agriculture under the CAP will go up? Thirdly, will he also confirm that whatever happens to Britain's gross contributions, Britain's net contributions over the next four years to the European budget, after taking into account any receipts from the regional funds and rebates, will continue to rise?

Will he further confirm that the British consumer will continue to pay in terms of at least £10 per week more per household—as per the Treasury's own economic progress report of 1st February last year—for food than would be otherwise necessary if the CAP did not exist? When the noble Lord talks of legality, will he bear in mind that it is one thing to make laws—even at Community level —but it is another thing to ensure that the laws are obeyed? Is the noble Lord aware that on a recent EC Commission estimate, at least one-tenth of agriculatural expenditure under the CAP is dissipated by fraud?

Lord Belstead

My Lords, if your Lordships will forgive me, I must stick with what I said to my noble friend. If one takes a maximum guaranteed quantity of 160-million tonnes and deducts from that the fact that the Community will be exporting, I believe it is a fairly balanced question as to how much effect this new agreement will have. However, I do not go along with the contention of the noble Lord that that will mean that the size of the cereal stocks will increase. Indeed, embedded in my right honourable friend's Statement is the intention of the Community heads of state that there should be stock disposal outside the financial guidelines of the Community, which again is good for expenditure and financial probity.

The second question that the noble Lord asked was whether or not it is the case that total expenditure will go up and therefore we will all be paying more. It is perfectly true that expenditure will rise, but expenditure on agriculture will be of a declining amount compared with total Community expenditure. That is the first advantage and, indeed, is legally binding. The second advantage is that the new ceiling will be 1.2 per cent. of GNP, which is just under 1.9 per cent. of VAT. Thanks to our abatement, our contribution will remain at the level of the present ceiling. I must say that I believe that that was a remarkable piece of negotiation by my right honourable friend in the interests of this country.

The third question which the noble Lord asked was whether or not it is the case that the public in this country are paying a great deal for their food. I believe the figures which the noble Lord read out were computed before last weekend's meeting.

Lord Bruce-Gardyne

My Lords, I apologise for pressing my noble friend, but he has referred on several occasions to food exports. Surely, food exports are normally goods which are traded at a price which produces a commercial return. In this case we are not talking about exports but about dumping, and dumping which is gravely damaging to international markets.

Lord Belstead

My Lords, the noble Lord opposite and also, I believe, my noble friend were both talking about the increase in size of Community stocks. The answer to that is the one which I gave to the noble Lord opposite.

4.45 p.m.

Lord Bruce of Donington

My Lords, my question said "overproducing" and did not refer to stocks, although that obviously carries implications. Will the noble Lord please reply to my third question, which unfortunately and inadvertently he omitted to answer? I asked him whether he will confirm that Britain's net contribution to the European budget, after taking into account abatements and receipts in the regional and social funds will continue to increase.

Lord Belstead

My Lords, it will go up as a result of this agreement over the weekend but it will remain below the level of the present ceiling. I repeat that I believe that that is a remarkable piece of negotiation on behalf of this country. I also remind the noble Lord opposite—and I believe it is a reasonable point to be made in view of his remarks about stocks going up—that I believe that in his computations about what will happen to stocks and cereals he has also forgotten that agreement was reached in principle and on some of the details of set-aside; and this in turn will also have its effect on levels of productions of cereals in the Community.

Baroness Elles

My Lords, does not the noble Lord agree that the figure of £10 a week has now been admitted by the Treasury to be totally inaccurate and is one which was produced two years ago by the Australian Government? In fact, the document, which I read most carefully, excluded the farming community of the European Community and therefore bore no relationship to reality.

Secondly, does not my noble friend agree that food is the one item on the retail prices index which has not increased as much as any other item on that index? Thirdly, will my noble friend agree that we owe an enormous debt of gratitude to my right honourable friend the Prime Minister not only for coming back from Brussels with United Kingdom abatement intact but also because for the first time there will now be legally binding controls to prevent surpluses generating in the Community, which is something we have all wanted?

Lord Belstead

My Lords, I am grateful to my noble friend. It is indeed the case that the increase in prices of food has historically gone up below the rate of the retail prices index. I am glad that my noble friend made that point, which is fairly familiar but which has not been made before this afternoon and is an important one. With regard to the first point, I never criticise the Treasury but I am glad that my noble friend put in context the statistics which the noble Lord opposite put to the House.

Lord Gladwyn

My Lords, does not the admittedly virtuoso performance of the Prime Minister in Brussels prove the point that the Council of Ministers of the Community are condemned to agree since failure to agree on any very important matter would clearly be worse for all of them than acceptance of some of the features with which they for their part disagree; as, for example, the acceptance by Mrs. Thatcher of 160 million tonnes for agriculture, the possible disadvantages of which have been so well brought forward this afternoon by the noble Lord, Lord Bruce-Gardyne?

Does not the recent meeting at Brussels also show that a gradual extension of the areas in which qualified majority voting will, in spite of the Prime Minister's instinctive opposition, now be essential if the Community is to avoid disruption in the progress that will be made for a common market in 1992? Since this is a very brief discussion on a very important matter, I ask the noble Lord whether he will draw the Prime Minister's attention to a really admirable book by Sir Michael Butler—our representative in Brussels—entitled Europe is more than a Continent which has just been awarded the Bentinck prize. In that book he shows the way whereby a non-federal but in some cases largely supranational system could be made operable to the benefit of' all concerned.

Lord Belstead

My Lords, the noble Lord, Lord Gladwyn, knows almost better than anyone in your Lordships' House the ways of Europe and of the Community and the difficulties particularly in the situation which the heads of state found themselves, some of them facing elections in their own countries and all of them facing difficult decisions which had to be taken for the good of Europe in reaching agreement.

For the record, because the noble Lord picked up points which have been made this afternoon, let me almost in parenthesis say that we should remember that for the first time we have as a result of these negotiations a legally binding ceiling for agricultural spending; guaranteed price cuts for cereals of 3 per cent. a year for four years once the threshold is triggered; that the threshold agreed is 5 per cent. below the expected level of the harvest for this year and the price cuts will be cumulative with a maximum of 12 per cent. by the fourth year; that we have double digit price cuts in the arable sector over the next three years compared with price rises of 350 per cent. over the past three years; and that all this will be in legally binding regulations.

To pick up one of the later points made by the noble Lord, I believe that this agreement opens the way, as I think the noble Lord, Lord Diamond, hinted, to some stability and the ability now to work for the single European market.

Lord Carter

My Lords, I apologise for rising to my feet again, but in an earlier answer to me the Leader of the House revealed a further concession made by the Prime Minister which was not apparent in the original Statement. My understanding was that the stabilisers were intended to work in the same marketing year; for example, if the harvest this year exceeded 160 million tonnes the price cut would have been applied this autumn, but the noble Lord replied to me earlier that it will be in the next marketable year. That is much more sensible but it is a concession.

Lord Belstead

My Lords, if I am wrong I shall write to the noble Lord, but on coming into the House my understanding was that the effect will be on this year's market but coming into effect as regards prices in the next marketing year. If I am wrong about that I shall immediately write to the noble Lord and place a copy of the letter in the Library.