HL Deb 09 January 1995 vol 560 cc7-78

2.55 p.m.

Baroness Chalker of Wallasey

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

This Bill is short. At first sight, it appears very technical, with its references to "treaties" and "Community treaties" and "own resources". But it represents the final stages of a review of the European Union's finances which started almost three years ago. Its passage will honour an international commitment which the Government made on behalf of the United Kingdom at the Edinburgh European Council of December 1992—over two years ago.

At Edinburgh, the Prime Minister, as President of the Council of Ministers, led the European Council to agreement on an interlocking set of complex issues: on agreement to begin enlargement negotiations with Sweden, Finland and Austria, who formally joined the Union last week; on establishing formal relationships with the new democracies of central and eastern Europe, with the eventual goal of Community membership; on a plan for improving growth and tackling unemployment on free market lines and on a commitment to reach agreement on the GATT; on improving openness and obtaining a clear statement of subsidiarity; on a way forward for Denmark, following its rejection of the Maastricht Treaty; and on the agreement to the shape of the Union's finances until the end of the century.

The result of the Edinburgh Council was reported to this House by my noble friend Lord Wakeham on 14th December 1992. Your Lordships' House rightly welcomed the solution of so many difficult yet important issues. As I have explained, the issues were an interlocking set. Without agreement to all, there would have been agreement to none.

I should pause at this point to explain that the Government had their own package of aims for the Edinburgh European Council. European Councils deal in packages. It is a common mistake to think that any one issue can be isolated from the rest of the agenda; it cannot. One of our aims, back in December 1992, was to help the Danes to obtain Maastricht opt-outs similar to our own in order to keep them in the Union as our de-centralising and anti-federalist allies. Other aims were to secure the completion of the single market; further, to turn subsidiarity into a more concrete form; to secure agreement to enlargement so that Austria, Sweden and Finland might join; and to obtain a satisfactory solution to the Community's financing negotiations, limiting the increase in the resources available to the Community budget and preserving the valuable UK abatement which my noble friend Lady Thatcher negotiated at Fontainebleau in 1984. We achieved all those aims at Edinburgh.

This Bill gives legal effect to the main elements of the financial settlement reached at Edinburgh. The Edinburgh Council agreed to freeze the Community's "own resources ceiling"—the limit on the amount of revenue the Community can raise from the Member States—at 1.20 per cent. of Community GNP in 1993 and 1994, and then to raise it in stages to 1.27 per cent by 1999. That would increase the resources available to the Community budget by about 6 per cent. in real terms—equivalent to some £4 billion—in 1999, compared with retaining the 1.20 per cent. ceiling.

The Edinburgh Council also agreed to change the formulas which determine how much each member state contributes towards the financing of the Community budget by placing more emphasis on their relative GNP shares and less on the relative size of their VAT bases. GNP is widely acknowledged to be a fairer way of acknowledging wealth and ability to pay than VAT.

Finally, the Edinburgh Council agreed to maintain unchanged the UK abatement formula, which was negotiated by my noble friend Lady Thatcher in 1984 and which has saved us £16 billion since; to a package of extra spending measures which were necessary to help the less developed regions of the Union with the infrastructure and other investment that they needed to compete in the single market and to accept enlargement; and also to assist the former communist countries of central and eastern Europe to build free-market economies that would bring prosperity and sustain democracy.

The first three of those elements have now been put into legal form in a new Own Resources Decision. The fourth element is encapsulated in an "inter-institutional agreement" between the Council of Ministers and the European Parliament and will be given effect through the annual Community budget negotiations. Under the Treaty of Rome, a new Own Resources Decision not only has to be agreed unanimously by the Council of Ministers, but also has to be approved by member states, in accordance with their respective constitutional requirements". Therefore, the Bill seeks Parliament's approval for that new decision, which we published as a Command Paper (Cm 2702).

The financial package agreed at Edinburgh was much tougher than the Commission and many other member states wanted, and represents a good outcome for the United Kingdom.

The Commission of the day originally wanted to increase the own resources ceiling—the limit on the amount of revenue that the community can call up from member states—from 1.20 per cent. of Community GNP to 1.37 per cent. by 1997. That would have increased total Community spending by about £8.5 billion more in 1997 than under the present arrangements. The proposal would have cost the UK taxpayer an extra £750 million in 1997.

The Commission of the day also suggested that the UK abatement could be amended so that it did not apply to expenditure under the new Cohesion Fund. Mr. Trojan, a Commission official, confirmed that point when giving evidence to the Select Committee on the European Communities (as it then was) on 20th October 1992. Many member states wanted to go further and eliminate the UK abatement altogether. The Commission's suggestion would have cost us a further £250 million a year by 1997, making the total net cost of the package £1 billion a year over and above the present arrangements.

However, the agreement reached at Edinburgh in 1992, and approved by the other place last December, preserves our abatement unchanged until at least the end of the century. Even then, safeguards remain in place which ensure that it can be changed only by unanimity and with the subsequent approval of Parliament. It also increases the overall ceiling on Community revenue, but by just 7/100ths of 1 per cent. of GNP. That is a small increase over seven years when one considers what people were trying to persuade us to do. It also means that the Community budget is expected to grow on average by about 3.3 per cent. a year in real terms between 1992 and 1999—significantly less than the 5.3 per cent. a year which was agreed in the last review in 1988.

The result of that package of measures is that our net contribution will be £75 million higher next year and £250 million higher in 1999–2000 than would have been the case under the present arrangements. That will be a much smaller increase than under the Commission's proposal.

Due to the UK abatement, we will pay a much lower share of the cost of Edinburgh than many other member states. By the end of the century not only Germany but also the Netherlands, France, Austria and Sweden are expected to pay more per head to the Community budget than us. Moreover, for the first time, Italy will be a significant net contributor on a regular basis.

The Edinburgh European Council was, therefore, a considerable success for the United Kingdom because it achieved our objectives on a range of Community policies, and obtained a tough financing agreement.

Now let us tackle the vital issue of fraud and financial management within the framework of the Community budget. In the debate in another place, in our debate in this House on 31st October, and even during a Question earlier this afternoon, Members of both Houses have shown themselves to be deeply concerned about fraud and financial mismanagement. Noble Lords are well known for their hard work and for the excellent reports produced on that crucial issue.

In the debate in the other place, there was concern that the Community budget should be increased when there was evidence of fraud and mismanagement as reported, for example, in the recently published report of the Court of Auditors on the 1993 budget. As I said, your Lordships' House has always taken the issue of fraud in the European Community very seriously. That is why the four extremely valuable reports that your Lordships have produced since 1989 have been valuable not only to this country but also to other countries in the Community. Moreover, as more countries become net contributors they will become even more interested in the reports that your Lordships have produced.

The work on this very difficult and important issue has attracted admiration from within the Community. As a government, we have made the fight against fraud a real priority. We obtained important improvements to the Maastricht Treaty. They included improving the status and strengthening the powers of the Court of Auditors and the legal duties of the Commission and of member states, so that the Community is at last in a position to start to get to grips with fraud. We made a proposal for increased co-operation between member states and the co-ordination of national criminal laws.

Fraud rightly attracts headlines, but it is as important to ensure that Community spending is well directed to achieve the best value for money as it is to find the fraud. Prevention is as important as detection and putting it right. The Government have also taken action in that area. The Edinburgh European Council took an important decision to require prior appraisal of programmes and projects before resources are committed, and to require subsequent evaluation. Since Edinburgh, those requirements have been incorporated in the cohesion fund regulation, the new structural fund regulations and the regulations governing the fourth research framework programme.

We intend to build on to that work by insisting that the Court of Auditors' recent excellent report is vigorously followed through when the Council discusses it in the near future. We shall ensure that the Community institutions have the powers and the resources that they need to carry out their responsibilities in that area, such as the legal instrument on anti-fraud criminal law measures to be agreed before the June European Council of this year.

When we last debated the issue of fraud in your Lordships' House many noble Lords emphasised the need for commitment to action at the highest level in the Community. I am pleased to say that the fight against fraud was an important item on the agenda at the European Council in Essen on 9th and 10th December, where my right honourable friend the Prime Minister made a number of proposals for action in that area. These were all endorsed by the European Council. The European Council rightly recognised that what the Government have been emphasising—namely, that taxpayers expect fraud, waste and mismanagement to be combated with the greatest rigour—has to apply throughout the Community.

The European Council called for: concerted action by all institutions; the adoption of a legal instrument on anti-fraud criminal law measures to be agreed, as I mentioned just now; the adoption of a Council regulation setting out the basis of anti-fraud measures to be adopted in future sectoral legislation; member states to submit reports on measures they are taking nationally to combat fraud and waste; and for all institutions to follow up special reports by the Court of Auditors.

These areas for action form a useful basis for action on fraud over the forthcoming year. They include action in a number of areas identified as important both by the Government and by your Lordships' House. The fight against fraud is vital, but it is not a fight that is won easily or by grand political gestures. It is only won by relentless and grinding vigilance and by close attention to details over a number of years. It has been a top priority for this Government and will continue to be at the head of our agenda; and we shall continue to value the expert work carried out by your Lordships in the specialist committees.

For the Government, it is a matter of highest importance to deliver our commitment given at Edinburgh on the resources for the European Community. The United Kingdom's international reputation would be severely damaged if we broke our word, and our effectiveness in future negotiations would then be substantially undermined. The Edinburgh financing agreement was a good deal for Britain. It helped to deliver a successful outcome on other key objectives too. I commend the Bill to the House and trust that your Lordships will give it a Second Reading. I beg to move.

Moved, That the Bill be now read a second time.—(Baroness Chalker of Wallasey.)

3.12 p.m.

Lord Richard

My Lords, this is the Second Reading of this Bill. If I may say so to the noble Baroness, I did not realise it was going to be a congratulatory inquest upon the genius of the Prime Minister and his negotiations at Edinburgh, but there it is. With the benefit of hindsight, no doubt all things appear more rosy today than they did at the time.

I must say that on the face of it this Bill really should have been a simple one giving rise to little controversy. It is, after all, meant to be a measure giving effect to the new "own resources" position which was agreed at the Edinburgh Summit. It has now been certified by the Speaker of another place as a money Bill and therefore the powers of this House are necessarily limited. As I understand the position, it has to have completed its passage through this House by Thursday. There is therefore, it seems to me, a certain unreality about our proceedings today and tomorrow on this measure. No amendment that is carried in Committee will have any effect, and for all practical purposes our powers in respect of this piece of legislation are insubstantial.

That we are considering a money Bill of this sort in this kind of detail at all is due not to anything intrinsic to the measure itself but rather to the extraordinary political tangle in which the Government seem to have enmeshed themselves. First, they made this an issue of confidence in another place, thereby transforming what should have been a relatively uncontroversial measure into one going, if I can coin a phrase, to the heart of the continuation of the Government themselves.

Secondly, by depriving eight Conservatives of the Whip, thereby destroying his parliamentary majority, the Prime Minister has created a group of dissidents within the Conservative Party who have to be placated if the Government are now to survive.

Hence, too, the extraordinary statement on a referendum which the Prime Minister made yesterday. If Mr. Major is to go to the intergovernmental conference next year with his mind set on vetoing anything which might give rise to renewed Euro-sceptic calls for a referendum, he really is handing control of the British negotiating position at that conference to the very group of people he has so recently deprived of the Whip. Either that or he goes quite determined to make the intergovernmental conference a failure. Why on earth should the others now pay any attention to what Britain says at that conference? They know in advance that his negotiating position is at all costs to avoid trouble at home. Is this at the heart of Europe? It is one more step in the increasing marginalisation of Britain in its relations with the European Community—a process that many of us find totally unacceptable and nationally extremely damaging.

Thirdly, the Government got themselves into this mess because their sums were wrong. For the Chancellor of the Exchequer to discover on the eve of the debate in another place that he was £700 million out in his figures was, to put it mildly, somewhat careless. One would have thought that on an issue as sensitive as this, the Government would have made sure that the arithmetic was correct before they brought the measure to the House of Commons; so the House may have gathered that I have little sympathy for the predicament in which the Government now find themselves.

To turn to the provisions of the Bill itself, what are its objectives? The Treasury Bench may mutter, but I am bound to say with great respect that most of the speech of the noble Baroness who introduced this Bill had nothing whatsoever to do with this measure. It was a paean of congratulation to the Prime Minister for his enormous success in his European policy which, if I may say so to the Government, is not perhaps the most noticeable of all the successes that the Government could claim.

What are the objectives of the Bill? First, it enshrines in United Kingdom law the decisions made by the Council of Ministers on 31st October 1994 on the system of financing the European Communities. The principal decisions, as I understand them—I am bound to say that I have followed the figures with some difficulty and I am always grateful for any guidance that I can get from the Benches opposite, or indeed on occasions even from the Bench immediately behind me—were, first, to raise the ceiling for the EC's "own resources". At present this is 1.2 per cent. of EU members' GNP. The proposal is that gradually it should be raised to 1.27 per cent. by 1999. For the noble Baroness to describe that as a freeze seems to me to be somewhat straining the English language, but there we are. As I have said, the figure will rise to 1.27 per cent. by 1999.

Secondly, it was decided to adjust the formulae for calculating how much each EU member pays over. The changes broadly increase the weighting given to GNP and reduce the weighting given to VAT. The Government argue that this will benefit the UK. So far, so good. Even a bear of little brain such as I can follow that part. But what will all this cost? I am bound to say that this is where the matter becomes a little more complicated. A Written Answer of another place of 23rd November set out the Government's latest figures.

The Government argue that the net cost to the UK of decisions made at the Edinburgh Summit is £75 million in 1995 rising to £250 million by 1999. I am not quite sure how the Government arrive at those figures, but that seems to be the firm basis upon which they have chosen to stand. But public sector net contributions were already set to rise. The figures fluctuate from year to year; but, as I understand it, the underlying trend is for our net contribution to rise by £850 million between 1995 and 1999. That is the kind of figure that we are talking about.

It is clear that the Treasury badly miscalculated its forecast of our net contribution to the Community this financial year. It is now expected to be over £700 million higher than predicted in the Treasury's departmental report last March. The £700 million, as I understand it, is made up of a miscalculation. There is to be a £900 million rise in our contributions plus a £200 million shortfall in our receipts offset by a £400 million rise in our budget abatement, and that produces the £700 million. I think that is right, is it not?

Baroness Chalker of Wallasey

My Lords, perhaps the noble Lord would like a little help. First, it would be helpful to your Lordships' House if we got some facts straight. The noble Lord has not noted the fact that in this country we work on a financial year basis, as does Sweden, while the Community works on a calendar year basis. That means that the movement of one month's figures during the period January to March or January to April can make a great difference in UK spending of approximately £400 million to £500 million. That is why it is difficult to forecast the net contribution.

The estimate of the net contribution has varied. Back in 1991 the net contribution for the current financial year 1994–95 was estimated to be £3.3 billion. In 1992 the estimate went down to £3.1 billion, and in 1993 it was reduced to £1.7 billion. The closer one is, the better one's forecast can be. The present forecast outturn is £2.4 billion, £900 million less than the forecast of some three years ago but more than last year's forecast. That may explain the figure of £732 million mentioned by the noble Lord.

However, the noble Lord cannot deny—and his noble friend sitting next to him will tell him—that forecasting is not an exact science. With the movements between financial years and calendar years he will find that it is not possible to estimate these matters precisely, if he ever has a chance to do so.

Lord Richard

My Lords, I am greatly obliged for that clarification. I should be surprised if any Member of the House followed that rigmarole.

Of course forecasting is difficult, but one would have thought that a competent government could have done better than to get the figures right only three days before the debate was due to take place. I shall, with attention, read in Hansard what the noble Baroness said, and I shall get out my slide rule to see whether I can make sense of it. Of course the nearer one is to the forecast period, the more able one is to work out what the figures ought to be. I entirely accept that. However, it may be true that one can be so far wrong because one is working on a different basis, but if it is true it is surprising that the Treasury did not spot the fact before the mistake was made. However, there it is. I can only say to the noble Baroness that she has made a confusing situation more confusing by her attempts at clarification.

At Second Reading in another place the Opposition tabled an amendment in the following terms: the European Communities (Finance) Bill is not an acceptable measure as it increases United Kingdom contributions to the European Union without action by Her Majesty's Government to cut fraud and waste in Europe or to reduce expenditure on the Common Agricultural Policy". We have not tabled a similar amendment in this House, and I shall explain why.

First, on the whole it is undesirable that we should move too far away from the general understanding (to use a neutral phrase) that Bills in your Lordships' House receive a Second Reading. Given the revising nature of this House, that seems to me to be a sensible position.

Secondly, the argument applies a fortiori when the Bill in question is a money Bill. In that case our powers are so severely limited that to seek to amend the Bill on Second Reading would not seem to me to be a sensible exercise of a power which we may possess in theory but which in any real sense of the word is non-existent.

Thirdly, the issues which were raised by the Labour amendment in another place are perfectly legitimate matters for discussion by your Lordships' House, either on Second Reading or tomorrow. They can therefore be properly aired. The argument seems to me to be valid, although this is not perhaps the best vehicle for considering it in this House.

If any amendment is moved tomorrow in terms which are acceptable, I shall obviously advise my noble friends that they should support it. However, I have to tell the House that the party has not been whipped on this matter and we do not propose to do so. I turn now to fraud and the common agricultural policy. There are legitimate concerns regarding fraud and waste in the Community. How much fraud and waste is there? By definition nobody can be certain. One estimate puts it at £4.5 billion (7 per cent. to 10 per cent. of the EC budget), while Mr. Knudsen, the Danish head of the European Commission's fraud investigators, suggests that the loss is 2 per cent. of the budget. We know the latest figures for detected fraud, which show that in agriculture alone the number of cases rose by more than 50 per cent. between 1990 and 1993 and looks set to rise again by another 30 per cent. in 1994.

However, we should not forget that no less than 80 per cent. of European Community spending is administered by the relevant departments of national governments. Our Government have acknowledged that the primary responsibility for the prevention of fraud falls on national governments and that the Commission has a co-ordination and support role only.

For the life of me I do not understand therefore why the Government have failed to take up money which has been on offer by the Commission for use in Britain for anti-fraud work, particularly relating to the common agricultural policy. In 1991 the Community made available to Britain 1.5 million ecus for anti-fraud work. The Government took up not one penny of it. In 1992 1.4 million ecus were available and 80 per cent. of that sum was not taken up. In 1993 92 per cent. of the available money was not taken up. I find it hard to believe that the Government are so confident of their own methods of detection and combating fraud that they can ignore money which is on offer. That is a real issue which so far the Government have failed properly to address.

So far as concerns the common agricultural policy, I should like to mention two facts. The CAP budget has risen from £6.4 billion in 1979 to £30.4 billion in 1994. That is a rise of 50 per cent. in real terms since the party opposite came to power. On the latest available figures, the CAP is now costing a family of four £20 a week.

Those are real issues which, in our submission to the House, the Government have failed properly to address. The fact is that spending on the common agricultural policy is too large and should be diminished. So far the Government's success in that area is not marked.

We do not oppose the Bill. We recognise that it is necessary in view of the decisions taken at Edinburgh and in the Council of Ministers. However, we say that in the two fields of fraud and the further reform of the common agricultural policy the Government could and should have done more than they have. In that spirit we are prepared to give the Bill a Second Reading.

3.27 p.m.

Lord Thomson of Monifieth

My Lords, as the noble Lord, Lord Richard, has just said, in many ways this is a strange debate. This is a certified money Bill which is not usually the stuff of debates in your Lordships' House. It is a short, simple, two-clause Bill. As the noble Baroness, Lady Chalker, says, it arises from an inescapable international commitment made at the Edinburgh conference. It relates to a relatively small increase in the financial cost to the taxpayer, which by the end of the century will cost each person in this country about 7 pence a week at today's prices.

However, the Bill raises issues of significance. The first concerns the current financial management of the Community. Even more importantly, it provokes a legitimate debate, about which we shall no doubt hear a great deal, relating to the most important issue in British foreign policy for the next generation—Britain's role and relationship with the European Union.

On the management of the Community's finances, the avoidance of bureaucracy and waste and the prevention and punishment of fraud there is a great deal of common ground in your Lordships' House and in another place between those who are anti-European Union and those of us who are pro-European Union. We are all opposed to waste and fraud and unnecessary bureaucratic rigidity, but we hold those positions for widely different reasons. The "antis"—I refuse to dignify them by the name of Euro-sceptics—are against British membership of the Community as a matter of conviction, a perfectly honourable position. The antis exploit waste and fraud for the purpose of persuading people in Britain that we made a mistake in entering the Community and that we would be better to find some escape route out of it. Those of us who are pro-European Union want to tackle waste and fraud because it discredits the European Union and obstructs its development. It is better for us to be clear about the opposing motives.

Waste and fraud, and bureaucratic arrogance and inertia are part of every society. We have our share of them domestically in this country, as reports of the PAC in another place and the reading of the City pages in our newspapers tell us. We should not get into that mood of self-righteousness which indicates that fraud is for foreigners. We should combat fraud vigorously both at home and abroad, and indeed eternally, because to restrict bureaucracy and to deal with waste and fraud is a never-ending battle in a democratic society. In the European Union the antis must recognise that fraud is primarily due to the laxity of national administration, as the noble Lord, Lord Richard, said. If fraud is to be dealt with more effectively, it requires more Community enforcement, with a pooling of sovereignty over our jealously guarded police and judicial processes.

Equally, those of us on this side of the House who are pro-European Union but critical of the Government's performance over European Union waste and fraud had better be a little cautious. At a time when the Government are 39 points down in the public opinion polls, I would be careful in Opposition with any rash promises about cutting the costs of the CAP or of transforming the performance of the Court of Auditors. The reality of the European Union, as the noble Baroness, Lady Chalker, said, is that all progress has to be made by compromise and consensus, and is a slow and painstaking business.

However, it is a worthwhile business. Britain's financial contribution to the European Union, however it is finally calculated, is the price that we pay for being at the European Union table as a major member with the possibility —it is only a possibility—of shaping the economic and political development of the Union in a way that is consistent with the influence which Britain ought to bring to bear in European and international affairs. At between 1.2 per cent. and 1.27 per cent. of GNP, it seems to us on these Benches to be a price well worth paying.

In an extraordinary speech in another place—extraordinary in the sense that he was the Chancellor of the Exchequer who helped to negotiate the financial arrangements contained in the Bill—Mr. Lamont said that we should consider all our options, including withdrawal. The option of withdrawal would leave the United Kingdom in a much worse position in Europe than Switzerland or Norway, which have never been in the Community and have never had the responsibilities or the possibility of influence in international affairs which Britain has. In an atmosphere of bitterness and hostility, we should be at the mercy of developments made by the other members of the Union in their own interests.

The more likely option, if the Government maintain their present approach, is that we are to become a semi-detached member of the Community, opting out and grumbling all the time, eroding the experience and influence which Britain should be bringing to the developments in our increasingly dangerous and violent continent.

The hopes of a new world order which we had at the time of the ending of the Cold War have quickly crumbled. America is distancing itself from Europe, leaving Europe to get its own act together. In Europe, including Russia, the uglier aspects of nationalism and ethnic fanaticism are rearing their head. The European Union remains a centre of cohesion and stability in an increasingly turbulent continent. It is vital that Britain should play a major role in building an economic union of employment and prosperity—and, on those economic foundations, a much more effective European foreign and security policy.

But what are the Government doing? Even when they have sensible ideas about, for example, subsidiarity or Europe's international competitiveness, they pursue those with opt-outs and vetos which undermine our influence on the big long-term issues of collective policy-making. And in our Parliament where the great majority, while not uncritical of the European Union, are in favour of Britain being a member of the European Union, the Government conduct their policy to appease a small minority of their Members who are fundamentally opposed to the European Union.

What the Government appear to overlook is that that small minority is not to be appeased, since its views are rooted in conviction. A referendum has been widely canvassed by the antis in this appeasement game. Whatever the case for a referendum in the future, if big constitutional issues arise —and there are good arguments both ways on that issue—one thing is certain: a referendum does not work in uniting a divided party. I believe that I can speak with a little authority and experience on that with regard to what happened in the Labour Party. The Labour Government's referendum of 1975 was designed to hold together a divided party. It produced a decisive two-thirds majority in favour of remaining in the Community. But to this day the antis in the Labour Party have never accepted that verdict. We shall have some evidence of that later in the debate. In 1983 they actually persuaded the Labour Party to fight an election on withdrawal from the Community.

The antis in the Tory Party would act no differently in a future referendum when it went against them. In the meantime they would treat the offer of a referendum as an invitation to step up their campaign for the withdrawal in which they actually believe. As the noble Lord, Lord Richard, said in the opening remarks of his speech, the Prime Minister carried his appeasement policies a great deal further yesterday in his television interview with Sir David Frost, when he said that at the 1996 IGC he would veto any suggestion of constitutional change. There is little to choose between that commitment and the views of Mr. Portillo and those whom he leads inside the Conservative Party. The Prime Minister seems to be surrendering to the anti-European Union minority in his own party. "If you can't beat 'em, join 'em", seems to be the mood of resignation in which he has started the New Year.

That blanket commitment to veto change in the European Union is at a time when expanding membership makes constitutional change inevitable. It is not a question of that much abused word "federalism", but of effective decision making and of making the institutions of the Union, including the European Parliament, more democratically accountable. The ambitions of the Visegrad countries for membership will compel radical and welcome reform of the CAP. There are complex and difficult changes ahead for the European Union to which there are no simple answers and to which Britain should be making a positive and constructive contribution. The changes will take place in any case. The Union will move forward slowly but inexorably to economic and monetary integration. Britain can help to shape those developments or Britain can develop a policy of opting out. Both Britain and Europe badly need an opting-in not an opting-out government in this country. Yesterday's surrender by the Prime Minister makes it plain that that can now come about only with a new Government with a new approach to the future of the European Union.

3.38 p.m.

Lord Kingsland

My Lords, I understand that of all the characteristics of a maiden speech, the one that really matters is that it be short. I well recall the words of my noble friend Lord Harmar-Nicholls regarding first impressions addressed to me when I became a Member of the European Parliament some 16 years ago. He said that once you gain the reputation of getting up at midday, it does not matter how often you subsequently get up at dawn. I shall bear those words in mind in making my remarks to your Lordships this afternoon.

I should like to touch, telegraphically, on three matters: on the question of fraud; on the share of the British contribution to the budget; and on the structure of the budget. The most important point to make about fraud is the most obvious one. If you are going to reduce the propensity to fraud, you must remove the opportunities to be fraudulent. The biggest opportunities to be fraudulent lie in the guarantee section of the common agricultural policy, in particular buying into intervention and the provision of export subsidies. If we could only remove those opportunities, we would solve the lion's share of the problem. I am glad that, to a great extent, through the efforts of Her Majesty's Government, the progress made in the GATT negotiations towards getting to grips with the guarantee section has been substantial and welcome. I hope that the Minister will pursue those matters with her customary vigour in the years to come.

The other point I wish to make about fraud is this. The incidence of fraud differs greatly, depending on the country we look at. The rules about spending are made at the centre, by the Community institutions, but they are implemented and enforced by the member states at the periphery. Different member states have different views about the implementation and enforcement of laws; indeed, to some extent, different views about the treatment of commercial corruption.

In my submission, therein lie the strength and weakness of the doctrine of subsidiarity. As your Lordships know, the doctrine, as it applies to the Community, requires rules to be made at the centre but the application of those rules to be by the constitutional traditions of each member state. In this system, the European Commission does not have executive powers; it does not have powers akin to those of a national government. Indeed, the Commission has no executive powers except in one area on which I wish to touch in a minute.

The great advantage of the system is that, apart from rule-making, member states do all the governing. The great disadvantage is that the law is unevenly implemented; and, where financial matters are concerned, citizens are taxed in one country only to see their money squandered in another country.

Thus the question we must ask ourselves is: ought we to make an exception to the doctrine of subsidiarity in budgetary matters? There is only one other area in the Community where such an exception has been made and that is in competition policy, where the Commission has powers on the territory of member states akin to the powers of their own national governments.

It is an attractive thought in some respects because of the scale of the problem of fraud, but I believe that we ought to reject that solution. We must find a solution which is consistent with the principle of subsidiarity. That is why I believe that the decisions made at Edinburgh were sound: at the centre, to tighten up the rules that are made by institutions and, at the periphery, to encourage member states to apply their criminal law more vigorously and treat fraud on Community reserves as seriously as they would treat fraud on reserves raised by their national budgets. I greatly welcome the initiative in that regard by my right honourable friend the Home Secretary in his draft convention last March.

As to the British contribution, I simply say this. In my view, Her Majesty's Government obtained an extremely good deal at Edinburgh. The Fontainebleau provision was preserved. The new rules enshrined in the Own Resources Decision relate national contributions much more closely to gross national product and much less closely than in the past to VAT. That is good for Britain. Again, if we consider what we spend nationally, we see that our national budget is now almost some £300 billion a year—about 43 per cent. of the total GNP in this country. The net contribution of the British public sector over the next 12 months to the European Community budget will be £2.4 billion, so its scale is modest in comparison with what is happening nationally. Much of that money would have to be spent nationally if it did not come from the European Community. I think particularly of aspects of agricultural support and also the structural funds. I am aware, from a part of the country that I know well—the county of Shropshire—how beneficial much of the European Community money has been to the generation of employment and exports, and also to the environment.

In conclusion, I believe that we have the scale of the European Community budget about right. Our own budget is 43 per cent. of our total GNP, and the Community budget is about 1.18 per cent. of the total GNP of the Community. That is not a large sum of money. Moreover, the Community is not entitled to borrow money, so there is no question of the budget being used actively as a means of economic regulation.

What we must guard against in the future is the budget being used as a substitute for national budgets. It should be complementary to national budgets, not competitive with national budgets. Above all, it should not be used as a system for transferring massive sums of money from the wealthier countries to the poorer countries—attractive though that may seem to some. The reason is this: with the national budget, where we give up large sums of money to the Exchequer, we accept the legitimacy of the Government in spending them on other people. But that degree of legitimacy does not exist yet within the Community institutions. Whether it will ever do so is a matter for future generations to see.

3.46 p.m.

Lord Bruce of Donington

My Lords, it is a pleasure for me, on behalf of the whole House, to congratulate the noble Lord on his speech. This is an appropriate occasion for him to make his maiden speech because he has been a Member of the European Parliament since 1979. I regret that I had to leave the European Parliament at the time he arrived and unfortunately we never met officially within the Parliament. I should like to commend him on his thoughtful and helpful speech made to the House this afternoon.

The noble Lord and I have other interests in common in the sense that he was a Member of Parliament for a constituency which I twice contested unsuccessfully in The Wrekin. I do not know whether there is a philosophical connection between us, but I observe that he wrote a book called Market Socialism in Yugoslavia in 1985. I shall read it with renewed interest. In the meantime, on behalf of noble Lords, I hope that he will find it convenient to address the House quite frequently on a subject of which he is quite obviously a master. My noble friend Lord Richard announced that, in his view, the Bill before us this afternoon is uncontroversial. I am glad to observe that the coalition between the Government Benches and my own—or at any rate the Front Benches—remains in existence. They appear to be near each other on the matter. However, from the outset I have been a little puzzled, and I remain puzzled, as to the rationale that lies behind the conduct of the Government in relation to the Bill and the principles behind it and those which the Government apply here at home. We are repeatedly told, practically every day, of the necessity for the utmost economy in public expenditure—a sentiment which is from time to time endorsed, especially by the noble Lord, Lord Boyd-Carpenter and many other Members on the Government Benches. Day after day, we hear of niggling economies being made—really niggling ones which hurt. Indeed, the whole principle appears to be: "If it isn't hurting, it isn't working". We get silly, ridiculous, sometimes harmful and hurtful economies relating to the National Health Service; to the ambulance services; to education, in relation to books, the size of classes, repairs to buildings, and so on. Economies are the order of the day.

The whole government philosophy in regard to expenditure is that anything that is spent in this country, largely for the benefit of its own citizens, is subject to the most rigorous examination and control—wherever a cut can be made, a cut is made. When it comes to public expenditure which goes out of the country—as, for example, the net £3,000-odd million per annum which goes out of this country in the first instance—all that control seems to disappear. To incur an extra net expenditure (which is what is involved) in the British net contribution to European Community funds seems not only to be accepted (not even accepted as a kind of reluctant necessity) but accepted at a time when there is a three-line Whip and a suicide pact in the Cabinet to enforce it. That seems to me to be slightly odd. It almost defies rationale. On the one hand we agree, non-controversially, to anything between £2 billion and £3 billion a year being paid across the exchanges into the European Community; and yet we go down to the nearest half million or even £50,000 in making economies in all kinds of services that we provide. It simply does not add up.

The Government, of course, have an answer for this. In fact they give a number of answers, the first of which is that we are honour bound to do it because of an agreement that was concluded at Edinburgh. All that the Edinburgh agreement did was to confirm for each of the member states that they would recommend it to their own parliaments for acceptance. They did not accept it themselves as such on behalf of the country. All they did was to make a recommendation. Therefore, to say that somehow Edinburgh created a moral or even a legal obligation which excuses this seems to me to be a little wide of the mark.

The second excuse given is that, after all, under this Bill all we are doing is fixing a ceiling beyond which budgeted expenditure may go. The Chancellor of the Exchequer—behaving in the manner of Arthur Daley in "Minder" rather than that of a Minister of the Crown— has sought to minimise this. He said that the expenditure itself would be determined by the budget. He knows, and the House knows, that the budget is determined by qualified majority. It is not a matter over which the United Kingdom has any veto. If he examines the evidence of the period before the Select Committee of this House on the subject he will find that in practice, leaving a small margin below the ceiling, the budget is adopted by qualified majority whatever the United Kingdom likes to do about it.

The budget for the year 1995 did not in any case cause very great concern to Her Majesty's Government. It was debated in another place in a period of one hour with 20 Members present and was dealt with by way of noting all the documents. There was no disapproval of it. There was no examination whatsoever. The interest of another place in the budget is so minimal as almost to justify extended Sessions in this House, which takes these matters far more seriously, in order that the country may be better protected.

On the assumption that those arguments are disposed of—as I believe they are—the Government then have a fallback position; namely, that in any event it represents good value for money that this should be done. But they had some doubt about it. In a recent feature in The Times Mr. Douglas Hurd was able to claim as a benefit the fact that Britain was £3 billion in trade surplus with the Community. When I saw that statement I almost shot out of my seat. It is not true; but no correction has appeared. In point of fact, the trade balance between the United Kingdom and the European Community over a period of 10 years has been of the order of a £72 billion deficit; and a greater proportion of our invisibles, let alone visibles, goes to states outside the European Union. So that course will not run.

Then the Government say that there is value for money on other grounds; that somehow there is a general benefit—unspecified, not reducible even to money terms—to the United Kingdom as a result of being a member of the Community. We all know from Treasury sources, and the point is fortified by Mr. Hurd himself, that £28 a week is the extra cost to an average family of four of being in the Community.

Then it is said that there are other hidden values in terms of investment, and that it is well worthwhile incurring the extra expense because of inward investment into this country by interests outside the United Kingdom that would not otherwise invest here. Again, that argument will not stand up. Noble Lords will know by now, I trust, that the outward investment by financial interests in the United Kingdom exceeds very considerably the investment that domestic finance sources put into the United Kingdom itself. There is, in fact, a deficit on investment in the UK. Indeed, the evidence is that the reason for such investment as does come here—apart from the excellence of the services that the labour force provides—lies more probably in the level of wages in the United Kingdom. So on the question of value for money, it simply does not add up save in terms of vague aspirations and very general statements. The fourth fallback of the Government's position is that it ensures that we are at the heart of Europe. I do not know; I am still puzzling about what being at the heart of the European Community really means. I can only refer to the speech of the right honourable gentleman the Member for Kingston Upon Thames on 28th November, where he reveals what being at the top table, being on the inside, really means. He recounts, quite openly, what happened under the British presidency—perhaps we had a little more influence then than usual—when he tried to call a meeting of members of ECOFIN to discuss the whole question of fraud. He told another place that only a few members of the council had turned up and that those who did read newspapers and made no contribution at all. He said that at the same meeting the President of the Commission, Mr. Jacques Delors, told him that he was out of order in raising the question of fraud at ECOFIN because it was a political matter. That does not seem to be buying much influence, does it? I should be grateful if some reply could be given to that point.

What will happen unless we put a stop to it—it has happened over the years—is that Britain will be at the mercy of an unrepresentative bureaucracy in Brussels which will see to it that on every occasion when it cannot publicly humiliate the British delegation it will at least take steps to ensure that any constructive suggestion coming forward from the British Government is immediately countered by a Commission move. It will use money and its control over the structural funds to obtain the support of countries such as Spain, Portugal, Italy and France to attack the British position and make quite sure that on no account will Britain get anything at all of which the Commission itself does not approve. I should be very glad indeed if the accusations that I now make, and which in due course I shall prove, can be denied by the Government. I do not believe that they can.

This is a bad arrangement. It brings no benefits at all to the United Kingdom. But one thing that it shows depressingly is that both the Government and Opposition in the United Kingdom seem automatically to have taken up a suppliant position in Europe. That is a posture to which I am not accustomed. It is a Britain that I decline to accept. I do not say that we should be unreasonable. We ought to do our best to co-operate with all member states. I am sure the noble Baroness will agree that such has always been my view and I have always sought to promote it, whether as a Member of the European Parliament or outside.

I hope that there will be a change of heart and that we abandon that suppliant posture and assert the rights—not extraordinary but reasonable rights—that a country of our history and democracy deserves. We should consider our whole record in the fight for freedom in the world, when most of those other states had no democracy at all. Those rights should be restored. I hope that this debate will vindicate the position that I have sought to lay before the House with all the emphasis at my command.

4.4 p.m.

Lord Cockfield

My Lords, the peroration of the noble Lord, Lord Bruce of Donington, reminds me of the ancient clerihew about the speeding motorist: He was right, dead right, As he sped along, And now he's as dead As if he were wrong. Despite the injunction in the Companion to Standing Orders that only the immediately following speaker, because he speaks on behalf of the whole House, should congratulate the maiden speaker, on this occasion I should like particularly to congratulate my noble friend Lord Kingsland on an outstanding and valuable maiden speech, which was notable not only for its brevity but for the enormous amount of wisdom that was compressed into so short a period of time. Apart from being a Member of the European Parliament—a distinction that he shares with the noble Lord, Lord Bruce of Donington—he was also Chief Whip of the Conservative Party in the European Parliament and subsequently its Leader. I have no doubt that his experience will be of singular value not only to your Lordships but possibly even in a wider circle.

As has truly been said, this Bill has been certified as a money Bill and therefore what your Lordships can do about it is very strictly limited. Indeed, the limitations on your Lordships' powers in relation to financial matters certainly go back so far as the civil war. I refer of course to the civil war in which Charles I was involved. After 350 years I doubt very much whether, in the next 48 hours, we will change the rules so far as financial matters are concerned.

Therefore, the debate today and those which will follow tomorrow at the Committee stage, are no doubt intended as an opportunity to allow disaffected elements to express their views on a whole range of subjects, none of which has more than peripheral relevance for the Bill before your Lordships. Nevertheless, in view of the large number of noble Lords who have expressed views on a number of important matters, it is impossible for me not to tread the same broad path, despite what is said in the Bible about where the broad path leads one.

I shall start with a very brief word about the intergovernmental conference of 1996. It will be a very brief word because I spoke about it at some length in the debate on the Address on 17th November last year. The point that I made then, which I believe is critically important, was that the agenda for the intergovernmental conference is laid down in the Treaty of Maastricht itself. The agenda is specifically related to: the effectiveness of the mechanisms and institutions of the Community and the policies are only to be looked at in so far as they affect the "effectiveness of the mechanisms and institutions".

The point is important for three reasons. First, I believe that we already have enough policies on the table for the Community to be getting on with for a very long period of time. Secondly, what matters is making a success of those policies. Thirdly, the writ in the Treaty of Maastricht gives no support whatever for an attempt to pull up existing policies by the roots, to re-examine them and reject them. That is just as important as the issue that it gives no authority for the introduction of new policies.

On more than one occasion I have expressed the view in your Lordships' House that it is a great pity that the Community did not proceed to a successful conclusion with economic integration before it embarked upon political union.

Lord Harmar-Nicholls

Hear, hear!

Lord Cockfield

I am glad of the support of my noble friend Lord Harmar-Nicholls. I shall have less support when I tell him what that implies.

Economic union, which is very much in the interests of this country, comprises the single market. It comprises international or external trade; it comprises a single currency and, for example, such things as reforms in corporate taxation to enable the single market to operate effectively. I believe that those policies, which lead to greater rather than less integration in the Community, ought to be carried through to a successful conclusion as our first priority.

I hope that on some occasion we shall have an opportunity to debate the 1996 conference in detail in your Lordships' House. It is difficult to do that without a statement of government policy forming the basis upon which such a debate should take place. I regret to say that at present government policy reminds one of the story of the blindfolded man in a darkened room searching for something that is not there. Let us hope that by the time we come to our debate at least something will be found which will form a firm basis for that debate.

I want to turn briefly to the question of fraud. Many years ago that great Irish humorist, Patrick Campbell, wrote a story entitled The Day the Truth Got Out. I fear that in relation to fraud that day has now come. I regret to say that the Court of Auditors, as well as your Lordships' Select Committee, completely misunderstand the matter. They both talk as though the primary responsibility rests with the Commission; it does not. It is absolutely clear that the primary responsibility rests with the member states. The Commission's role is one of reimbursing expenditure incurred by the member states.

Let me illustrate that point by reference to what happens in the United Kingdom. I choose the United Kingdom because I understand the administrative procedures here better than I understand them in Greece—if anyone understands them in Greece—Italy, Spain or any of the other countries. I want to make it quite clear that I accept that the level of fraud in the United Kingdom is small by comparison to what occurs in not all but most other countries. For example, I believe that the Germans, the Danes and the Dutch are just as honest and reputable as we are. Because I choose the United Kingdom as my illustration, I do not want it to be thought that I am saying that the United Kingdom is a bad case; it is not; it is a good one.

Let us look at the common agricultural policy. The money is not expended by the Commission. It is expended by the Intervention Board in Reading and by corresponding bodies in Scotland, Wales and Northern Ireland. To whom is the Intervention Board responsible? It is not responsible to the Commission in Brussels. It is responsible to the Ministry of Agriculture, which one can find only five minutes' walk from here.

Lord Harmar-Nicholls

My Lords, is not the Intervention Board's authority confined only to storage?

Lord Cockfield

My Lords, no. The Intervention Board pays out the money which is payable under the guarantee side of the funds. A booklet was published by the Intervention Board which sets that out clearly, and I suggest that my noble friend procures a copy and reads it.

The Ministry of Agriculture is not responsible in any way to the Commission in Brussels; it is responsible to a Minister who sits just down the corridor from here. To whom is the Minister of Agriculture responsible? He is not responsible to the European Parliament, the European Commission, the Court of Justice or the Court of Auditors; he is responsible to the British Government and the British Parliament. What would be the position if in fact it were the Commission and the Community who were responsible? What would be the reaction if officials from Brussels raided the offices of the Intervention Board and started rummaging through its papers? I have no doubt that there would be a great outcry of indignation. What would happen if enforcement officers from Brussels made a dawn raid on the Ministry of Agriculture and seized its papers? The noble Lord, Lord Bruce of Donington, would be speechless with anger—that would be a sight worth seeing.

Lord Bruce of Donington

My Lords, I am grateful to the noble Lord for giving way. Is he aware that I am never speechless with anger? Is he also aware that so far his speech has not informed us of anything that we did not already know? In addition to dealing with the narrow question of fraud—in which I willingly admit (indeed as a Briton I am very proud of the fact) that our own country has a good record—will the noble Lord address himself to the question he has so far avoided? I refer to the question of irregularity and financial mismanagement and waste. If he thinks that he can exempt the Commission from that, then he has another think coming and I will debate it with him at any time.

Lord Cockfield

My Lords, I am sorry that the noble Lord should set himself up so easily as an Aunt Sally. I shall deal with that matter. I have not finished what I wanted to say.

What would happen if there was a police force in Brussels which could come into the United Kingdom, arrest people and put them on trial? There would be the most appalling outcry, and that is the truth of the matter. At long last the truth is beginning to dawn. At the time we were debating the humble Address I happened to be listening to Radio 4 and, in the immortal words of Damon Runyon, "minding my own business", when who should come on the air but the President of the Court of Auditors. He said that 80 per cent. of the fraud was the responsibility of the member states.

He is not the only one who is beginning to realise what goes on. I do not know whether any of your Lordships know who Mr. Haensch is. He is the President of the European Parliament—a body much accustomed to denouncing the Commission for tolerating fraud. At a press conference at the time of the summit in Essen Mr. Haensch observed—I realise that I am quoting a press report, but it has not been denied and I should think it is correct— 80% of fraud did not take place at Union level, but at national administrations level". The clincher—if I may be forgiven for using such a word —comes with the conclusions of the summit at Essen. My noble friend Lady Chalker referred to that summit. The presidency conclusions, a copy of which I hold in my hand, are arranged with typical German thoroughness in exactly the same way as the Maastricht Treaty is arranged; that is, it starts with matters of Community competence. That is Pillar I. It then goes on to deal with Pillar II, co-operation in the field of foreign policy and security. There is not a word about fraud under either Pillar I or Pillar II. We then come to Pillar III where, at page 19, it refers to co-operation in the fields of justice and home affairs. It is only when one turns to page 20 that one finds the section dealing with fraud. In other words, here is the clearest possible demonstration that fraud is essentially a matter coming under the third pillar of the Maastricht Treaty.

The point about the third pillar—this also applies to the second pillar but we are talking about the third—is that it concerns co-operation between the governments of the member states. There is no Community competence. The Commission is very largely kept out of the picture altogether. It is reduced to a mere secretarial role. The Court of Justice is excluded from the picture altogether. All of this was deliberate. It was the basis on which our own Government, together with certain other governments, negotiated the Maastricht Treaty. There lies the proof of the thesis that I am putting to your Lordships: that the responsibility rests firmly, so far as concerns at least 80 per cent. of the field—I agree with the noble Lord, Lord Bruce of Donington, that, in so far as the Commission is actually expending money itself, it ought to do so efficiently and there ought to be full accountability—on the shoulders of the member states. Unless and until that responsibility is nailed where it belongs, this problem will never be solved.

I said in your Lordships' House a few weeks ago that there is no point in shooting the wrong man, which in effect is what is happening at present. One wonders why on earth the Court of Auditors got it wrong, why your Lordships' Select Committee failed to understand the position and, above all, why the Commission ever allowed itself to be lumbered with this responsibility, which was largely outside Community competence and for which it had little or no legislative backing, for which it had insufficient staff and for which it had insufficient funds. We can well understand why the Council of Ministers—the people responsible—unloaded it on to the Commission, because that put the Council in the position of being able to unload its responsibilities and its guilt on to someone else. Why did the Commission take it on? Part of the answer is that it was responding to what it felt was pressure but also, I regret to say, because it tends to be in the nature of bureaucracies to seek or to accept additional power. Speaking as a bureaucrat of very long standing, because I first entered the public service more than 60 years ago, it is a temptation that takes a very strong man to resist. The Commission very unwisely took it on, and one can see the results.

There is an answer to this and it is a very simple answer. However, it will never be accepted, of course, largely because it would be effective. The answer lies in applying the basic principles of the market economy: one has to put responsibility on the shoulders of those who benefit. What one does is perfectly simple. One says that whenever a country seeks reimbursement of money it has expended from the Commission—it is the Commission's job to reimburse countries—it gets back only 49 per cent. and has to pay the other 51 per cent. itself. Once a country finds—it will not take it very long to find—that it has to pay the greater part of any fraud or mismanagement, or failure to deal with it, once it has to justify such expenditure to its own taxpayers, it will begin to take a somewhat different attitude towards the question of fraud. One will find a revolution in thinking in ECOFIN and in other bodies of this kind. Of course there will be a great outcry, but the greater beneficiaries under the common agricultural policy, which are the northern states—France, Germany, Holland and Denmark—will gain far more from the reduced amount they have to pay into the Community than they will lose by having their reimbursement reduced to 49 per cent.

With regard to the poorer states, effectively what one has at present is an appalling bureaucracy, both at the national and the Community level, handing out money to these people. It would be much better and much more transparent if one simply gave them the money as a cash grant, modulated according to their relative wealth. One could then see very clearly and without any doubt what they were getting. One could see how they expended it and whether it was wisely spent. However, the important point is that one would have removed altogether the present distortion which means that fraud pays member states. That is why one has fraud.

Lord Stoddart of Swindon

My Lords, before the noble Lord sits down, perhaps I may ask him a question as I found what he has just said extremely interesting. Is he suggesting the partial repatriation of the CAP to member states?

Lord Cockfield

My Lords, "partial repatriation" has all kinds of meanings. I am saying that the member states should be reimbursed for only 49 per cent. of the cost. The rest they would have to shoulder themselves. But that would apply to all Community expenditure.

4.26 p.m.

Lord Elis-Thomas

My Lords, it is a pleasure to follow the exposition of the noble Lord, Lord Cockfield, of where responsibility and powers lie in the area of expenditure on the CAP and in other areas of spending within the Community and within member states. It is also a pleasure to add my congratulations to the noble Lord, Lord Kingsland, on his maiden speech.

It is important that we are hearing in our debates from people who have expertise within the institutions of the European Union. There have been complaints on a number of occasions that both this House and another place are not sufficiently involved in commenting on policies relating to the Union as a whole. I feel that a debate such as this, even on the limited nature of the legislation before us and the way we can influence it, is very important in providing us with an opportunity to talk about European Union policy more generally and about the implications of the Bill before us.

I was pleased that in opening the debate the noble Baroness the Minister referred to the developments following on from the Edinburgh package and the ensuing Councils of Ministers, particularly in relation to enlargement. We are now able, at the beginning of this new year, to welcome Sweden, Austria and Finland as full members of the Union. I am certain that their social and democratic traditions and their deep concern for the environment will be of benefit to all our debates on these policies within the Union.

The Minister also referred to the hopes and aspirations of central and eastern European states in relation to the Union. The lack of effectiveness of the CSCE, the organisation responsible for co-operation and security in Europe, in dealing with situations of security and stability within nation states in central and eastern Europe can only make the states there look more to the European Union as an area in which they can integrate in terms of security as well as in terms of economic and social policy.

The Minister also referred to the importance of the resources devoted to the CAP within the Union, a matter raised by a number of noble Lords. It is important to emphasise that the more the CAP is shifted away from the system of guaranteeing prices and into diversification, rural development and agri-environmental initiatives, the more that will directly benefit the Community as a whole and avoid the worse excesses of price support fraud. When policies are directly related to spending on end price support they are much more amenable to misuse than they are in the case of funding directly expended on projects related to enterprise, rural diversification or the integration of environmental and agricultural objectives.

In my short contribution I want to refer specifically to the language which is still being used in our European debates. It was used by a number of noble Lords this afternoon. I believe that I heard the Minister refer to the Danes as, "useful anti-federalist and decentralising allies within the Union". She also referred to making subsidiarity a firmer reality. A number of other noble Lords referred to the doctrine of subsidiarity.

In this House I stand as a European federalist and subsidiarist. I believe very firmly that government exists at different levels of co-operation and limited integration. There are certain functions which have to be carried out—and probably more effectively as we now look to the 50th anniversary—by international institutions such as the United Nations, UNESCO and so on. Within the European Union there are certain important functions which are continually debated and agreed on as areas of co-operation. I refer to the Maastricht Treaty as being the latest example and the IGC 1996 being the next stage of negotiating how powers are to be distributed between different levels.

Within the rest of the European Union there is a greater understanding that federalism and subsidiarity are two aspects of the same process; that federalism is about powers being located at an international level, at member state, regional and at commune or community and municipality level, within a state. All these levels are interrelated and are all integrated with each other in terms of co-operation.

Our tradition in the United Kingdom is of a unitary state with decentralisation permitted only by the acts of the central state. Therefore, when the noble Lord, Lord Bruce of Donington, speaks about the democratic traditions of the United Kingdom I believe that there are a number of lessons which that tradition can learn from the European tradition of decentralism and autonomy. Therefore, in that sense the Prime Minister's stand against the European Union in terms of further integration compares with his similar stand against subsidiarity within the kingdom. It seems to me that the Conservative Party is in great danger of appearing at the next election in the guise of British—or dare I say—English nationalists. There may be others of that persuasion in other parts of the House. But as far as I am concerned we have to debate our political relations with the European mainland and, indeed, our relations within these islands, in terms of the most effective level of developing and using political powers.

Certain functions are best delivered at a European Union level and certain others are best delivered at the lowest micro-Community level. This Bill is about the European Union level of resources and the fair contribution towards those resources from the United Kingdom, and allowing the European Union to function effectively. The debate on subsidiarity and federalism will not go away. It will come back to haunt this House until we realise that subsidiarity and federalism are indeed synonyms and not antonyms.

4.33 p.m.

Lord Boyd-Carpenter

My Lords, the fact that your Lordships' House cannot amend this Bill, it having been certified by Madam Speaker as a money Bill, does not detract, very much at any rate, from the great value of having this debate. Several of the speeches to which I had the privilege of listening earlier this afternoon have dealt most impressively and effectively with major issues that it is absolutely right to discuss and which can be very well discussed in your Lordships' House. Its influence has never been wholly dependent, or even mainly dependent, on its power to amend legislation: it has depended far more on the fact that your Lordships' House contains people of wide knowledge and experience on major public subjects and its debates have influenced opinion indirectly. In the long term that is far more effective than the right to amend a Bill, send it back to another place and then, in many cases, for the amendments to be rejected. I very much hope that the media will realise that, up to this moment at any rate, this has been a very valuable debate and that it is extremely helpful that your Lordships' House should debate this money Bill.

On points of substance, I want to come back to the matter which I raised in a Question earlier this afternoon. Our expenditure on behalf of and towards the expenses of the Commission is excessive. It is depressing that at a time when we are restricting public expenditure very firmly—and very painfully in some directions as one or two of your Lordships have pointed out earlier this afternoon—the proposal in this Bill is to increase by up to 9 per cent. the contribution which this country has to pay to the European Commission. It appears that there is no similar attitude of restraint on expenditure in the Commission as there is, mercifully, in the British Government.

The example which I quoted in the Question that I asked a little earlier today is a very illuminating one. No British Government—and, let me hasten to say, not even a Labour Government, if we ever have one—would conceivably indulge in the complicated folly of the Commission's handling of the tobacco question. To spend £800 million, of which £100 million comes from the British contribution, on producing a commodity which is commonly accepted as harmful and dangerous to health so that the Commission then has to spend a number of millions of pounds in trying to educate people not to use it, is financial lunacy. There is really no justification whatever for that expenditure. The argument is used that one or two of the Community countries, particularly Greece and Spain, cannot produce anything else and therefore if they cannot sell tobacco, they would be unable to provide employment for their people.

I find it very difficult to accept that it is really the case that there are European countries which, if they are forbidden to produce a damaging commodity, will simply make their people unemployed. A country which is organised on that basis is obviously badly run. No doubt the same argument can be adduced as regards growing cannabis. If one were permitted to grow cannabis, I am sure that one could employ quite a large number of people because it would command a very considerable market. But no one has suggested that. Yet if one reads the most recent medical reports, it is increasingly clear that tobacco is probably more damaging to health than cannabis or indeed other drugs which are very properly prohibited.

Therefore I suggest that to ask the British taxpayer to find £100 million a year to finance the growing of tobacco is a really outrageous provision. It is utterly indefensible. I am sorry that the Government have not taken a much firmer line on it.

I should have thought that when discussing what financial contribution should be made by this country, we should look into the use that is to be made of our contribution. If we do look into that, the most obvious source of criticism relates to tobacco subsidies. But that is not the only one: it is well accepted that agricultural subsidies are still far too high, particularly in respect of France. We have not been given the figures, but I believe that we are contributing a certain amount from British revenues to subsidise those quite uneconomic products. Indeed, they are not only quite uneconomic; they are also damaging to world trade because if you subsidise the uneconomic production of agricultural products in the case of, say, France, you discourage and damage trade with other parts of the world which produce similar products but without any subsidy. Again, it seems to me that we are making a mistake in allowing such expenditure.

When the net result is an increase—I think that it is of about 9 per cent. in this expenditure—it is surely time for public opinion in this country to assert itself and for us to say that we object to being taxed in order to waste money in such a way and, in the case of tobacco, not only to waste that money, but to spend it harmfully. Therefore, I suggest that this House should indicate a very strong view about that increase in public expenditure.

While we are undoubtedly spending more and seeing a greater increase in our expenditure towards the Commission's expenses—I have already referred to one or two examples —at the same time we are restraining what on the whole is useful expenditure in many cases, as the noble Lord, Lord Bruce of Donington, said in our own domestic expenditure. Surely the lesson of this debate and of the Bill is that we still need to go a good deal further in restraining the Commission's expenditure and the demands that are therefore made upon the economy of this country. I hope that that view will gain support in this country—I believe that it will—and that we shall insist that if we are to economise at home, as I think that we should, we should also restrain the level of our expenditure in relation to the Commission.

I see no reason why there should be any increase in the financial provisions in this Bill over those in preceding measures. I see no reason why there should be an increase in that expenditure. I very much hope that the Government will adopt a firmer line than in the past in restraining such expenditure and in being concerned to protect British taxpayers not only from being severely mulcted but from having to provide money which is then used for useless purposes.

4.43 p.m.

Lord Moran

My Lords, it is, I think, right that this Bill, which provides for an increased contribution by British taxpayers to the European Community budget, should primarily be a matter for the elected representatives in another place. The Bill has already been considered there with a certain amount of trauma. The Labour Party put down an amendment saying that it was unacceptable, without action by Her Majesty's Government to cut fraud and waste in Europe or to reduce expenditure on the Common Agricultural Policy". That was lost by 27 votes. The Conservative Party won the vote but lost nine members. As this was certified by Madam Speaker to be a money Bill, the substance of the measure was settled by that vote. But we are, happily, free in this House to express our views on what is taking place.

I have a good deal of sympathy with the thinking behind the Labour amendment, but the trouble is that even if the Government wanted to—and the powerful speech by my noble friend Lord Benson in the debate on 31st October cast doubt upon the Chancellor of the Exchequer's effective will to do so—the Government are not able by themselves to reduce fraud and mismanagement in Europe or to reduce the cost of the CAP—although I welcome what the Minister said about that problem this afternoon.

The huge losses from fraud, largely resulting from the CAP, about which the noble Lord, Lord Kingsland, spoke with clarity and force in his thought-provoking speech, were estimated by the Court of Auditors to be some £6 billion or around a tenth of total Community expenditure. They were described in the 1989 report of your Lordships' Select Committee as "a public scandal". The Select Committee has submitted four reports on the problem. The latest, published last July and debated in this House on 31st October, was produced by some very distinguished Members of your Lordships' House who could not by any stretch of the imagination be accused collectively of being prejudiced against Europe. A number of those noble Lords are present this afternoon. The Select Committee concluded that the Community, will continue to suffer grievous losses through fraud and irregularity"; that the Commission's new anti-fraud strategy, lacks substance, is unspecific, and has no performance targets or performance indicators"; and that, many existing schemes are an invitation to fraud".

The noble Lord, Lord Cockfield, who speaks as an ex-Commissioner, argued just now that the Court of Auditors and your Lordships' Select Committee have got it all wrong and that it is the member states, not the Commission, which are responsible. On that issue, your Lordships' Select Committee said in paragraph 44 of its report: We do not accept the proposition in the Commission's March 1994 documents that tackling fraud is primarily the responsibility of the Member States. It is the Commission which has been given special responsibilities under the Treaties for the control of the Community's funds". It elaborated the argument further in that paragraph.

I do not begin to be competent to judge who is right, but I am inclined to think that the Select Committee's arguments are persuasive. It argued that the only thing likely to change the present state of affairs would be, the collective outrage of European taxpayers, if only they appreciated how scandalous the situation is and how urgent the need to stem the fraudulent flow of taxpayers' money". The rejection of this Bill might have been a good opportunity to crystallise that collective outrage, and it is sad that the other place missed that chance.

In the October debate the noble Lord, Lord Tebbit, described paragraph 21 of the Select Committee's latest report as the key to the whole business. In that paragraph it said: The Community's development has been based on spending, subsidy and redistribution. As a result, a spending culture has developed in which it is considered more important to spend than to decide priorities or obtain value for money". I too was particularly struck by those words. But it results in a situation where our Government, while cutting or holding down so many aspects of our domestic expenditure, like that for the Armed Forces or public service pay, are nevertheless asking Parliament to agree to steadily increasing contributions to the Community to be spent in ways on which Parliament has no say, whether it is a huge subsidy to tobacco growers, about which the noble Lord, Lord Boyd-Carpenter, inquired earlier this afternoon and spoke persuasively just now, or money for North Africa and the Middle East as part of a Mediterranean programme. It appears that in 1990–1993 actual spending by the Community increased by 19 per cent. each year, a clear reflection of the spending culture. The Edinburgh European Council, the conclusions of which gave rise to the Bill before us, envisaged increases in the cohesion fund of 73 per cent. by 1999 and of 39 per cent. in the structural fund by the same date.

A fair distribution of the burden of Community expenditure, with which all member states could feel comfortable, would be by far the best recipe for the Community's stable future. But, as we know, the formula for deciding contributions results in a wholly unfair and unreasonable distribution of contributions and receipts, which works out particularly badly for this country. We are the eighth richest country but pay the second largest contribution, making a net payment in 1993, according to the Court of Auditors' report, of £2.4 billion.

The big gainers—the large net recipients—are Greece, Spain, Ireland and Portugal. There is no chance of them voting for a change in the arrangements. As has already been pointed out today, over and above that we have the costs of the CAP, estimated to cost every British household between £20 and £28 per week. The abatement negotiated at Fontainebleau in 1984 by Mrs. Thatcher, as she then was, is an immense benefit to the United Kingdom but it is only a mitigation of a fundamentally unsatisfactory and unsound state of affairs. Since 1973 the United Kingdom's cumulative net contribution amounts to almost £22 billion. Perhaps this is what the Secretary of State for Wales had in mind when he said in a speech on Friday: Maybe the Government is now too cautious about the size of our EC contributions". This enormous burden on our taxpayers might be acceptable if we obtained solid gains from our membership. But do we? Mr. Lamont said that as a former Chancellor he could not pinpoint a single concrete economic advantage that unambiguously came to this country because of our membership of the European Union. Ministers claim that the tide is flowing our way but there is precious little sign of it. The Chancellor of the Exchequer, introducing this Bill in another place, claimed that: We pay for a seat at the table to enable us to influence the political and commercial character of that market".—[Official Report, Commons, 28/11/94; col. 932.] Much the same words were used today by the noble Lord, Lord Thomson of Monifieth.

Whatever the value of a seat at the table may be, day after day we read in our newspapers of Britain being humiliated and outvoted, often by 11 to one. Does anyone believe that it is right or reasonable for the huge and largely unsupervised Spanish fishing fleet to be allowed to fish in the Bristol Channel and the Irish Sea where fish stocks are already depleted and our own fishermen face increasing difficulties? Yet, as usual, we were voted down.

Compared with the French and Italians, we seem all too often to be singularly unsuccessful negotiators. That is perhaps because we are, not unreasonably, reluctant to resort to blackmail, like the Italians and the Spanish, or to flout the rules. Why is it that the French can illegally subsidise Air France and get away with it? Nineteen times out of 20 we seem to come out of meetings with another failure damaging to British interests.

None of this escapes the British public. That is why they are becoming more and more Euro-sceptic. The three principal parties are increasingly finding that the Euro-enthusiasm embraced hitherto by the leadership of all three is not fully shared by their rank and file in the country. To me, this is the root of the matter. All three political parties have embraced the concept of an ever closer European union, the end result of which, as envisaged by the Maastricht Treaty, must be a single currency and a United States of Europe. They have so far resisted the proposal that the people of this country should be consulted.

However, I believe that in the long run one can govern only by consent and that to press on with the present arrangements, in which this Bill plays its own small part, without the consent of the people of this country, can end only in disaster. So, while welcoming what the Prime Minister is reported to have said in an interview yesterday —as far as it went—I continue to believe that any major step towards a United States of Europe, and indeed any major internal constitutional change too, must be put to the people by an honestly worded referendum. Representative government may suit professional politicians but it is manifestly no longer working as a true representation of popular will. If we believe in democracy we must trust and consult the people.

4.54 p.m.

Lord Beloff

My Lords, as regards this topic, we live in an atmosphere of increasing farce. It is difficult to take today's proceedings seriously. We are told—and I am sure that the advice is correct—that we may not amend, still less reject, a Bill that has been certified as a money Bill.

What is the rationale of that limitation on ourselves? It is that matters affecting the public purse—the taxation of the individual citizen to fill the public purse—are solely for his elected representatives. The argument is powerful. However, on this occasion we are asked to sanction a payment that has not been asked for or suggested by our elected representatives but has been imposed on this country by the decisions of an institution, or set of institutions, in which Britain has only, and can inevitably have only, a minority voice. Therefore, because we are not representative we may not tax the British people. However, others, who are still less representative because most are not even liege subjects of Her Majesty, may add to the burdens upon our people. That is one element of farce.

I shall be a little more serious and answer one of the arguments put forward by my noble friend the Minister, reiterating what has been heard from other quarters. It is that we are under an obligation to say, "Jolly good thing" because the payment we are considering is one to which the Prime Minister gave his word at the Edinburgh conference and it is not for us to humiliate a British Prime Minister by casting doubt on the validity of his undertaking. The question that I wish to put briefly to your Lordships is whether it was an undertaking he was entitled to give.

I return to the Parliament rolls, which make much more interesting reading than the babble which comes from the Commission in its various documents. They are in Norman French. Since my Norman French is not perfect and many of your Lordships are relatively unacquainted with the language, I shall read the relative extract in English. It relates to a resolution of Parliament in 1366. Your Lordships will remember that at that time the House of Commons did not have a separate existence and, therefore, the resolution was of Lords and Commons sitting together. It states: It was shown how it has been spoken and said that the Pope by virtue of a deed which he says that King John, formerly King of England, made with the Pope in perpetuity to do him homage for the realm of England and the land of Ireland, and by reason of the homage to pay him an annual rent, has intended to start a process against the King in order to recover the services and rent". Apparently, by 1366, we were somewhat behind with our payments of this tribute. The extract continues: The prelates, dukes, earls, barons and commons after full deliberation on the matter replied and declared with one accord that neither King John nor any other could put himself, his realm or his people in such subjections without their assent". In other words, it must be for Parliament originally to decide whether or not money is to be paid abroad. It is not for the Executive—King John in those days, John Major now —to pledge the country's credit. I believe that that precedent stands.

Of course, it is arguable that the Treaty of Rome and the Pope of Rome are not identical. It is arguable that King John and John Major are very different people, in spite of their weakness for charters. Nevertheless it seems to me that we have here an important constitutional precedent which is more serious than some of the arguments adduced seem to suggest.

But that is not the only element of farce. We are continually told in speeches from all the Front Benches that it is very important that we resist further progress towards federalism. It may be that the Front Bench opposite me is not quite as determined on that as are the other two Front Benches, but the general view seems to be that we should not strive to adopt federalism immediately, if at all. What worries me is that the substance of what we are being asked to discuss assumes not that there will be federalism in the future but that there is already federalism in practice.

The financial aspects of the Edinburgh conference dealt with what are called own resources. On the face of it, own resources are another absurdity. The Commission has no own resources. What is meant is that the Community has such resources as it raises from the member states. Of course, that is true of national governments. When noble Lords ask for more expenditure on this or that, a Minister is almost certain to say that the Government have no money and that the money would be the taxpayers' money. He will ask, "Do you still wish to see that done?" Therefore, when we talk about own resources, we are being fairly mealy mouthed. We are beginning to say that here is something in the nature of a government.

One could go further. I shall not talk about fraud because I am moving an amendment tomorrow to deal with that aspect. The whole question arises from the fact that the money raised is transferred under the structural fund and the cohesion fund, and also through the CAP, from one country to another and from one country's taxpayers to another country's government or subordinate governments, whichever it may be.

That is perfectly normal within a country, within a nation. We do not ask that there should be a direct correlation between the raising of public funds and its expenditure in each individual county or city. We take it that the British people are one people. There may be some dissent in that regard in Wales, but at the moment the dissenter is not in his place. Generally speaking, we assume that we are one people. That happens in federal governments as well as unitary governments.

Let us take Germany, the most considerable example in Europe of a federal system. We find that its constitution goes into great detail as to the way in which money is both raised and allocated in order to make sure that those Länder, those provinces, which are wealthier and therefore pay more tax, subsidise other provinces which are poorer and pay less. That is regarded as an essential part of the federal system, as it is, indeed, of any federal system.

In principle, I see no difference between saying that the citizens of Baden-WÜrttemberg, because they are wealthier, should subsidise the citizens of Schleswig-Holstein or now, in particular, some of the East German Länder, and saying that a country should be treated as a whole and that therefore, we are treating Europe as though it had reached already a federal system. The whole of that argument makes no sense unless it is accepted from the beginning that we are in fact doing what is normally done within a federation.

I have no doubt that there are those on some Benches who would say that that is very good and that we should reach that point as soon as possible. The noble Lord, Lord Thomson of Monifieth, and I are in absolute agreement. I am not a Euro-sceptic; I am anti. Although I am not a referendum fan, I agree with the noble Lord, Lord Moran. I do not believe that the British people have ever been told that that is what is happening. They have never been told that one of the prices to be paid for being at the top table or at the heart of Europe—whatever may be the current phrase—is that they will be taxed in order to modernise, for example, the textile industry of Portugal. Even if that were done wholly honestly, without an escudo leaking to any person or private individual, it would still be a matter which the British people would wish to consider before they assented to it.

For more than 30 years, governments have argued that they were resisting moves towards federalism and that they were concerned with a wider, looser and more outward-looking Europe. But they have never been able to convince some of us who follow such matters in detail—I have been studying the subject since I worked for the Council of Europe, long before we entered the Community—that they have fully examined what is implied or that they have explained to the British people what it is they are being asked to do. It seems to me that this small Bill is simply another example of that.

The noble Lord, Lord Moran, said that we could do better out of it financially if we were rather better—I shall not use the words he did, which were pejorative—at hard bargaining. Perhaps I may go back to the Member of another place who signed my first passport. That was in the days when we had proper British blue passports, not this burgundy nonsense. I refer to the late Sir Austen Chamberlain. It was said of him that he always played the game and always lost. Our problem is that he has been emulated by too many of his successors.

5.10 p.m.

Lord Stoddart of Swindon

My Lords, I am sure that we all found the noble Lord's speech to be of great interest and, indeed, to be educative in many senses. The only thing that I would say to the noble Lord is that King John had his Charter thrust upon him, whereas John Major thrust his charters upon us.

Bearing in mind the manner in which this Bill was dealt with in the House of Commons, I believe, despite what some people have said, that it is right and proper that the House of Lords should be able to debate the issues in a calm atmosphere which is free from threats against Conservative supporters. Indeed, that has happened so far. Today's debate has been a very good one. It has been erudite and I believe that all of us have learnt something. Moreover, many of us are contributing to such an important debate. I should like to congratulate the noble Viscount the Leader of the House and my noble friend the Leader of the Opposition on ensuring that the rights of this House are upheld. They have been upheld today. I hope that they will be upheld similarly in the future.

Although the Bill is a money Bill, it raises issues involving the expenditure and control of money as well as the continuing rights of the House of Commons to control supply and its power to refuse to do so, as the noble Lord, Lord Beloff, just explained to us, without risking dissolution. If the Government were to say to the House of Commons, "Unless you accede to every request and demand for money, no matter for what purpose, you will be dissolved", it seems to me that that would take away any power over supply that the House of Commons has. That is a serious issue which will have to be addressed.

Something seems to happen to government Ministers, including the Prime Minister, when dealing with matters European or the European Community. They seem to lose all sense of reality. Indeed, some sort of madness seems to overcome them which drives them to take actions and to make statements that, in a normal domestic sense, they would not dream of taking or making. How on earth can we explain, other than as an attack of madness, a government which put their own continuance and the continuance of the Conservative Party at risk for what the Chancellor of the Exchequer says is a small sum—namely, £75 million in 1995–96, rising to no more £250 million by the end of the century?

However, the Government went even further and deprived themselves of a majority in the House of Commons by carrying out their threat of expelling those Conservatives who failed to support them in the Lobbies. Thus, like any dictatorship, Her Majesty's Government threatened properly elected MPs with political death. Let us make no mistake about it: that is what it was. If there had been a dissolution of Parliament, most Tory MPs would have been defeated. That would have been political death. Further, having threatened them, they carried out the sentence immediately without any right of appeal. It was summary execution, so to speak.

We now seem to be in a position where, if the Crown says that it has committed money without parliamentary approval to an international or regional body, then Parliament must raise taxation to cover it or be dissolved. If that is not loss of parliamentary sovereignty, I do not know what is.

I really wonder whether the Government know exactly what is going on over the EC. The Minister, the noble Baroness, Lady Chalker, whom I like—and, indeed, whom the whole House loves—talked about Edinburgh. She said that Edinburgh was about a package, including subsidiarity. In that connection, I was particularly struck by a Question asked in the House of Commons on 16th December 1994 by Mr. Llew Smith: To ask the Secretary of State for Foreign and Commonwealth Affairs how many specific decisions and powers hitherto in the ambit of Parliament to act have been ceded to the European Union in the form of (a) regulations, (b) directives incorporated into United Kingdom law and (c) adjudications of the European Court, since United Kingdom accession to the European Economic Community". The Minister, Mr. David Davis, replied by way of Written Answer saying: This information is not held centrally".—[0fficial Report, Commons 16/12/94; col. 857.] Yet, we hear Ministers talking about subsidiarity. That really says it all, does it not? Under subsidiarity, how on earth can we get powers back that we have lost if the Government do not know what powers they have lost because they do not keep the records centrally? That is why so many of us believe that the issue of subsidiarity is a hollow promise: it is not being carried out; and, indeed, it will not be carried out. The Government repeatedly assert that we have not lost sovereignty, yet the information to make those assertions is not available to them.

I turn now to the additional contribution which the Chancellor of the Exchequer asserts in his letter to Members of another place: implies a small net cost to the United Kingdom of only £75 million in 1995–96 (rising to £250 million in 1999)". I feel sure that the education service, the NHS or community care would love to have that small net cost of £75 million, rising to £250 million, added to their overstretched budgets. But, however much the sum is, it will simply be a further chunk of British taxpayers' money poured down the bottomless pit of the CAP community fraud and spent on extravagant and unnecessary projects in certain EC countries.

The noble Lord, Lord Thomson of Monifieth, said that the Euro-sceptics were exploiting waste and fraud. I always thought that it was the mafia and criminals who were exploiting waste and fraud and that we were all, whether Euro-fanatics or Euro-sceptics, on the same side in wanting to do away with fraud as far as possible throughout the Community. I hope that the noble Lord will think about that and that he will not accuse people who are a little sceptical about Europe of exploiting European issues, and issues of import, to make their arguments. They do not need that sort of thing. Those arguments are with us anyway. I see that the noble Lord wishes to respond. I give way.

Lord Thomson of Monifieth

My Lords, I am much obliged. If I used the word "exploit" in a way that caused offence to the noble Lord, Lord Stoddart, I wish that I had used another word. The main thrust of my argument—and the noble Lord will realise this when he reads the Hansard report—was to say that, in dealing with fraud and waste generally, we are on the same side, although we started with different motives.

Lord Stoddart of Swindon

My Lords, I am very pleased to have that apology from the noble Lord because I certainly do not want to use the terms "waste" and "fraud" to make my arguments. But, in any event, how reliable are the figures that the Chancellor gives, bearing in mind the source from which they emanate? After all, it is the same Chancellor who commended the Maastricht Treaty to us all without having first read it and who had to revise—as we have already heard—this year's net contribution to the EC upwards by £740 million, from £1,700 million to £2,440 million, all in the space of eight months. I am afraid the attempts of the noble Baroness to explain that awful mistake did not go down very well with the House and certainly did not satisfy me.

The House of Commons has been informed that as a result of this Bill there will be an additional contribution of £250 million four years hence. Can we really place any reliability on these figures? Can we have the assurance this afternoon that that figure will not exceed £250 million by 1999? But whatever the figures turn out to be, there is great resentment on the part of the British people that they are taxed up to the hilt in order to subsidise people who are better off than they are in terms of GDP per head. The United Kingdom is the second highest net contributor to the EC budget, yet in terms of GDP per head—within the 12 that is, not the 16—we are eighth in the Euro-league table. No wonder British people are resentful when they see a British Government shovelling money into Spain where people danced in the streets at Britain's defeat over access to British fishing grounds, or when they see Eire being lavishly subsidised to the tune of no less than £519 per annum for every man, woman and child. They resent it even more when the French, who lecture Britain over not being sufficiently communautaire pay less to the European budget than Britain although their income per head is £2,250 a year more.

I sincerely hope that this is the last Bill of its kind that is presented to Parliament. The Government might yet go some way to redeeming themselves in the eyes of the country if they declared unequivocally that they will not agree to further increases in EC financing and indeed will make every effort—they can do so, as we have heard from the noble Lord, Lord Boyd-Carpenter, this afternoon, by reducing the £800 million on tobacco subsidies—to reduce the Euro-budget by reducing fraud, refusing to extend the scope of EC powers and activities, and repatriating (this should also apply to agriculture), many of the powers which have wilfully and wrongly been filched from the British people.

5.24 p.m.

Baroness Elles

My Lords, I should first like to congratulate my noble friend Lord Kingsland on his maiden speech. It is particularly appropriate that I should do so as we were colleagues for some years in the European Parliament. I can only say that it is a great loss to the European Parliament to have lost such a distinguished speaker on behalf of British interests. But at least the House of Lords will have gained a distinguished speaker. We are certainly very pleased to have him here and to hear his speech today.

The noble Lord, Lord Richard, rather implied that the Government side are merely paying a kind of tribute to the Prime Minister as regards how well he did at Edinburgh. I believe he deserves a tribute in that regard. It is high time that the British people realised what he did for Britain at that summit which perhaps did not receive the publicity that it should have done. I hope that the debates in both Houses will at least put on record what he achieved for Britain. Some people mock him for saying he is at the heart of Europe. However, he could not have achieved what he did achieve if he did not have the support of the other member states because the kind of agreement we are discussing depends on a unanimous vote. The Prime Minister received support for reducing the Commission's proposed figure of 1.37 per cent. of GNP by 1999 to 1.27 per cent. That is a considerable sum in terms of millions of pounds.

The noble Lord, Lord Stoddart, referred to GNP. We are eighth in the table of member states as regards GNP. The noble Lord should be pleased that the Prime Minister was able to negotiate a greater balance of "own resources" coming out of GNP than of VAT. As noble Lords will know, it is now proposed that the percentage of "own resources" coming out of VAT will go down to 1 per cent. over the next two or three years and the GNP percentage will rise. That is in Britain's interest. While I am referring to the speech of the noble Lord, Lord Stoddart, I should refer to the 1994 figures. Germany paid the most. France paid 13,442 billion ecu. We paid 8087 billion ecu. We paid less than France in 1994. I have the figures and I shall be happy to pass them to the noble Lord, Lord Stoddart, afterwards. If he disagrees with the figures, I am willing to discuss them with him. However, those are the figures that I have.

Lord Stoddart of Swindon

My Lords, of course I would like to see those figures. However, I was talking about net contributions, not gross contributions. I believe the noble Baroness may be talking about gross contributions. In net terms I think she will find that in 1994 we will pay some £1,400 million more than France.

Baroness Elles

My Lords, I agree with that particular figure but, as far as payments are concerned, the UK was third and not second after Germany. As regards the achievements of the Prime Minister, there has been some discussion as to whether they were really constitutional. No one can surpass my noble friend Lord Beloff as regards his stature as one of our great historians in this House. My noble friend went back to 1366 in his speech. I wish merely to go back to 1992 when the Prime Minister gave his word that we would honour our obligation in agreement with the 11 other member states. We did not need to write anything in Norman French. I believe it was probably written in perfectly good English, and translated into the other eight or nine Community languages. That agreement was made and the Prime Minister expected his party, and indeed his Government, to keep that word which was given on behalf of the United Kingdom Government. The Chancellor of the Exchequer gave a Written Answer in Hansard of another place on 14th December 1994. He stated: The agreement reached at Edinburgh was a political commitment in which the United Kingdom Government gave our word to our EU partners. We expect our partners to keep their word; and they expect us to keep ours. If we were to break our word, the international reputation of the United Kingdom would be severely damaged. The own resources decision will constitute a treaty obligation when the Government notify adoption of it".—[Official Report, Commons, 14/12/94; col. WA 648.] I believe that that to some extent answers the point that was made by my noble friend Lord Beloff. It is up to Parliament to decide whether or not we pass this Bill. I know that this House is in a special position because this Bill has been certified as a money Bill. However, in theory if not in fact, the House of Commons had a perfect right to throw the Bill out and not accept the agreement which the Prime Minister undertook on behalf of the United Kingdom at Edinburgh.

I do not believe my next point about spending has been mentioned. Many people are saying that there is a lot of extra money involved in this matter and they ask what it is being spent on. I think we sometimes forget what is going on in central and eastern Europe and the amount of expenditure that the Community is spending in those areas, with our own Government's agreement, and I believe with the agreement of the vast majority of United Kingdom citizens. We want to see political stability in central and eastern Europe and that cannot be achieved with no expenditure whatever. I believe that we must support that expenditure in order to achieve not only political stability but also to ensure that democracy survives in those areas where people have lived for so many years under oppression.

I believe that the debate has gone somewhat astray on the question of fraud. My noble friend Lord Cockfield rightly pointed out how the system works. No one knows better than he how it works, having also been a distinguished member of the Treasury in an earlier incarnation. I agree very much with the noble Lord, Lord Thomson of Monifieth, that it is difficult to find total honesty anywhere, whether it is in the Community, a member state or anywhere else. It depends on the opportunities for fraud which are available.

Perhaps I may quote a rather ancient example. I used to be interested in juvenile delinquency at one stage in my political life and I attended an international meeting at which distinguished members spoke of juvenile delinquency in their countries. In the west we were very concerned because delinquency was increasing considerably. That must have been in the 1960s. I remember the Russian delegate being very smug and saying that Russia had very little juvenile delinquency. Then we discovered that the only thing that children in Russia could steal were bicycles, and they had much less temptation than people living in western society and did not have the opportunities. There is no doubt that where there is opportunity people will take that opportunity, whatever their nationality.

I am sorry to say that in our own country we have only to remember that last year £654 million of fraud was detected in relation to social security benefits. That was confirmed in answer to a Written Question in Hansard for the other place recently. The latest Inland Revenue report for 1994 shows that £4.75 billion was restored through the compliance efforts of the Inland Revenue. That is a sizeable sum when compared with fraud elsewhere.

I should like to raise the question of control of Commission spending. As my noble friend Lord Cockfield pointed out, it is not the Commission itself which controls the money. There should be parliamentary scrutiny of how the money is spent. It is our own Parliament's fault if we do not analyse how expenditure is carried out.

Lord Bruce of Donington

My Lords, I am most grateful to the noble Baroness for so courteously giving way. In the course of her remarks on fraud the noble Baroness has confined herself to fraud pure and simple. The Select Committee of your Lordships' House has been investigating and some of us on this side of the House have spoken about not only fraud but waste, mismanagement and irregularity. Irregularities and mismanagement have been responsible for far greater wastage than fraud itself. Will the noble Baroness expand her remarks to include the whole question of mismanagement and irregularity as distinct from fraud?

Baroness Elles

My Lords, I am most grateful to the noble Lord, Lord Bruce of Donington, for making that point because I totally agree. Fraud is the term we have used, but it also covers waste, crime, financial mismanagement and bad auditing. The Secretary General of the Commission, Mr. David Williamson, said in a report of Agence Europe of 18th November 1994 that he wished: to clarify the way the report of the European Court of Auditors should be understood as it has so far caused 'a great deal of confusion' in the press. This report, he explained, covers the efficiency of the Union's financial management, on one hand, and fraud detection, on the other. Fraud strictly speaking appears in one case only, in Denmark. In no way therefore, he stressed, is it a report on fraud, as Mr. Middlehoek, President of the Court of Auditors, had himself recognised that it is impossible to quantify it. There is no indication that fraud is more rampant in the EU than in Member States". I hope that that covers the point which the noble Lord, Lord Bruce, made.

In the three reports produced by the House of Lords Select Committee that is well amplified and expanded. I should have thought that the other place should take it upon itself to look more seriously at its structures for examining the expenditure of European Community money.

I would support much closer co-operation with the European Parliament, where the Budgetary Control Committee has done a certain amount of good. It has produced a number of reports over the years, but governments have refused to take any notice of those reports and have refused to take any action. I remember one report by Mr. Pieter Dankert, a Dutch socialist, on fraud and mismanagement in the Community. No government took any action on that report. I hope that at least we can start to look at what the European Parliament is doing, although we do not necessarily have to follow it.

We have to decide how we will deal with this question. It is lamentable that the Community should be accused of fraud when the fraud is committed by a great many citizens of the Community. I hope that the institutions of the Community will consider seriously how they will identify the causes of fraud and root it out. Wherever it occurs fraud is unacceptable, whether it is in a member state, a company or a European institution. Although this House has no particular powers over the Bill before us, I hope that the debate will at least have clarified some of the problems which beset us and I hope that we can create a better structure for our budgetary positions.

5.35 p.m.

Baroness Strange

My Lords, as this is the first time I have raised my voice in your Lordships' House this year I should like to wish all your Lordships, and all our long-suffering staff and supporters, a very happy New Year. It started well for us, with a party of 10 German and Austrian friends arriving unexpectedly to stay—well, at three hours' notice—and 25 of us dancing reels until my son piped in the New Year, guns were fired, "Auld Lang Syne" sung, and the New Year was toasted in my French noble kinsman's sparkling Burgundy. We taught the Germans and Austrians more reels, and then they taught us how to waltz.

Your Lordships may think that I am already breaking one of my many New Year resolutions by waffling and wasting your Lordships' time. I am just trying to show in a practical and pictorial way that I am at heart very much a Europhile and not a Euro-sceptic.

That is why it is so important that we get it right, for all of us in Europe. First, this Bill is a money Bill, so we should not by rights be discussing it at all. Secondly, as the Government have already committed us to it at the Edinburgh conference , to attempt in any way to overturn it now would only make us appear either inept or perfidious. But we do have the opportunity to speak our minds here in the Lords, for which we are grateful. We are not crying over spilt milk, we are merely stating what is in our minds.

I am glad that the noble Lord, Lord Thomson of Monifieth, said that this is a strange debate. That encourages me to join in. Unlike other noble Lords who have spoken I have no qualifications, although, like the noble Lord the Leader of the Opposition, I would lay claim to being a bear of little brain. But unlike him and other noble Lords, I have never been a Euro-MP, nor a Commissioner, nor sat on the European subcommittee of your Lordships' House. I am merely the lady in the kitchen. As it is my own kitchen I am quite happy to have it full of Tower of Glamis apples, curled up cucumbers, black pudding and British sausages.

There are only two points that I should like to make. First, of the 12 European members in 1993 (which are the latest figures I have been able to find) only Germany, Britain, Italy, Holland and France were net contributors. Everybody else took out, including Denmark, Luxembourg and Belgium, all of whom have a higher GNP than we do. In 1993 we paid out £5,937 million. Of that, £3,504 million came back to us so that our net contribution was £2,433 million. Of the money which came back to us in grants, our Government had no control over their application. It is as if, put in basic lady-in-the-kitchen terms, I paid tax of £6 but the Government said, "You're only paying £2.50 because we are giving you £3.50 back". The snag is that the £3.50 has to be spent on new Christmas tree lights and a Euro-viewing telly aerial whereas I might have spent it on patching up the Aga and more British beer and sausages.

The second point is about taxation without representation. The Commission which obtains all this money is not a democratically elected body. It is as if we were living in 15 houses in an estate together. We all own our own house and the land on which it stands. But because we are part of an estate we are all administered by the council. If we do not like the way it runs our estate and spends our taxes, we can vote it out. But what if it is not elected but still has powers to run our estate? It can still come into our kitchens and demand alterations and we have to pay for it to do that. I cannot think that that is the right way to run a community.

My Lords, another new year resolution has just bitten the dust—I have spoken for far too long. Happy new year anyway.

5.41 p.m.

Lord Harris of High Cross

My Lords, it would have been a great loss if we had allowed ourselves to be inhibited from discussing a money Bill. We would have missed a full quota of notable speeches, including an outstanding maiden speech which I am not allowed to spend more time praising.

It is not difficult to think of a number of plausible arguments for voting more money to Brussels. For an economist the most persuasive argument would be that Brussels is doing a good job. As a Euro-sceptic and not, in the terms of the noble Lord, Lord Thomson of Monifieth, a despised anti-European, I take the benchmark of achievement initially as completing the single market. We still await the dawn—or is it the end?—of 1992. If we had a full catalogue of the breaches of the original single European programme of the noble Lord, Lord Cockfield, and others, those breaches would include continued subsidies to nationalised French industries, the protection of German services, the stubborn persistence of the airline cartel and the appalling deficiencies of the common agricultural policy about which we have heard a great deal. Pondering such issues, do we really believe that Brussels would deserve a strong vote of financial confidence?

Therefore, we move on to a second and possibly stronger case which might be put—that Brussels has big responsibilities and needs to enlarge its activities. It has taken in new members and from those new members it will obtain a certain amount of income. But there would be general agreement, I believe, that the Eurocrats are already doing too much for our own good and for their credit. We have constant news of multiplying regulations, of pandering to pressure groups and lobbies, and of the buying of favour and, incidentally, of votes on the Council by shameless subsidies for often quite useless political projects in the member countries.

The strongest case we have heard is that the Bill is necessary to validate the promise Mr. Major made at Edinburgh, although in the submission of the noble Lord, Lord Beloff, as I understood it, Mr. Major may not have had the authority without prior parliamentary sanction. The Prime Minister is not averse to boasting of his various and changing positions on the European issue. However, one on which he has been wholly consistent, and about which he has beaten his chest a good deal, is his determination to crack down on fraud and mismanagement. The Edinburgh meeting was in December 1992. Some two years and billions of wasted pounds later, who doubts that if ordinary British people were asked an opinion they would say we should not give a penny more to Brussels until in some way its public finances have been brought under control? I listened with close attention to the magisterial lecture of the noble Lord, Lord Cockfield. At the end I even found something with which I could agree. The noble Lord started by demonstrating the impossibility of any honest implementation of a European agricultural policy so long as it operated through national governments reimbursing their farmers. As I understood it, he suggested a splendid policy, if not of repatriating the whole of the CAP, at least of repatriating reimbursement of part of the price support so that in each country European farmers could cheat their own government and not the remainder of us who seek to be more upright. That policy does not exonerate the Commission. It seemed to pass responsibility to national governments. In the immediate sense that is correct. But over the whole of the situation sits the Commission. I almost used the phrase "broods M. Delors", but I made another new year resolution to mention M. Delors rather less, particularly now that he is obligingly on the verge of retirement. If the Commission's pay and perks depended upon bringing the total agricultural and other budgets under control, I have no doubt that its ingenuity and his would be equal to the task.

The former president of the European Union has not been backward in initiating far reaching proposals for policies and initiatives that suit him or his colleagues. He and his colleagues can hardly be exonerated from responsibility for expenditure of, in the case of the common agricultural policy, we are told, something like 60 per cent. of the Euro-budget. In short, why has not the European Commission engaged the advice and services of the noble Lord, Lord Cockfield, to tell it how to put its financial house in order?

The noble Lord, Lord Cockfield, also pointed out that national governments have no incentive to cut down on agricultural abuse so long as the reimbursement comes from the European budget and not their own. I argue that in precisely the same way the commissioners and their pensioners, apologists and hangers-on have no incentive whatever to reduce waste and extravagance so long as they can simply whistle up a few more billion pounds from craven national governments.

If Mr. Major wishes to keep faith with his European partners at the Edinburgh Summit, why not start with a presidency conclusion incorporated in that great statement which read: The Council confirms its view that all Community expenditure should be subject to the principles of sound public finance and budgetary discipline"? There is no ground here for any additional money to be sent in that direction.

So we are left with the pragmatic, political, unprincipled plea that the increase demanded at present is rather small—£75 million, almost petty cash—and that that will grow, but not too rapidly, over the coming years. I regard that as a totally reckless and irresponsible attitude towards taxpayers' money. It is mirrored and encouraged by the way in which the Euro-apologists always present the cost of Europe to this country in such misleading terms. We are told that the net cost at the moment is running at around £2 billion a year. Under cross-examination, any well-informed debater would have to acknowledge that the real cost to the economy is the gross outlay which we have to endure, less the Thatcher rebate, which comes at present to around £6 million. That £6 million passes from this country's finances to the European area of control. For remarkable and unexpected elucidation, I commend a speech by Mr. Lamont in the House of Commons at cols. 958 to 963 of Hansard of 28th November 1994. If their eyes continue to the following speech by Peter Shore, noble Lords' education will be further advanced.

As a former Chief Secretary to the Treasury, the Prime Minister knows perfectly well that the real cost to Britain of European involvement is currently around £6,000 million and that it will grow, if optimistic projections are not falsified, to no more than about £8 billion by 1999. Nevertheless the Prime Minister agreed to a totally unnecessary increase in own resources, partly because he argued for budgetary discipline and took that for granted, and also to buy off any further federalist impulses from the Brussels pack. As the critics at the time foretold, such concessions simply whet the appetite for more power. In the splendid words of Kipling, That is called paying the Dane-geld; But we've proved it again and again, That if once you have paid him the Dane-geld You never get rid of the Dane".

I believe that it is time to draw the line on sending further money in that direction. It is time to say, "Enough is enough". Then we should add, "at least until waste and fraud are somehow more under control". If they were, then further Danegeld would not be necessary.

5.54 p.m.

Lord Shaw of Northstead

My Lords, it is already clear that this is no ordinary finance Bill. Indeed, were it so, the widespread discussion that we have had today and which all of us have found useful and valuable would probably not have taken place in the way that it has. As someone who has chaired finance Bill committees in another place for a number of years, I am amazed to be dealing with a finance Bill of only two clauses, and I must say that there is a lot to he said for finance Bills of two clauses.

The interesting part of the debate clearly comes out in this House, as in the other place. It is that it is not just the finance Bill on its own, it is the finance Bill as part of a package composed of decisions taken at the Edinburgh European Summit in December 1992. I find, reading the proceedings on the Bill in another place and listening to the debate today, it has become clear that the justification for the Bill lay and still lies in its being a part of the package of aims agreed to at that summit. The aims were clearly spelt out—and noble Lords will be relieved to hear that I shall not spell them out again—by my right honourable friend the Chancellor of the Exchequer in another place and ably this afternoon by my noble friend Lady Chalker. I agree with both of them that the achievement made by the Prime Minister at Edinburgh was truly notable and greatly in the interests of this country. The question that must be asked is: why should there he such a fierce debate in the other place and here? Since the Edinburgh Summit meeting was greeted with such general approval, why should this Bill have met with such opposition? In the end, of course, the Bill passed its Second Reading in the other place with an overwhelming majority, as I hope it will today. So what were the worries that were disclosed and that gave cause for the debates that have taken place?

The worries which so concerned some of my honourable friends in the other place were the continuing incidence of substantial fraud and inefficiency in the management of the European Union finances. In particular, there was the worry that nothing was being done to respond to the serious matters disclosed each year in the reports of the Court of Auditors. I say to my honourable friends in the other place that they are right to have been worried. Those who have expressed worries today are also right, but so too are the Government. It is both untrue and unfair to try to argue—as the Second Reading amendment claimed—that Her Majesty's Government were taking no action to cut fraud and waste in Europe. If we were to deny the Bill its passage through to the statute book on the basis of such a claim, the cost of losing the Bill and consequently the package that was so skilfully achieved in Edinburgh would be very great indeed.

However, importantly—and above all the other reasons that have already been stated—by the successful passing of the Bill we would ensure that we remain in the forefront of the pressure within the European Community for responsible financial control. It is this country above all that has continually sought for action to be taken against fraud and waste. It has been, and doubtless too often will be, a slow and sometimes thankless task.

We must never forget that the development of the European Union has been a gigantic undertaking. The need for review and change within its organisation has been constant. Having committed ourselves to the creation of the Community, now the Union, there is nothing to be gained by seeking to stop taking part in any of its developments. As has so often been said, we must be continually at the centre, trying to lead it forward in what we believe to be the right direction.

I give an example. Perhaps it is a small example compared with all the other big topics that have been discussed today, but nonetheless it is a very important one. I was charged with revising the financial regulation in 1977. Incidentally, this shows another side to the noble Lord, Lord Bruce. We regard him sometimes as a rather fierce critic. But there is another side to him. He can be very constructive. He can be prepared to wait to get the right results. It took me two years to get that financial regulation altered with continual reference to the other institutions that were involved. I know full well that often behind the scenes, as well as in Committee, I had during that time the full and very helpful support of the noble Lord, Lord Bruce of Donington. I am always grateful to him for what he did at that time. It pays to keep trying and working hard, and gradually things will fall into place. It is no use giving up.

Similarly, when the Court of Auditors was first set up in 1977 it was clear that its power and terms of reference could not be regarded as fixed and unchanged for ever. In the changed financial regulation of 1977 I realised that. I built in a clause, Article 107, to insist that the regulation be reviewed every three years. There is no such clause with regard to the Court of Auditors, but nonetheless it must be obvious to everyone that as the Community develops there must be changes in the responsibilities and authority of the Court of Auditors.

Lord Bruce of Donington

My Lords, I am very grateful to the noble Lord for giving way. He referred to the efforts that were made in establishing the Court of Auditors in which he and I both co-operated. Will he confirm that one of the forces with which we had to contend was the resistance of the Commission to any further powers being given to the Court of Auditors as distinct from the old Audit Board?

Lord Shaw of Northstead

Yes, my Lords, and it was important that that move took place. We had to have the flexibility of promising to alter it yet again if the Court of Auditors, which had only just been set up, came forward at a later date with criticism. I am sure that the noble Lord will remember just that.

Perhaps I may continue with this point. The time has more than come when the role of the Court of Auditors should change. At long last, thanks largely to the insistence of Her Majesty's Government at Maastricht, the power and authority of the Court of Auditors has been changed. The realisation of those increased powers has been the very encouragement that was needed for the Court of Auditors to produce the 1993 report. And what a devastating report it has turned out to be! Having got that, we now have to insist that the court pursues its new powers and makes sure that the shortcomings that it has clearly declared within that devastating report are acted upon, not only by the Commission hut by the Council and, of course, by individual member states.

Having said that, I should like to add—and when one reads the 1993 report one will see the reason for my remarks—that I hope attention will be given to the financial regularity of the institutions themselves, which could very much do with a review in that respect.

The time is getting late. I support this Bill wholeheartedly. I respect the strong feelings that have surrounded it during its passage, yet the objectives that we all seek are so much the same that I believe that the Government's approach and record deserve the full support of us all. Let us not dig ourselves into different trenches. We are all determined to improve the financial regularity and value-for-money procedures of the European Union, but we shall only continue to give a lead in these matters if, from now on, we work together.

6.4 p.m.

Lord Tebbit

My Lords, much as I have enjoyed many of the speeches today that have gone slightly wide of this short Bill, I shall try to restrain myself as much as I can to addressing the Bill itself and the immediate matters around it rather than a number of wider issues. It is a great temptation to go much wider, but I shall do my best to resist. However, first, perhaps I might digress for just a moment—not directly about matters European but about a matter that is related to this Bill. I find sometimes that there is some difficulty in reconciling our experiences in different parts of our lives even within the same day. This morning I had the privilege, as the chairman of a charitable appeal, of cutting the ground at the Nuffield Orthopaedic Centre in Oxford for a new building. Thanks to the generosity of very many people and enormous hard work by fellow trustees, we raised £1 million for the new building, a new orthotic centre for the hospital which is much needed. It will cost something over £1 million. It will actually cost rather more than that because VAT will be charged when the charity hands over that building to the hospital: £175,000 or so will be paid in VAT. That is £175,000 which might be better spent on patient care. That £175,000, or at least part of it, will be re-routed as a consequence of this Bill to the tobacco farmers. I find it difficult to reconcile these two parts of my life. That is why, had I been in the Commons, I would have found it very difficult indeed to support the Bill.

My task has not been made too much easier today, I must sadly confess, by the arguments that were put forward by my noble friend Lady Chalker. I found it distressing that the argument should be made that this was some part of a package deal at Edinburgh in which we had preserved the budget abatement that had been won by, as she then was, Mrs. Thatcher. That is preserved for ever unless a British government choose to give it up. To talk of it now, as my noble friend did, as being safe until 1999 is only to encourage those among our partners who quite clearly, and from their own point of view reasonably, would like to get rid of that abatement.

Again, let us be absolutely clear: there is no possibility that that abatement could be ended except by an Act of this Kingdom. Nobody else can do it. It was not preserved at Edinburgh: it had always been preserved—and in my judgment always should be.

Even worse, I regret to say, I heard no argument for the increased spending which will be the result of this Bill. Normally, when a finance Bill is introduced in the Commons, a Chancellor makes the case that the revenues will be put to good effect and that the taxation which is imposed will be fair and equitable. It would be difficult to make the case that the taxation imposed upon the citizens of this kingdom is fair and equitable compared with the taxation which is imposed on others in respect of European expenditure and benefits. I did not hear any argument or any case made that the spending of moneys siphoned out of taxpayers' in this country, taken through Brussels and brought back to be spent here will provide any better value for money than if the spending had been conducted on a straightforward basis by the Government taxing here and spending here. What advantage comes from routeing the money in that manner, leaving aside the amount which on the way gets diverted to other, in my opinion, less worthy causes than for the benefit of the citizens of the United Kingdom?

My noble friend Lord Shaw was slightly puzzled as to why this Bill had caused such ructions in the other place. One reason was that almost simultaneously, on 14th November, one read in the EP News, no less—the organ of the European Parliament—the headline "Budget controls inadequate". That was a bit of a red rag to a bull, if I may say so. I have found from experience that there is a golden rule for training children, dogs and institutions: good behaviour should be rewarded and bad behaviour punished. If budget controls are inadequate—give out some more money. If £6 billion are going in corruption, fraud, waste and mismanagement—make it up; give out another £6 billion. That conflicts with the golden rule.

My noble friend Lord Cockfield made a powerful case for it not being the Commission's fault. He made the Commission sound like Macavity—Old Possum's cat—who was never there when the crime was discovered. The Commission is a little like that. Surely we could not argue that it has responsibility only for spending and does not have any responsibility for making sure that spending is properly controlled, even if, as we know, the fraud mainly is committed by member states. That seems to be taking a bit far the case put by the Labour Party, not least the case against my right honourable friend Mr. William Waldegrave, and inverting it. Mr. Waldegrave has been accused of cruelty to animals by proxy because the calves which he sold into the market were subsequently badly treated on the Continent of Europe. To excuse the Commission from any blame when the money that it passes to member states goes in corruption and fraud seems to be taking matters rather too far.

Baroness Elles

My Lords, perhaps I may interrupt my noble friend. I wonder whether he is aware of the latest action of the European Parliament, on which I know he has certain views. It has put £400 million into reserve until the Commission implements certain policies: measures to combat fraud in the agricultural fund; measures to combat fraud in the ESF; measures to combat fraud in the regional policy. That is a decision taken by the European Parliament until the Commission shows that it will implement measures to combat fraud in certain areas.

Lord Tebbit

My Lords, my noble friend explains that the Parliament is trying to act as a longstop and holding on to the money, which should not go to the Commission until action has been taken. How much better if this Parliament, which is responsible to the British people for taxation, had simply sent the message, "No, you will not have that money until your practices have been improved".

But there is a more important reason why certainly some Conservative Members in the other place were in a truculent mood over this Bill. It is an argument that has been reiterated here today: the unusual constitutional dictum that if a Prime Minister undertakes an agreement with foreigners, it is absolutely binding upon Parliament; that is to say, it is a different kind of undertaking from an undertaking which may have been given by a Prime Minister to the voters of the country during the course of an election campaign. Apparently, by common consent among all administrations, that is not a binding promise; but a promise given to foreign statesmen at a conference is absolutely binding. The other place has no option but to go along with it, whatever the arguments against it.

My noble friend Lord Beloff, as ever more erudite than I, produced a fascinating extract from the proceedings of the House in 1366. In my uncultured way I had thought to put it rather differently. It is my understanding that the Prime Minister cannot conceivably be a principal in negotiations with other powers. He can only be an agent. The power to make agreements and the power to tax must surely reside in Parliament and not with the Government. Surely that was the whole point of the battles between the monarchy, the Executive and Parliament for hundreds of years. It seems that those battles may some day have to be fought again as we face the overweening arrogance of a new monarchy or a new Executive in Brussels.

I enjoyed most particularly today the excellent maiden speech of my noble friend Lord Kingsland. I had the feeling that it had not taken my noble friend too long since living back here in England to go native. I could not say that about either of the former commissioners on the Benches opposite who seem unable to go native again. Ever since they left Brussels and came back to live in this country they have remained staunchly commissioners. It is rare to hear from them any criticism of the Commission.

It is a pity, if I may say so to the noble Lord, Lord Thomson of Monifieth, that he reiterated part of a speech which he had made late one night during the proceedings on the Maastricht Bill. I understand that he may have forgotten that he made the speech because he made it very late at night. He certainly forgot my response to it. It was another of those occasions when he declared that all those who had harsh criticisms to make of the policies and the direction of the European Community today were dedicated to Britain leaving the Community. I corrected him then. I correct him again today. I hope that he will not make that speech again in some future debate because it is simply not accurate.

Earl Russell

My Lords, does that story indicate that the noble Lord's response was not memorable?

Lord Tebbit

My Lords, I think probably it was not a memorable response; it was a commonplace response to explain that it is possible to criticise the European Community and its policies without being devoted to the idea that Britain should leave it. Indeed, many of us believe that if the policies are not changed, the Community itself will disintegrate and we shall all leave the Community. That is why some of us argue so strongly against the policies of the day.

I should like to say to my noble friend Lady Elles that she is wrong in ascribing some of the inevitable increases in the costs of the European Community to the need to help our friends in central Europe. The most effective way to help our friends in central Europe is not to tax ourselves, but to open our borders to trade. The most effective way in which we can do that is to open the borders of the European Community to trade in agricultural produce. And the most effective way in which we can do that will be to end the common agricultural policy. That would not cost us money; it would save us money. We could reduce taxation by so doing.

My noble friend is quite correct in what she said in regard to fraud. Fraud will occur wherever there is the opportunity—sad but true. The answer is to go even further down the road than my noble friend Lord Cockfield suggested; that is, to end the spending. If we did not have a common agricultural policy; if we did not have CAP spending, there could be no fraud. That is the way forward. We must reduce spending and thereby reduce fraud rather than increase spending in order to reduce fraud.

I want to end by raising a more general point. Those of us, particularly those who have served in the other place, are well acquainted with some of its traditions of Supply Days—Supply Days? Yes—and consolidated fund debates. They are based upon a simple proposition that supply should not be granted until grievance has been redressed. That is why the Opposition have the privilege of their Supply Days. That is why the consolidated fund debates go on in this archaic, strange and arcane way, through the late nights just before every Recess.

No doubt in recent days noble Lords have been as disturbed as I to see the scenes of violence at Shoreham, where protesters sought to stop the export of live animals to the continent. I fancy that all of us here—certainly the great mass—would like to see that trade ended. Given the chance to express their feelings the British people would say that that trade should be ended. There is deep puzzlement among the British people as to why the Government do nothing. We know why they do nothing. They do not have the power to act. This Government, this Parliament, cannot act to redress that grievance. For that grievance to be redressed requires the agreement of the Germans, the Italians, the Dutch, the Belgians and the Spanish. How therefore do we justify the theory that grievances must be redressed before supply is authorised?

During the passage of the Maastricht Bill I warned in general terms that if the British people found that when they used the democratic system of voting they were still unable to change the law to redress their grievances, there would be serious consequences. We saw one of those serious consequences at Shoreham last week.

6.25 p.m.

Lord Monson

My Lords, perhaps we may first consider a few more facts and figures. I think your Lordships will find them interesting and significant. Depending on which government department statistics one trusts most, the United Kingdom's net contribution to the EC budget is set to rise by either 54.8 per cent. or 59.6 per cent. between 1993–94 and 1995–96. Even on the more conservative estimate, that means a rise in our contributions of almost 55 per cent. in only two years. We are assured that the position will then stabilise at that higher level. But Treasury forecasts have been proved to be wildly optimistic all too often in the past. The financial effect of that 55 per cent. increase is equivalent to 1.9p on income tax; in other words, other things being equal it will necessitate a rise in the standard rate from 25 per cent. to 27 per cent., less a minuscule adjustment in allowances.

Of course we know that the Government will do everything in their power to avoid a rise in the politically sensitive standard rate. The British taxpayer will certainly be hit in consequence of those increased contributions; but he or she will be hit in a more subtle and oblique fashion than a simple rise in the standard rate.

Let us examine some further figures and in doing so enlarge upon the statistics given a little while ago by the noble Lord, Lord Stoddart of Swindon. In 1993 every man, woman and child in Spain received approximately £11 from the British taxpayer—up from £8.37 in 1992. But that is dwarfed by the largesse directed towards the southern Irish. In 1993 every man, woman and child in the Irish Republic received just over £92 from the British taxpayer (that excludes the German and other taxpayers)—up from just over £70 in 1992. We do not receive much gratitude for all this. Both countries concerned continue to make territorial claims upon the United Kingdom or United Kingdom dependencies—increasingly so in the case of Spain in the matter of Gibraltar. But at least it can be argued that both those countries are rather less well off than we are, albeit only slightly so as I hope to demonstrate.

What a contrast to Luxembourg. According to the Financial Times of 30th December Luxembourg is now the richest country not only in the Community but in the entire world, in terms of purchasing power parity. Its citizens are 66.25 per cent. better off than ourselves, yet every man, woman and child in Luxembourg received £67 from the British taxpayer in 1993—up from just over £48 the previous year. What a scandal! I do not begrudge the people of Luxembourg their good fortune. But I do not see, and I do not think the British people as a whole see, why our taxpayers should help to top up their fortune.

People talk glibly of the "poor countries of the Community". Yet none of them are poor in an absolute sense. All are in the top quartile of countries in the world ranged by GDP per capita. The Spanish are now as rich as we were in 1982; the Irish are as rich as we were in 1978. Were we suffering in 1978 or 1982? Surely not. It is true that both Portugal and Greece are in turn less well off than are Spain and the Republic of Ireland. But the Greeks are as rich as we were in 1960 and the Portuguese as rich as we were towards the end of 1967. I cannot remember the swinging sixties in Britain as being a time of misery or deprivation.

Moreover, to try to make these countries better off by means of subsidy—in other words, by transfers from so-called "rich" countries to so-called "poor" countries—rather than via the operation of the free market, or the single market as applies in this case, is diametrically opposite to this Government's professed economic policy. It flies in the face of economic common sense. It is also politically objectionable and politically dangerous, as the noble Lord, Lord Beloff, and the noble Lord, Lord Kingsland, towards the end of his quite excellent maiden speech, pointed out. So these increased transfer payments are justified neither on the ground of morality nor, ultimately, on the ground of expediency.

We are all aware, of course, of the real reason—the unadmitted reason. Some of the recipient countries threatened to block the accession of new countries to the Community unless their handouts were increased. Blackmail, to be frank. I gladly exempt from these strictures Portugal, which has behaved in a thoroughly civilised fashion throughout. No, if there is money to spare in this time of severe economic constraint, which is doubtful, both morality and expediency dictate that it should go instead to genuinely poor but right-minded countries in Eastern Europe. One thinks of Poland, Hungary and the Czech Republic—perhaps Slovenia and just possibly Slovakia—which are finding the abrupt transition from crazy and distorted communist economics to a market economy extremely difficult, with the result that their electorates are turning nostalgically back to communism, albeit with a so-called human face. This presents real dangers to us and means certain misery for them should they by some misfortune succumb to the temptation to re-elect the communists under another guise. Yet not only are these countries not getting any significant aid—perhaps it is right that they should not—but, as the noble Lord, Lord Tebbit, pointed out, their manufacturing and agricultural exports to Western Europe are being blocked, mainly by the chronically protectionist French and by the increasingly protectionist Germans.

Having said that, no one will oppose the Second Reading of the Bill tonight. But I hope that the Government will be able to indicate that they will look sympathetically at the amendments to be moved tomorrow which are meant to be constructive ones to provide safeguards and which are in no sense intended to be wrecking amendments.

6.33 p.m.

Lord Buxton of Alsa

My Lords, I shall be brief as so many points have been made in all the excellent contributions to the debate. What is obvious by any normal standards, and business practices in particular, is that this payment should never have been made without conditions. I believe that the Prime Minister should have endeavoured to persuade all the member states to apply conditions to the increase and to make it absolutely clear to Brussels that not a penny more would be available until it was apparent that those conditions were being met. If the Government had been the board of a group or some substantial conglomerate they would have refused to commit any further funds to what is manifestly a dreadful investment: the general squandering of shareholders' funds. Politics are, of course, different from business, but the financial consequences are the same. The European Commission should in fact be running a business, not playing politics. Investment judgment is paramount.

It would be unhelpful in this debate to cite too many examples but I shall briefly cite two with which I am familiar. One case is a small charity with which I was connected but which I subsequently left. The charity had no prospects whatever of becoming viable yet by the visit of its secretary to one individual in Brussels it obtained nearly half a million pounds. Three years later, that charity still has no prospects of being viable and the half a million pounds of Commission funds was therefore money down the drain.

At the top end of the scale, as we know, billions of pounds are being spent in Spain and Greece. Spain, I understand, exceeds in EC funding all the other members put together. One result will be to destroy the traditional and viable way of life in remote rural areas, a factor in Spain in particular, which could be her greatest asset for tourism in future years and for ever more. Wetlands are being drained, uplands are being irrigated, cork oak forests are being cleared, vast motorway networks are criss-crossing the country and the scale of pointless development perplexes even its own citizens. The rain in Spain no longer falls mainly on the plains. Community cash is splashing around to erode a brittle but viable human environment. The ironic thing is that our own Government have recently abandoned their motorway network programme in this country—some may be relieved about that—yet our money, and the Commission's money, is now to be used for exactly the same ill-conceived motorway schemes in Spain.

Again, our forces and defence have been cut so that we can pay this huge sum into the bottomless pit. If a Conservative Government claim that they can no longer afford to defend our national interest, how can they afford to give money away to the Commission for bad investments? There will be no return on any of that expenditure. It is simply an exercise in economic theory by bureaucrats, lacking experience or competence in business or in agriculture—the fanciful delusions of Delors and his officials that, by extracting funds from the north and splashing them about in the south, some sort of political benefits will emerge to the benefit of Europe as a whole. That is not business; that is politics.

Taxpayers' money was never supposed to be used for political bribery; and it all points to the inevitable outcome that the EC will in due course become unviable, that the squandering of funds on socialist theory instead of carefully calculated investment principles must in the end lead to insolvency. It is quite extraordinary that a Conservative government are forcing this through without conditions and careful warnings. Not only should the United Kingdom have attached stringent conditions to this payment, but it should surely have been paid in tranches over a period, each tranche being released only if we are satisfied, and the other member states are satisfied, that the conditions are improving.

Insolvency is certain to follow on all fronts in the EC in due course. One is reminded of the endless unviable and foolhardy investments in the past by the Highlands and Islands Development Corporation. Living partly up there in the past, I was very familiar with it. Most of those schemes have been forgotten today but the money was frequently and usually money down the drain. Now, ironically, the Highlands and Islands Development Corporation is being rescued by the EC and the whole process is starting over again. It is all a question of whether it is a good investment. Usually, especially by bureaucrats at a distance, it is a bad investment. But primarily I recall the famous ground-nuts scheme, which some older noble Lords will remember, which had all the ingredients of incompetence, inexperience, discredited theory and reckless lack of financial prudence. It is certainly relevant in the case of Spain and Greece. Leaders of all parties who press for accepting increased funding of the Brussels financial dictatorship should do some homework on the facts about the ground-nuts scheme. Interpolated on the scale of Brussels, it will make their blood run cold.

Because government, unlike the private sector, can simply write off blunders, huge losses and financial disasters, that does not mean that the nation's contributions have not been lost forever. That cannot continue indefinitely. I therefore ask my noble friend the Minister to give a clear reply to this question: What contingency plans do the Government have, or are they working on, for the day when the Commission becomes insolvent and the member states can no longer afford to contribute? If member states are no longer able to pay subscriptions, what happens then? That day will come.

The Government are keen on the application of market forces and good commercial practices. But market forces would have required that this time no further funding was acceptable. The impression is inescapable, I regret to say, that the pressure about this payment was due to fear of offending major European partners. This is naive and ridiculous. If members of a family or business partners are either incurable bullies, devious self-seekers or just plain crooks, you do not appease, grovel or prostrate yourself. That way you get kicked even harder—it compounds the situation, particularly when they have a grudge against you anyway, earned over the past few centuries.

I am not being tactless. I have great friends and some cousins in Europe including some Bismarcks in Germany. They do not take offence when I say to them that their government machines are by tradition arrogant bullies; devious and treacherous in another case or just crooked in another. Most of them tend to agree. Noble Lords should not forget that Spain sided with the Nazis in the war. It is Spain that is now being given our fisheries at the expense of the British fishing fleet. Incidentally, it was a former Prime Minister—always, I regret to say, petulant and grumpy on the screen—who signed away our fisheries without explanation to the British public on what was happening.

One of the most disgraceful and humiliating episodes this century was the departure from office of my late friend—and the friend of so many of your Lordships—Nick Ridley. Here was a fine patriot and a great citizen, resigning as a Secretary of State for saying out loud what the majority of the British people were thinking and are thinking more and more every day. That was a terrible blot on our parliamentary record and a disgraceful British episode.

Chancellor Kohl is a very good German. Every day he tends to remind me more and more of Bismarck, manipulating the power balance in Europe so that Germany dominates the field. The only real difference is that Bismarck had the Prussian army and Kohl has the Bank. Good luck to him, but do not let us fool ourselves and cringe in his presence. Ingratiating ourselves and subservience will get us nowhere at all.

I read yesterday the staggering statement that in a circular the Foreign Secretary had said or claimed that, the European Union has brought the priceless gift of nearly 50 years of peace". As one, like many of your Lordships, who lost the first seven years of my working life in the forces in Africa, Burma and elsewhere, I am still clear myself that 50 years of peace was attained because we decisively won the war and obliterated that generation of Nazis and Fascists, and because ever since then we have been protected by NATO. The European Union was the child of that victory. If the Secretary of State believes what he said—the most outrageous perversion of history I ever recall—he will believe anything. Further, I regret to say that it may be difficult to believe everything that the FCO comes up with in future.

I conclude by saying that there was in fact no obligation to pay the increase either legally or on a point of honour. That is an academic point which has been dealt with already, particularly by the noble Lord, Lord Bruce of Donington. For example, if one orders a car the contract may be legally binding. But if before delivery one finds that it does not work and that there is corruption in the production or price, one would certainly not be liable in court. The claim that we had to pay because of a commitment is not true. The Government are simply compounding the fraud and the fatal flaws in the system and encouraging financial dictatorship in Brussels. We should have imposed conditions and paid in tranches.

Forcing through this undeserved increase has made a deep and unnerving impression on the public. Ministers may wonder what has happened to the "feel-good factor". Evidently they do not understand that the economy is not the only thing that matters in life. There are a number of things that make up the round of national well-being, including patriotism, national pride, a comforting sense of confidence in national ideals and confidence in our leaders.

Without those fine elements which have always made Britain great and which make every other nation tick, low inflation or the economy by themselves will not make anybody feel good. As a result of our automatic acceptance of this payment a deep sense of uncertainty and insecurity is found among all people I see or talk to, whether in cities or in the country, on trains or wherever. A deep sense of uncertainty and insecurity now prevails which the economy and low inflation will not of themselves sort out. The mounting belief that we have been sold down the river, that we are being kept in the dark, that we have to pay taxes to foreign officials to waste, and that we cannot be trusted like everyone else to express ourselves in a referendum, have done away with the "feel-good factor". And now today, of course, we can no longer believe what we are told in the interpretation of history. That is Euro-fanaticism gone mad.

Whenever I attend debates on Europe in your Lordships' House I always feel that I have gone through the looking glass and live in a different world. I shall try to explain what I mean by saying that had 10,000 of the British public listened to this debate the loudest acclaim, and probably deafening, would have been for the noble Lord, Lord Bruce. There is something peculiar about Parliament at the present time that if one dares to criticise anything connected with Europe one is called names and dubbed a Euro-sceptic or whatever. Following the noble Lord, Lord Tebbit, perhaps I may say that I am not in favour of coming out of the European Union. I am in favour of trying to get the British public behind it, but we shall not do that by prostrating ourselves and being nervous, twitchy and terrified of telling people what we think of them.

6.47 p.m.

Lord Morris

My Lords, one of the advantages in speaking at the stage of the debate we call "just before the gap" is that having listened with great care and enormous patience—but today with the need for very little patience because it has been so fascinating a debate—to what other people have said, I can shorten my remarks. Invariably one has heard points one intended to make oneself explained so much better by others.

I return to a point made by my noble friend Lord Beloff, and, although viewing it from a totally different perspective, to what was said by my noble friend Lord Tebbit. This debate illustrates the extraordinary truth about what we choose to call "Europe". The reality of Europe is that it is a perception within our own hearts and minds. The interesting and key factor as to how I perceive Europe is not a narrow jurisprudential point, but a fundamental point in our total outlook.

The basic presumption in the Roman law countries—all the other member states of Europe other than Sweden—is a presumption of authority; namely that government are pro bono publico. There must be an authority and it is for the good of the people. The fundamental presumption of the United Kingdom, being a common law country, is a presumption of freedom. In the good old days, we used to remove the heads of those in any Executive who forgot that fundamental point. Unfortunately, things are not as simple these days.

However, it is important to note that even the most cursory reading of history tells us over and over again that all governments, whatever their political colour, are, generally speaking, nothing other than very bad news indeed for those whom they purport to serve, even when they do so with the very best will in the world. When one understands that, one immediately understands a remarkably brilliant book written by the noble Lord, Lord Cockfield, on his years as a commissioner in Europe. I have read the book, admittedly very quickly. Running through its entirety is the fundamental presumption that what the noble Lord was doing was a good thing. With the greatest respect to the noble Lord whom I admire enormously—I have told him this to his face—I think that he is fundamentally wrong in that regard. I am delighted that the noble Lord has just entered the Chamber as I have been referring to his contribution.

My main reason for concern is what is happening in the world today. Since the 1920s, the number of political entities in the world has increased exponentially. There is no question but that what is happening in Europe is an attempt to unify the whole of Europe. It is bound to fail, not for ideological reasons, but for technological reasons. Technology and the way we live, work and learn are changing fundamentally. We are at the beginning of the greatest industrial revolution the world has ever known. I shall not, however, expand upon that. I return to my original point, made also by my noble friends Lord Tebbit and Lord Beloff. There is a fundamental difference of outlook between the United Kingdom and other countries in Europe in terms of the way in which we perceive the role of government. That is one of the great difficulties.

As to the Bill itself, my noble friend Lord Tebbit mentioned that no argument had been given as to why the additional expenditure was needed. The reason, as my noble friend Lady Chalker knows perfectly well, is that in this regard your Lordships' House does not matter a jot. My noble friend recognises that fact, as does my right honourable friend the Prime Minister. When the Bill was passed in another place, I well remember the Prime Minister saying on the radio, "Now that that is all over…" The Government ignore this place—and for good constitutional reasons. This is a money Bill and there is very little that we can do about it. That is why no arguments have been put. I suspect that my noble friend thought that no arguments had been put in another place either. I think that that is absolutely correct.

It is far too late now for me to go banging on about the matter. I should very much like to participate in tomorrow's Committee stage because I believe that there are some fundamental points to be made. I hope that the Government will listen with care to what is said.

6.53 p.m.

Lord Dahrendorf

My Lords, it is perhaps a slightly more doubtful privilege to be the first to speak after the gap, but it is a privilege to be able to say that we have listened to an important debate. This has been a timely debate in which a number of memorable contributions have been made, not least the outstanding maiden speech of the noble Lord, Lord Kingsland, to which I shall refer later.

I shall inevitably stray a little from the scope of the specific Bill under consideration because the debate so strayed—and rightly. Pace the noble Lord, Lord Beloff, and others, one of our functions is to probe the legitimacy of what is being decided by reflecting views and by influencing views as possibly only this House can.

What we have seen today is that Europe has become a divisive issue. Even this little Bill has become a divisive issue. It is divisive not only within the Conservative Party—it is not for me to comment on that; no doubt the Government will do so—but more importantly perhaps it is divisive within the country and the issue is divisive also in every other European country. That is a fact that needs to be underlined. It is not just in this country that people are beginning to wonder what the European Community is about.

This is a time when those of us who believe that the European Union is necessary are forced by the nature of the debate to reconsider some of the basics. The Second Reading of this money Bill is one such occasion. If I may say so, I speak as a sceptical European. I am, I believe—at any rate, in another incarnation I was—the only European Commissioner to give rise to a motion of censure in the European Parliament when I publicly criticised both the common agricultural policy and the Commission itself. That motion was withdrawn only because, as many of your Lordships will have learned, the Parliament can ratify or consider a motion of censure against the entire Commission but not against individual Commissioners, so individual Commissioners sometimes get away with murder—or perhaps I should say, with lesser crimes.

Returning to the issue before us and to the questions that were raised by the noble Lords, Lord Bruce of Donington, Lord Stoddart of Swindon, Lord Moran, and others, we must ask what is the benefit of the European Community which is used to justify the increase in expenditure. Those here and elsewhere in Europe who see the benefit would cite a number of things. At the risk of incurring the wrath of the noble Lord, Lord Buxton, one such benefit would undoubtedly be, to put it in slightly different terms from those used by the noble Lord, the reversal of more than two centuries of European fratricide or at least making a contribution towards a reversal of those unhappy centuries.

A more specific example would be the single market. Incidentally, that is a difficult concept because the single market is in some ways two things at the same time. It is a step in the direction of establishing free trade everywhere, but it is also, let us face it, the creation of a privileged space for many of those who operate within it. As the pressures of globalisation increase, it may well be that the privileged space aspect is used more extensively than that of worldwide free trade.

Europe is also an attempt to co-operate in other important areas. I use the word "co-operate" advisedly because I think that it is entirely right that the second and third pillars of Maastricht should be intergovernmental rather than based on binding supranational decisions.

Then there is the curious fact that, in a world which has become confusing, people everywhere appear to have a tendency—incidentally, it is one that deep down I regret—to hold on to those who live in the same region. I do not like a world of regional blocks; I should prefer one in which there are world-wide rules by which we operate. However, the regional blocks are increasing in reality and on another occasion it might be interesting to look at the institutional consequences of even the North Atlantic Free Trade Association. There are such consequences, in particular in the dispute settlement field.

Therefore, it is that kind of argument that one would present as one reached the key question of whether the European Union does what it promises. I readily admit that a sceptical European such as myself does not find it easy to face a large audience and explain in detail what it does. Far too often one must apologise for the European Union if one identifies with it. It is a plain fact that many of the policies and practices of the Community are contrary to or not entirely in keeping with the basic intentions of this great historical attempt to bring together countries which fought each other not so long ago.

The fraud debate, which ran through our discussions today, is a perfectly appropriate example of the reasons why one must often apologise for the Community. I have no justification to offer. On the contrary, I share the views expressed by many about the whole range of issues such as fraud, mismanagement and irregularities. I feel strongly that we must tackle them.

I was most taken by the notion of the noble Lord, Lord Kingsland, that the thing to do is to remove opportunities for fraud rather than merely concentrating on exposing and penalising incidents of fraud and other misdemeanours of the past. I was also taken by the more specific idea put forward by the noble Lord, Lord Cockfield, of how one can remove some of the opportunities for fraud. Of course, his idea involves a fundamental change in the common agricultural policy even if it might not involve any immediate savings in the European budget. However, I suspect that the line at which he chose to hint is about the only one which promises success in the negotiations of the European Community, in particular if one does not start with the proportion of 49/51 but with a smaller proportion that must be borne by national budgets against the Community budget. I should wish to think further about that important proposal.

Perhaps other points could be made about improving the ways of the Community, but at this stage I wish to point out that the noble Lords, Lord Kingsland and Lord Cockfield, rendered the House a great service by pointing out what the dimension of the problem is and what it is not. I believe that sometimes we get the European issue out of proportion. The noble Lord, Lord Kingsland, said that more than 40 per cent. of GNP enters in one way or another the public sphere in this country but only 1 per cent. goes to the European Community. In other words, the relationship—and I suggest that it is a relationship of importance in the political universe in which we live—remains one which is, rightly, extremely heavily balanced in favour of action at the level at which elected parliaments and even your Lordships' House have the possibility of controlling expenditure.

Equally, I believe—and given my previous history I can imagine what some of your Lordships will say—that some of your Lordships are getting the role of the Commission out of proportion. The noble Lord, Lord Cockfield, made some highly relevant points in that connection. The Council of Ministers takes all the crucial decisions. If there is a criticism that I would have of the practices of the European Community it would be that often the Council of Ministers does not meet as such but meets as a council of civil servants. It is a council of civil servants which reaches agreements which often Ministers do not have time to look at in sufficient detail in order to introduce the element of parliamentary control that so many of us wish to see. I do not defend the Commission's misdemeanours and misdeeds. I have previously attacked the Commission precisely for not having a basis of legitimacy and suggested that it should at least be elected by the European Parliament. However, in this connection that is neither here nor there.

Underlying our discussions today is our picture of Europe which we follow and which leads us to say either yes or no to this Bill. I see Europe not as a state. With respect to the noble Lord, Lord Beloff, I do not see the institutions of the European Community as state-like. A Parliament which cannot raise revenue, a Commission which can make proposals but cannot take decisions and which in some ways is a Secretariat General and in others has a quasi parliamentary function, and a Council of Ministers whose members are nationally responsible do not make a state and should not. I see the European Community as an attempt at working more closely together in areas of common interest; an attempt on the part of diverse states. It is true that they are diverse not only in their present interest but also in their legal and political culture and therefore in the ways in which they tackle subjects.

My hope is that as regards institutions the 1996 conference will, above all, strengthen the role of national parliaments in the process of European decision-making and will thereby make it quite clear what the Union is and what it is not. That would be compatible with many of the ideas expressed today. I entirely share the view of my noble friend Lord Thomson of Monifieth, that what we want is opting in and not opting out. We want opting in with a clear notion of where we want this strange creature to go without exaggerating its dangers or its hopes. Like the noble Lord, Lord Kingsland, I believe that on the expenditure side there is much to criticise but it is just about right. In that spirit, I do not find it difficult to accept this Bill.

7.9 p.m.

Lord Eatwell

My Lords, we have had a wide-ranging debate of considerable passion and detailed technical argument. There have been wide, indeed fundamental, political disagreements; one might say "political clashes". I refer to the debate that took place on the other side of the House. There have been robust contributions from this side, too.

I believe that an unfortunate aspect of the debate has been the unpleasant degree of xenophobia displayed by some speakers. We have been told that the British are honest and upright and that foreigners are devious, dishonest and blackmailers to boot. We were even told that we have a greater tradition of democracy than the other member states. I believe that such statements are false and misleading and that they are profoundly insulting both to democratic governments and to millions of fine people throughout our Continent.

The majority of the Conservative Members who have spoken in the debate have vigorously attacked the Government. We even had the Prime Minister compared with King John and we have also heard the suggestion of a call for the king's head. So if the debate has revealed anything, it has revealed once more the very deep divisions and confusions in the Conservative Party's approach—I refrain from calling it a policy because the Government's utterances really do not merit being called a policy—to the institutions of the European Union: the institutions which derive their financial powers from the Bill before your Lordships' House today.

This country's economic interests were, I believe, broadly well served by the budgetary agreement reached in Edinburgh, which the Bill will implement. The noble Lord, Lord Tebbit, asked for some examples. The noble Lord, Lord Dahrendorf, covered some of the political issues. Perhaps I may refer to the narrowly economic issues. For example, the increase in resources which will now flow towards the transport sector and in particular towards the construction of trans-European networks are of enormous economic benefit to a country such as ours located on the western periphery of its most important market. Let us hope that the European transport policy will remedy the damage that has been done to our economy by this Government's ineptitude in relation to transport policy.

Our economic interests are served also by the expansion of the cohesion funds, boosting, as they do, the economic performance of important markets for British goods. For example, British industry has done very well indeed out of the growth of the Irish market in the past decade, a point which some noble Lords seem to miss.

On the issue of cohesion funds, the Government display their now traditional confusion. On the one hand, the Chancellor of the Exchequer seems to regard cohesion funds as a cost, as a bribe to persuade Spain, Greece and Portugal to—as he put it—"accept what we wanted". On the other hand the Chancellor declares himself eager to incorporate the eastern European economies into the European Union—a measure which will lead to a bigger increase in the cohesion funds than any seen up to now.

Our narrower economic interests are served by the change in the method of calculating our contribution to the European budget which is contained in the Bill. The shift towards greater reliance on GNP in calculating contributions is bound to benefit Britain since this country is now, thanks to the Government's economic policies, ranked 11th in GNP per head in a European Union of 15 members. Only Greece, Spain, Portugal and Ireland, as the noble Baroness, Lady Elles, pointed out have a lower GNP per head.

For all those reasons, even on narrow economic grounds, we can welcome the Edinburgh agreement and, indeed, welcome the Bill.

However, the entire issue of Britain's contribution to the European Union has been confused by the Treasury's now traditional bungling, in this case in respect to the size of Britain's contribution this year. Everyone knows that the annual contributions fluctuate considerably, primarily due to the timing of CAP payments, as the Minister pointed out. But how can the country have any confidence in a Chancellor of the Exchequer who admits that he "cannot remember" when he discovered that our contribution was to be £700 million more than expected?

Moreover, the Treasury has proved incapable of explaining why that £700 million increase has occurred. The noble Baroness suggested that that might be due to the timing of payments. She was wrong and the Treasury has already said that she was wrong because careful analysis shows that it is not a question of timing. Analysis revealed that the £700 million increase is primarily caused by an increase in our average annual contribution of about half a billion pounds a year, which will go on year after year. Why is that? If he answers no other question this evening, the noble Lord, Lord Henley, must answer that question. Why has the contribution increased?

Three themes have emerged in your Lordships' considerations of this Bill. First, there have been numerous references to the serious problem of fraudulent use of Community funds. Secondly, there has been an entirely appropriate debate over the broad uses to which funds are put, particularly with respect to expenditure on the common agricultural policy. Thirdly, there have been those who have argued against the whole principle of supporting a European budget at all.

The issue of fraud played an important part in the arguments of the noble Baroness, Lady Chalker, and the noble Lords, Lord Cockfield, Lord Moran and Lord Shaw of Northstead. Much of the discussion has focused on the recent report by the Court of Auditors, and upon the excellent report by the Select Committee of your Lordships' House. The level of fraud identified by the Court of Auditors is clearly totally unacceptable.

We have a right to expect that the British Government will take the lead in fighting fraudulent and financial mismanagement, and indeed there are many fine words spoken on that by everyone from the Prime Minister up. But do their actions match the words?

My noble friend Lord Richard pointed out that the Government have failed to utilise available European Union funds to fight fraud. Over the three years 1991–93 we have rejected £3.5 million that was on offer for that purpose. In those circumstances, how can we take seriously, their protestations of fraud fighting? Will the Minister tell the House why the Government did not ask for some of our own money back to fight fraud? Presumably the UK Government allocated resources to fighting fraud in 1991, the year in which we did not take up a penny of what was offered by the European Union. If so, who paid for those resources? It was the British taxpayer, who has had to pay twice over: once to the European Union, with money that we should have got back, and once to the Government for the resources that were actually used to fight fraud.

The noble Lord, Lord Henley, has denounced the very idea of using more resources for the fight against fraud as "socialism", something which, for reasons I cannot fathom, he appears to be against. I agree that socialists are committed to fighting the misuse of people's resources, even if the Government are not. That is why we argue that the Government should use the resources available to them to fight fraud. That is why we are persistently puzzled as to why, when they acknowledge that the responsibility for fighting fraud lies with the member states, they refuse to increase their own fraud fighting activities and they reject the proposal of your Lordships' Select Committee for an expert task force to tackle fraud.

The Government's casual attitude to the prevention of fraud—and let us remember that the third highest number of agricultural fraud cases occur in Britain—is simply a general reflection of their seemingly casual attitude towards monitoring and scrutiny of European Union affairs.

Lord Tebbit

My Lords, I am grateful to the noble Lord for giving way. He is wrong. We have a rather good record for uncovering fraud. There are no statistics as to how much fraud is committed in any country, only how much governments uncover.

Lord Eatwell

My Lords, that is why I stuck to facts rather than fantasies.

I have mentioned already that the Treasury was first taken unawares and now seems totally unable to explain why our contribution to the budget has increased so sharply this year. But the problem goes wider than that. Just before Christmas I met in the Corridors of your Lordships' House my noble friend Lord Bruce of Donington. I wished him a happy holiday and he commented to me that he would be spending his time examining new European directives because if he did not, nobody else would. That statement rings true. There is certainly no evidence that the Government perform the detailed examination that is performed by my noble friend.

Unless and until the Government bring forward proposals to improve scrutiny, either at the level of the European Council as proposed by the noble Lord, Lord Dahrendorf, or scrutiny by the European Parliament and by the British Parliament, it is impossible to take any of their statements about prudent financial management seriously.

There is, of course, a close link between fraud and the common agricultural policy. The entire philosophy of the price support and quota system is perfectly designed to encourage fraud, as the noble Lord, Lord Kingsland, pointed out in his excellent maiden speech. Nothing could be more inherently corrupting than bribing people to produce nothing, as the set-aside provisions do.

Spending on the CAP has been the main focus of the second theme in today's debate. The theme was taken up by the noble Lord, Lord Boyd-Carpenter, and by the noble Lord, Lord Moran. My colleagues and I have argued consistently that the common agricultural policy is fundamentally misconceived. It is a policy which imposes a burden, as has been said, of more than £20 a week on the average family in this country.

As well as lowering real incomes, the high price of agricultural produce—which is the inevitable and, indeed, the necessary outcome of the common agricultural policy—raises industrial costs and lowers industrial profits, reducing the competitiveness of our industry throughout the world. As if that were not enough, the common agricultural policy severely damages the economies of many developing countries.

Moreover, the CAP now threatens the future security of Europe. As your Lordships' Select Committee so graphically demonstrated last October, and as the noble Lord, Lord Tebbit, argued this evening, not only is the current operation of the CAP doing enormous damage to the agricultural economies of the eastern European states, contributing to the impoverishment of the rural population and hence threatening the stability of those fragile new democracies, but also the CAP is a direct impediment to the eastern European states joining the European Union.

What is the Government's position on reform of the common agricultural policy? The Government tell us repeatedly, the Prime Minister having had yet another triumph at a European Council meeting, that they are reducing the burden of the CAP. Can the noble Lord, Lord Henley, explain why the cost of the CAP to the British taxpayer has risen from £20 billion in 1992 to £27 billion during the last year, an increase of 30 per cent?

It is obvious to anyone who has followed the history of the CAP that it is a policy which cannot be sensibly reformed by piecemeal measures. But where are the Government's proposals? Can we really expect Mr. Waldegrave, one of the architects of the poll tax, to bring forward a reform which will actually save money for a change? Surely there could not be a more opportune moment to produce a truly constructive policy which would serve the interests of British industry and the British taxpayer when so many member states, especially Germany, long an opponent of reform, are now desperate to incorporate the Eastern economies into the Union. A constructive and radical proposal might now find favour.

There has been a third theme in the debate. It appeared in the speeches of my noble friends Lord Bruce of Donington and Lord Stoddart of Swindon and those of the noble Lords, Lord Moran, Lord Beloff and Lord Buxton, although perhaps not featuring quite so much in the latter's. Essentially the argument has been that we should not be contributing anything at all to the European Union. That position was most clearly stated by the former Chancellor of the Exchequer, Mr. Norman Lamont, who argued in another place that there is an, incompatibility between what is acceptable to Britain and what is acceptable to our partners". Mr. Lamont proceeded, perfectly logically, to suggest that, this country must consider all options … including even withdrawal". He declared that the Conservative Party, should have the confidence to set out the issues and to debate them before our future is thrown into the melting pot in 1996".—[Official Report, Commons, 28/11/94; col. 962.] The noble Lord, Lord Cockfield, echoed that call. Is the noble Lord, Lord Henley, prepared to respond to Mr. Lamont's advice? Will the noble Lord tell us exactly what is the Government's European policy? Or, indeed, what the criteria might be on which their European policy is based? As far as we can discern from the comments made by government Ministers and by the noble Baroness, the Government's position is essentially informed by the need to maintain the sovereignty of the British Government. But exactly what that amounts to is steeped in confusion.

The Chancellor of the Exchequer said in another place that the Government's policy of maintaining the sovereignty of the UK Government was expressed in the Prime Minister's regular triumphs at the European summits, in particular his triumphs over monetary policy and the opt-out he had negotiated. So far as I can see, the triumph of the Government's monetary policy, in so far as it has had any concrete result whatever, has been to ensure that any central European bank will not be located in the City of London where it should be. That is the triumph so far.

The Government do not seem to understand that the increasing globalisation and integration of the world economy severely reduce our sovereignty and the influence the British Government can have over the economic lives of our citizens. When 60 per cent. of our manufactured exports go to other European Union countries, when one-fifth of all the jobs in Britain depend directly upon the growth of demand in other member states of the European Union, and when our financial stability is dependent substantially on the financial stability of Europe, it is obvious that we can acquire greater sovereignty by working together with our partners in the management of our economic affairs.

Of course, what form collaboration and working together takes requires a key decision. Any collaborative decision-making means giving up some powers to acquire other powers. The key issue is whether the loss of powers is greater or less than the powers acquired. For example, in any future monetary union, would Britain acquire greater economic influence by securing a role in European monetary decision making, including European monetary decision making in Germany—an influence which it certainly does not have at the moment—or would it lose influence?

Those are the sort of questions which should be faced and which the Government should be debating and presenting to the country. However, decisions in the Cabinet clearly prevent the Government dealing with those matters in a rational manner. The Chancellor of the Exchequer and the Foreign Secretary are clearly in favour of moving towards monetary union; the Employment Secretary and the Social Security Secretary are clearly against.

The sort of debate Mr. Lamont and the noble Lord, Lord Cockfield, have called for is not happening and does not seem possible. British policy is therefore paralysed by division and indecision and the task of creating a new post-cold war Europe goes by default. Once again, the British people are being seriously let down by Mr. Major's crew—one cannot call them a team—and the sooner they go, the better for Britain it will be.

7.27 p.m.

The Parliamentary Under-Secretary of State, Ministry of Defence (Lord Henley)

My Lords, some hours ago, the noble Lord, Lord Richard, stated that there was an element of unreality about the debate. I thought that it was rather an odd thing to say at the beginning of the debate as we had not heard many of the speeches. I can only suppose that the noble Lord had had a glimpse of the speech of his noble friend Lord Eatwell and that he deduced from that speech that there was to be an element of unreality in it. It is a bit rich for the noble Lord, Lord Richard, to attack the party to which I and my noble friends sitting behind me belong on the basis that not all of them were in full support of the views of Her Majesty's Government when I believe—if I can quote statistics—that something in the order of 100 per cent. of those who spoke behind the noble Lord were not exactly in support of his own policy.

However, I believe that I can agree with the noble Lord and other speakers in one respect. We have indeed had a very valuable debate. In the main, I can also say that it has been extraordinarily well-tempered and well-informed. We have heard from a number of former Commissioners; for example, the noble Lord, Lord Richard. The noble Lord, Lord Jenkins, did not speak, but he was present in the Chamber. By that process, he gave us the benefit of his advice. We also heard from the noble Lord, Lord Thomson, and the noble Lord, Lord Cockfield.

Further, we heard speeches from a number of former Members of the European Parliament. I have in mind my noble friend Lord Kingsland. I should like to join others in congratulating him on his maiden speech. The noble Lord, Lord Bruce of Donington, also spoke in the debate. He is another former distinguished Member of the European Parliament. We also heard from my noble friends Lady Elles and Lord Shaw. Their experience and expertise has been of benefit to those of us sitting on these Benches and indeed to all noble Lords.

However, it may be worth reminding your Lordships that the Bill we are debating this evening—and this point was made by my noble friend Lord Boyd-Carpenter—has been certified by Madam Speaker as a Money Bill. This means after Thursday of this week the Bill may be presented for Royal Assent under the terms of the Parliament Acts with or without the agreement of your Lordships and there is no need for the Bill to be considered further in another place whether or not this House should happen to amend it.

That being so, and in view of what the noble Lord, Lord Richard, said about the element of unreality about the debate, it just may be asked why we are debating the Bill at all. The answer is that the "usual channels" recognised the very strong interest in the Bill which has been expressed in various quarters of your Lordships' House and the importance of the matters at issue. I think we are all agreed they are matters of fundamental importance. The number of speakers and the quality of the speakers who have taken part in the debate this afternoon indicates the wish of this House to consider these matters.

Most unusually for a Money Bill it has further been agreed that there should be a separate Committee stage which will take place tomorrow and for which amendments have been tabled. That might give me the opportunity to deal with some of the more detailed points that I am unable to deal with in the time available this evening. That debate, as I said, will take place tomorrow; but I would strongly urge your Lordships that there is no practical purpose to be served by further prolonging the proceedings or by, for that matter, any amendment of the Bill. I trust therefore that the House will not in fact seek to obstruct the passage of the Bill.

I do believe that many of us are in agreement—if I can start with the noble Lord, Lord Thomson—and I believe the noble Lord, Lord Eatwell, and I are occasionally in agreement that the price we pay for membership of the European Community is a price worth paying. Not surprisingly, I think, the noble Lord, Lord Bruce of Donington, and my noble friend Lord Beloff and others would not agree with me; but I do not think it is for me now to elucidate all the benefits of European Union membership which I believe are overwhelming. But enough noble Lords in the course of the debate this afternoon have referred to the jobs, prosperity, the inward investment and to the degree of trade that we now have with our European partners, and to the degree of influence that it allows us to express throughout the world, through being members of a greater body, and the real individual benefits for individual citizens.

May I also say that I simply do not accept the jibes—I put it like that—of some Members of the Opposition Front Bench, and even from my own side, that we are entirely without influence in terms of our position within Europe. I think it is fatuous to say that the United Kingdom always loses the arguments. We have a long list of negotiating successes including the EFTAn enlargement, the GATT Uruguay round which might have gone very differently if we had not expressed our views in the manner we did, the Edinburgh future financing agreement preserving the abatement which is what we are debating this afternoon, subsidiarity, the social protocol on which I am afraid the noble Lord, Lord Eatwell, and I will have to differ, and almost more important than most, the actual abatement negotiated by my noble friend Lady Thatcher back in 1984. I simply cannot accept the arguments of the noble Lord, Lord Bruce of Donington, that we would be unable to get that because we always adopted a suppliant posture. I would ask my noble friend Lord Beloff, how on earth, if our success in negotiating is no greater than that of the late lamented Sir Austen Chamberlain to whom he referred, did we manage to pull that one off on that occasion. Quite simply, back in 1984, we did negotiate that abatement which no previous government had debated and since then that has been worth something of the order of £16 billion to us.

I must now, of course, turn to the subject of fraud. By fraud—just to save the noble Lord, Lord Stoddart, from intervening—I am talking not only about fraud but also about value for money, about financial mismanagement or appropriate procedures. I feel that it is important to touch on this, albeit briefly, for exactly the same reasons as the noble Lord, Lord Dahrendorf, touched on it; that it is absolutely vital in terms of the credibility of the Community and for all its citizens that we are all seen, both in this country and in other member states and, dare I say it, in the Commission itself, to be taking the issue of fraud against Community funds, against government funds, and against the individual taxpayer's taxes that he has paid, as seriously as we could.

I would like also to stress, as I think my noble friend Lady Chalker did in opening, the effect that the growing number of net contributing countries—again something that results directly from Edinburgh—will have on member states' attitudes to fraud. Again that was, I think, a point stressed by my noble friend Lord Kingsland in his very excellent maiden speech.

The party opposite said in another place—this was repeated by the noble Lord, Lord Richard—that they would not approve the Bill in another place unless Her Majesty's Government did more about fraud and about reducing the cost of the CAP. I do believe that that is exactly what we have done on fraud. I would reject the allegations that have been made by the noble Lord, Lord Eatwell, that we are not at the forefront of the fight against fraud. Let me just repeat the points that my noble friend Lady Chalker made. We have been at the forefront of the fight to detect and to suppress fraud in the Community. Fraud, as I said earlier, includes not only criminal acts but also waste, mismanagement and incompetence.

We were in the lead in securing European Council conclusions at Essen which called for concerted action by all institutions; the adoption of a legal instrument on anti-fraud criminal law measures; the adoption of a Council regulation setting out the basis of anti-fraud measures to be adopted in future sectoral legislation; for member states to submit reports on measures they are taking nationally to combat fraud and waste; and for all institutions to follow up special reports by the Court of Auditors.

We recognise that fraud in the Community remains a very serious problem. We are always ready to consider how to strengthen our own anti-fraud activities in the United Kingdom. I think I ought to deal with the point made by both the noble Lord, Lord Richard, and the noble Lord, Lord Eatwell, that we do not take up all the anti-fraud funds. The noble Lord, Lord Eatwell, rather misquoted me on an earlier occasion when I had allegedly accused him of being a socialist, which seems to me a perfectly fair thing to say. The point I made on that occasion was that it seemed rather a simplistic judgment put forward by the noble Lord that merely by spending more money on a particular issue one would get nearer to the solution. Perhaps I can just tell the noble Lord how we take advantage of Community anti-fraud financing. For example £7.8 million was taken up in 1993 and 1994 to meet part of the cost of introducing a computer database following introduction of the integrated control and administration system (IACS). We have also taken advantage of the provision for computer systems in the CAP export refund area where customers received £185,759 and £114,679 in 1992 and 1993. The customs have applied for yet more money—about £250,000—for 1994.

But the money is not in fact for hunting fraudsters in the field. The United Kingdom is not simply in the business of up-grading information technology equipment, replacing staff and initiating training schemes just simply for the sake of obtaining Community funding. This may mean that the United Kingdom will not take up its full allocation under particular programmes. The Community budget contains provision for anti-fraud work, some of which is spent directly by the Commission. Funding for certain sectors—I give the example of olive oil—is simply not available to this country. As the noble Lord will be aware, we do not produce any olive oil.

Lord Eatwell

My Lords, can the noble Lord tell your Lordships' House who paid for the Government's anti-fraud measures in 1991?

Lord Henley

My Lords, there are occasions when there is no need for us to take up what money is on offer. The point I was making is that we have taken up money—for example for improving IT—in the particular examples that I gave. There is no need to then take up further funds in subsequent years merely because money is available when no upgrading of that particular equipment is made. We are not in the position of simply seeking money for the sake of it. That would strike me as being jolly close to being financial mismanagement, fraud or whatever the noble Lord likes to call it.

Lord Bruce of Donington

My Lords, I am grateful to the noble Lord for giving way again on this. The noble Lord has dealt so far with the narrow issue of fraud. Will he now make some observations about irregularities and financial mismanagement in the institutions themselves as distinct from the defects in the member states?

Lord Henley

My Lords, I was dealing with fraud and, I hoped, all matters falling under the general subject of fraud. The noble Lord will be aware that earlier, at Question Time, we debated the subject of the waste which Members of this House see in the tobacco regime. Her Majesty's Government have made their position on that issue absolutely clear and we shall continue to do exactly that. But obviously there are occasions when we cannot convince the other members of the rightness or virtue of our cause. We shall certainly continue to try to do so in that particular case. It would be quite fair to describe that as an example of money that we see as being wrongly spent. We can only do what we can and will continue to do so. The same applies to what I said about fraud and financial management. I hope that the noble Lord will accept that and will now allow me to continue.

I shall move on from the subject of fraud to the CAP. We have argued for and obtained action within the CAP. Again, whatever the noble Lord, Lord Eatwell, has said, it is not a matter which I recollect the last Labour Government ever seeking to do much about. CAP reform has reduced the export refunds, as my noble friend Lord Kingsland quite rightly stressed, and intervention areas particularly open to fraud. Two-thirds of payments are now made direct to farmers and are subject to much tighter controls under the IACS system. Administrative penalties are now applied where there are overclaims.

I could go on, but the point that I am making—and I can only make it briefly given the time available—is that this Government are, above all others, committed totally and utterly to the fight against fraud. We are committed to it, first, because it is wrong that fraud and financial mismanagement should take place, but also for the reasons given by the noble Lord, Lord Dahrendorf.

Further, I ought to stress, because considerable blame has been placed by many people on the activities of the Commission itself, that we are to have a new Commission. The new Commission has made absolutely clear its determination to improve financial management and to do what it can to act against fraud. The incoming Commission President, Mr. Santer, has already proposed that no proposal should be presented for adoption by the Commission without the prior consent of the budget commissioner. We certainly welcome the statement by Mr. Liikanen, the new budget commissioner, during his appearance before the European Parliament last week on the need for improving cost effectiveness and financial management of Community spending. I am sure that that is something which the noble Lord, Lord Bruce, and others will welcome.

My noble friend Lord Buxton insisted that the Government should have demanded conditions so that the Edinburgh increase took effect only when financial improvements were made. I can assure my noble friend that the Edinburgh European Council certainly insisted on improved procedures for prior appraisal and post hoc evaluation of projects funded from the Community budget. Since Edinburgh that requirement has been written into the Community regulations for the cohesion fund, structural funds and the fourth framework programme for research and development. Certainly that is something which we wish to see developed further.

Lastly on the subject of the CAP, I accept that spending on the CAP has increased in real terms since 1979. However, the Government were the prime mover in introducing the agricultural guideline in 1988—another sign of the Government's negotiating successes—which ensures that agricultural provision will increase at only 74 per cent. of the growth in real GNP. Since the guideline was introduced spending on the CAP has fallen from 68 per cent. of the EC budget to a mere 50 per cent. I believe that the noble Lord will accept that that is at least a step in the right direction.

I shall now move on, again albeit briefly, to the question of the figures and the allegations that my right honourable friend the Chancellor of the Exchequer got his sums wrong. Noble Lords opposite greeted my noble friend's explanation with some mirth. Perhaps I may briefly re-explain for bears of little brain, as I believe the noble Lord, Lord Richard, described himself, the reasoning behind it.

In 1991 the Treasury forecast for the net contribution for 1994–95 was £3.3 billion. In 1992 it was £3.1 billion. In 1993 it was £1.7 billion. The forecast outturn is now £2.4 billion. That figure was released exceptionally by the Chancellor a week before his Budget in order to inform the debate on this particular Bill. Obviously forecasts have changed, but they have not changed in one direction only as some would have us believe. Forecasting the net contribution is a very difficult task. One problem is that of budget years, as my noble friend made quite clear. The Community's budget year is the calendar year, as I think the noble Lord knows. Therefore, depending on the distribution of contributions in the Community budget year, those contributions may fall in different United Kingdom budget years. For example, in 1993 it was anticipated that most claims under the reformed CAP regimes would be at the beginning of the Community budget year, but many have in fact been later, which shifts them into a different United Kingdom financial year. Payments are calculated according to certain exchange rate assumptions, according to forecasts of growth in United Kingdom and Community VAT and GNP, and according to inflation forecasts. A correction is then made to take account of outturn of all those factors and the pattern of Community spending. The abatement is obviously a further complicating factor.

The Treasury provided papers to Sub-Committee A of the European Communities Committee earlier this year on the calculation of VAT and GNP own resources and of the abatement, which obviously go into this question in much greater detail than I am able to do. I commend them to the noble Lord. It may take him and his noble friend Lord Eatwell a little further.

Lastly on the question of costs, I wish to refer briefly to the noble Lord, Lord Stoddart, who asked for an assurance and a guarantee that £250 million would be only £250 million in 1999 and would not exceed that figure. Obviously that is not a guarantee that I can give. It depends very much on growth because we are talking about percentages of GNP. Clearly all forecasts are subject to a degree of uncertainty, but I can say for sure that the margin for forecasting error on that £250 million resulting from Edinburgh is certainly much less than the margin of forecasting error on the net contributions as a whole, for the reasons I gave earlier.

Lord Eatwell

My Lords, I am grateful to the Minister for giving way. Perhaps I may take him back for a moment to the Chancellor of the Exchequer's £700 million gaffe. Does he agree that the reason for the unexpected increase in spending was not in this case an issue of timing but was attributable to other factors, some of which he has listed and some of which will be present not only this year but in years to come?

Lord Henley

My Lords, it is connected with other factors and timing. Timing was a factor which came into play and which will always be a factor.

Let us take the example of CAP agricultural payments paid in March this year or in April. Obviously, it makes a fundamental difference to us because, as the noble Lord will know, our accounting year begins and ends in April. If some of those payments gradually shift towards the end of the year and the great balance fall in the winter, obviously the position is very difficult. But, broadly speaking, the trend still runs in the same direction. I do not think that I can take the noble Lord any further at this stage.

I shall take one last intervention.

Earl Russell

My Lords, I am fascinated by what the Minister said about exchange rates as a factor. Is he telling us that the increase in the Community budget is in part a consequence of Black Wednesday?

Lord Henley

My Lords, I am not saying that at all. What I said, if the noble Earl had cared to listen to me, was that our forecasts varied both up and down. They were not all in one direction. Obviously, exchange rates can influence these matters. If the noble Earl had listened to me, I said that other matters were of even greater influence.

Perhaps I may conclude by briefly summarising once more the main points of the Bill. The Bill will enable the United Kingdom to adopt the new Own Resources Decision giving effect to the financing agreement which the Government reached at the Edinburgh European Council in December 1992. We believe that that agreement was a good deal for the United Kingdom. It preserves our abatement negotiated by my noble friend Lady Thatcher unchanged until at least the end of the century, and even then it can be changed only by unanimity and with the subsequent approval of Parliament. It increases the overall ceiling on Community revenue by just seven one-hundredths of 1 per cent. of GNP over seven years. It means that the Community budget is expected to grow at a much lower rate between 1992 and 1999 than over the period of 1988–92. It will result in probably five other member states making bigger per capita net contributions than us by the end of the century and will increase our net contribution by some £75 million next year and £250 million in 1999–2000 compared with the present arrangements. That contrasts with the extra bill of around £1 billion by 1999 that would have resulted from the Commission's proposals.

The financing agreement was a major component of the overall Edinburgh European Council conclusions. I cannot stress enough to my noble friend Lord Boyd-Carpenter and others that this was very much a package. Obviously, it would have been open to us, because unanimity was required, simply to have rejected anything; and we would have been much happier with an even lower ceiling agreed. However, in the light of the other parts of the package that were agreed very significantly—obtaining a deal on GATT, enlargement negotiations, and so on—it was quite right for Her Majesty's Government to agree that deal as they did. Perhaps I may take noble Lords back to the Statement that was repeated in this House by my noble friend Lord Wakeham, then Leader of the House. I do not remember any particular objections at the time. In fact, I seem to remember a general welcome for the deal that my right honourable friend the Prime Minister brought back on that occasion.

We believe now that it is vital that we deliver on that commitment that we gave at Edinburgh. If we broke our word, the United Kingdom's international reputation would be ruined and our effectiveness in future negotiations would be reduced. I believe that that was a good deal for this country and helped to deliver a successful outcome on other key objectives, too. I commend the Bill to the House.

On Question, Bill read a second time, and committed to a Committee of the Whole House.

House adjourned at eight minutes before eight o'clock.