EC Tobacco Regime: European Communities Committee Report

HL Deb 09 June 1997 vol 580 cc779-808

3.56 p.m.

Lord Reay rose to move, That this House take note of the Report of the European Communities Committee on The EC Tobacco Regime (13th Report, Session 1996–97, HL Paper 73).

The noble Lord said: My Lords, I should like to start, if I may, by warmly congratulating the noble Lord, Lord Donoughue, on his appointment which, so far, I have not had the opportunity to do on the Floor of the House. The noble Lord has many friends and admirers of his manifold talents in all parts of the House and I am quite confident that his new post will give him the opportunity to acquire many more, particularly if he proves to be an energetic and effective promoter of reform of the common agricultural policy.

The occasion of this report by the European Communities Committee of your Lordships' House was the publication by the Commission of its report to the Council on 18th December last on the common organisation of the market in raw tobacco. In the light of that report, which is due to be followed by implementing legislation, Sub-Committee D decided to hold an inquiry into the subject, necessarily brief because of the approaching end of the Parliament. We are grateful to all those who provided us with written evidence: to Professor Marsh of Reading University, an old friend, for his wise and expert advice, and to our Clerk, Mrs. Mary 011ard, for her excellent work on a report which I am sure noble Lords will agree is forceful and readable. I myself am most grateful also to my colleagues who served on the sub-committee.

The Commission's report gives a full and, in the view of Sub-Committee D, eventually damning description of the nature of the current tobacco regime within the EU. The European Union, with 4.6 per cent. of global production in 1994, ranks as a the world's fifth largest raw tobacco producer. This production is spread over eight member states of which Italy and Greece are by far the main producer countries with, in 1995, 39 per cent. and 36 per cent. of Community production respectively. Spain and France follow with 13 per cent. and 8 per cent. respectively, and the remaining 4 per cent. is produced in decreasing order by Germany, Portugal, Belgium and Austria.

However, this tobacco is generally of poor quality and is sold for very low prices—although there are exceptions to this general rule, notably in the case of some Greek oriental varieties. The majority of it goes to countries where, in the words of the Commission, living standards are so low that the quality of the tobacco smoked is less important than its price".

Production therefore has to be sustained by subsidy or premium and then kept in check by quota. The cost of these subsidies to the EU's budget is about 1 billion ecu or about £ ¾billion a year. These subsidies account on average for no less than 80 per cent. of the revenue received from tobacco production by tobacco producers throughout the Community.

The rationale for the regime, as the Commission explains, is social. Tobacco is a labour-intensive crop, requiring an enormous number of hours work a year, and is typically grown in the Community on very small family holdings, the area planted to tobacco averaging no more than 1.1 hectares per farmer. There are some 135,000 tobacco farmers largely with family workforces, and in addition about 30,000 workers in tobacco-processing depend on local production. There are often few evident alternative economic opportunities in areas where tobacco is grown and without subsidy the farms would no longer be viable. The Spanish Embassy informed us that in Spain 15,000 were employed in tobacco production in disadvantaged areas where unemployment could be as high as 30 per cent.

The outlook for the future is even bleaker than the present depressing situation. Yield per hectare has hardly increased over the past ten years yet the prospects for mechanisation such as has taken place for example in the US, or indeed any investment to improve efficiency, is negligible. Holdings are too small and capital is likely to be lacking. It is also to be doubted whether the incentive to raise either quality or efficiency exists. As the commission says in its report, under the current subsidy regime a producer does best if he grows a low-quality, high yielding variety that entails the least cost and effort. Meanwhile, low wage cost competitors in Africa and Asia are expanding their production, raising quality and increasing market share. All of this leads the Commission to conclude that the European Community's subsidy-dependent tobacco sector is doomed unless the quality of tobacco produced in the Community improves.

Perhaps at this point I should say a word about health. In the eyes of many tobacco is an undesirable crop which causes damage to human health, and on those grounds alone should not be subsidised. The Commission, like many national governments, promotes anti-smoking measures. The contradiction between these policies was reflected in a widely-publicised disagreement prior to the publication of the Commission's report between the two commissioners responsible respectively for agriculture and social affairs. It is nevertheless true that no one in the Community would have his access to tobacco curtailed if Community production withered or collapsed as a result of the withdrawal of subsidies. The market would simply be supplied from elsewhere, so the desirability of subsidies can be addressed as well on other grounds.

Having reached the conclusion that it should do something to meet the problems of the sector, and in particular to raise the quality of tobacco produced in the Community, the Commission proceeds to discuss what it has in mind.

Having dismissed the idea of disengagement from support altogether and various other largely dirigiste options, such as the encouragement of fruit and vegetable production or forestry, it puts forward its preferred scenario. In this the premia for tobacco would be modulated according to quality with a fixed element designed to provide a minimum income and a variable element related to the purchase price designed to encourage the production of more expensive varieties.

No change is proposed in the levels of subsidy or the volume of quota so the cost of the regime would not fall. The variable premium would be distributed through producer groups. The Commission also suggests measures to encourage farmers to leave the sector voluntarily: either the buying up of quota or the issue of saleable bonds paying an annuity, each over a seven to 10-year period. It also proposes other measures, including making the quota scheme more flexible.

MAFF suggested to us that the Commission's preferred scenario had some merit in so far as it would introduce for the first time a degree of market sensitivity into the regime. In our view, however, the measures discussed by the Commission stop a long way short of what is required. For one thing, they pay insufficient attention to likely pressures to decouple aid from production in the next World Trade Organisation round. Tobacco, with its high level of subsidy, is a particularly vulnerable sector. They also ignore the problem of how tobacco production within the countries of Central and Eastern Europe may be incorporated into the regime. Current tobacco production in Poland, Hungary and Slovakia would add about 20 per cent. to the EC total production. If and when the next WTO round starts—which I believe is due in 1999—or the countries of Central and Eastern Europe accede to the European Union, the tobacco regime will once again need to be replaced.

The Commission's proposals are also open to criticism on internal grounds. First, it is hard to see what would be achieved by encouraging producers to produce better quality tobacco, even if such efforts were successful, if producers were no more competitive and no less subsidy-dependent growing those varieties than they are today growing cheaper varieties. Secondly, the plan to pass responsibility for administering variable premia to producer organisations, while it might serve to conceal, would not mitigate the extremely bureaucratic nature of the Commission's proposals and would remove the Commission further away from a position where it could control fraud. In our view, that would constitute on the Commission's part an extremely undesirable abdication of responsibility for the distribution of Community funds, for fraud has in the past bedevilled the regime.

Perhaps even more importantly, Commission efforts to encourage farmers to leave production are likely to be in vain, as they have been in the past, for the simple reason that any incentive to leave production is likely to be outweighed by the incentives which will continue to be offered to stay in production. Few, if any, funds will be available for such a programme after the subsidies have been paid for.

We would like to see tobacco subsidies and quotas phased out over a period of 10 years or so and a commitment made to do so now. This was also the position of the last Government—the previous Fisheries Minister called the regime "crazy"—and I hope to hear today that that is the position of the Government now. Money so saved could and should be used to ease the transition of those involved to a more profitable economic life. We are emphatically not saying that these communities from one moment to the next should have all public support withdrawn from them. We are very much aware of their degree of dependence on subsidy. But the Community's funds should be spent on ways to end, not perpetuate, this dependence. It is not up to the Commission either to select or reject alternative economic ways of life for these communities.

The Directorate-General of the Commission with responsibility for agriculture sometimes behaves as if it was vying to be the last bastion of the command economy left on the European continent. But local infrastructures can be improved. We saw a great deal of merit in the idea of a saleable bond with annuity attached which could provide the farmer with the means to establish himself in another economic career while providing an income in the meantime.

At the moment the prospects for reform do not look very promising. In calling for reform in the Council of Ministers the UK Government have had support only from Sweden. Tobacco-producing states actively support the regime. The Italian Embassy informed us that it was against any radical reform or any inducements to abandon production; indeed, it wanted the entry of new producers to the tobacco sector to be encouraged. It was suggested to us that other member states who were not producers feared that they might lose their own favourite support schemes under the CAP if they started to attack the tobacco regime. The Government for the time being at least can expect to find themselves in a small minority, but we hope that that will not cause them to lose heart.

Our opposition to the continuation of the EC's tobacco regime is adamant. Indeed, at one point we go as far as to describe the regime as a scandalous waste of taxpayers' money. But perhaps I should put this opposition to the EU's tobacco regime into the context of our attitude to the CAP as a whole. For as long as I have been aware of its work, Sub-Committee D has wanted further reform of the CAP to make it market oriented with a phasing out of support prices and a consequent disappearance of the need for production controls, including quotas and set-aside. The subcommittee has examined plenty of subsidised regimes under the CAP, but never have we come across an example of such a large amount of taxpayers' money being used to maintain the production of a commodity so unwanted by the market. In our view, the regime represents a travesty of natural economic life, and consequently requires a remedy far more drastic than anything currently proposed by the Commission. Despite unfavourable signs in the short term, we hope that that is something it will eventually receive.

Moved, That this House take note of the Report of the European Communities Committee on The EC Tobacco Regime (13th Report, Session 1996/97, HL Paper 73)— (Lord Reay.)

4.10 p.m.

Lord Bruce of Donington

My Lords, the House will be grateful to the noble Lord for having introduced this short, pungent and excellently produced report. It reflects not just on the abilities and diligence of the noble Lord, here and in the European Parliament where he and I served together for some time, but also on the individual members of the committee.

When I first read the report I was amazed to find the final opinion stated in terms which might almost have come direct from me in my most moderate mood. The noble Lord paraphrased it, but I must savour the mood of the moment as I read the paragraph in detail. It states: In our view, the subsidy of tobacco production in the European Community is a scandalous waste of taxpayers' money. The entire system of premium payments is designed to sustain production at costs which the market is not prepared to meet. Far from solving the social and economic problems of the areas which it purports to assist, it keeps small scale tobacco growers in poverty and isolation and makes no attempt to help them discover more satisfactory employment opportunities. The tobacco sector is a hole in the ground into which money is being poured with no thought for the long-term prospects of those involved in it. The tobacco regime needs fundamental reassessment". At my most eloquent, I could not have put that better. No reader of this brief, pungent report could reasonably come to any other conclusion.

We must decide, ab initio, how important the matter is to us. Occasionally we have to have regard to the interests of the UK. I trust that those who are fervent European citizens will pardon my regard for the UK, at any rate for the purposes of this debate. The financial aspect has been dealt with many times. Through the good offices of the Government I have been able to obtain the up-to-date figures in the preliminary draft general budget overview which has recently come into my possession.

The days are long since past when one could obtain a detailed European budget. There was a time, shortly after 15th May, when one could obtain detailed budgetary particulars of all items of expenditure. I am sure that noble Lords are aware of title B 117 of the budget.

I suggest that the financial side is of some significance. We have it on the authority of Her Majesty's new Ministers that there will be the utmost economy in expenditure; and that we shall be iron in our will to keep public expenditure within what are considered to be prudent financial limits. In fact we have set limits to the expenditure that we shall countenance, and I suppose that my noble friend Lord Barnett, who unfortunately is not with us at the moment, would echo that to the last word.

At present British taxpayers—those paying tax on purchases, excise duties, customs duties and income tax—spend net through the European Communities £3.5 billion on the official structures and legislation of Europe. I hear no sharp intakes of breath at the enormity of that expenditure. In fact, that it is any burden on the British taxpayer has not even been mentioned. Apart from the expenditure of £3.5 billion being important to the British people, whatever form of direct or indirect taxes one pays, let us narrow it down and find out just how much the tobacco regime is costing UK taxpayers who derive no benefit whatever from it.

Noble Lords will be aware that the noble Lord, Lord Boyd-Carpenter, in particular, has articulated on many occasions over the past five years about the costs being borne by UK taxpayers as a result of the wasteful expenditure of which the committee has given a just description. In case there is any illusion that the Commission has been able to improve the figure over the years, let me give extracts from budget title B 117. In 1994, wicked expenditure under this useless heading cost the European Community £994 million of which £170 million was borne by British taxpayers. In 1995, the figure was £812 million of which £122 million was borne by British taxpayers. In 1997 the figure was £760 million of which £114 million was borne by British taxpayers. For 1998, as I was able to find eventually from a detailed examination of the overview so kindly provided by the Treasury, the expenditure is due to be £746 million of which £113 million will be borne by British taxpayers.

The question for us to decide is whether this matter is important. I am well aware that in certain sections of the House—I can now see the Liberal Benches in front of me rather than to the side of me—there will be an objection that the subject should be raised at all; that to do so is somehow indelicate, anti-European, and anti-Community. Perhaps the only way to obtain the approval of our colleagues in Europe is meekly to accept all this, even to express pleasure that we should be honoured by having to bear the expenditure. Perhaps they will wish us to increase it in order to preserve good relations with Europe and to be able to have a place at the top table. Perhaps we shall be able to do that—

Lord Beaumont of Whitley

My Lords, perhaps the noble Lord will wait until the spokesman from these Benches speaks. He will then discover that I intend to say absolutely nothing of the kind and that I entirely agree with everything that he says.

Lord Bruce of Donington

My Lords, I am overwhelmed with the genuineness of the support which, I am glad to say, I knew I was receiving from the Conservative Benches and, to some extent, from my own. However, to be able to conquer the Liberal Democrat Benches is a victory indeed!

Let us get down to the serious aspect: is it important or not? If it is important what are we going to do about it? My old chief, Aneurin Bevan, always used to say, Silent suffering evokes no response". My suffering is indeed vocal and loud and I hope that it may attract some support.

The difficulty is that this report is the result of a transition period. The evidence was heard by the members of the committee in February this year, before the change of government. The report was printed in March, before the general election. But, of course, the election might have gone the other way. What is therefore interesting is to discover whether there has been a change of opinion since. Let us make no mistake, according to the committee the position of the Commission is under very severe challenge.

The report rightly deals with the Commission's dismissal of the various alternatives put to it by members of the committee as well as by Her Majesty's then Government. Presumably, they are shared by Her Majesty's present Government, although we shall hear later about that. One of the options dismissed, according to paragraph 21 of the report, is gradual disengagement from support of the tobacco sector. Another option dismissed was area aid payments. The disadvantage that the Commission identifies with the system of aid per hectare is the difficulty of checking areas. It can say that again! It has been flying helicopters about and conducting aerial surveillance, but still the damned elusive Pimpernel cannot be photographed.

Direct income support seems to be one way of converting a social need into some kind of amelioration, but the Commission rejected that. I pray your Lordships give sight to paragraph 23 of the report, which states: "The Commission also expresses doubts about the 'social and political acceptability' of an 'extraordinary situation in which farmers would be financed by public funds provided that they did not farm'". They are already doing it! Set-aside payments are made to other sections of the farming community, which in 1994 amounted to £612 million in the United Kingdom alone. This sudden objection in principle to aid repatriation is a little mysterious. Naturally, we would expect objections from the eight other member states named by the noble Lord, Lord Reay. The simply reason is that they are the ones getting money for nowt. They would not object, would they? Indeed, how can one amend the CAP without a unanimous vote to do so? On the face of it, that would appear to be very difficult. The noble Lord, Lord Donoughue, in reply to the report on behalf of his ministry, is not very hopeful. I shall not read out the relevant passages. They are expressed in a surfeit of moderation of which he would disapprove. Nevertheless, he does not hold out much hope.

What hope would I, as a Member of your Lordships' House, wish to be made available? It is very simple. I believe that the leader of my party, the right honourable gentleman the Prime Minister, is right when he says that we should be more concerned with people than with institutions. He has the ball at his feet. If the Prime Minister goes to the general Council, as established under the treaty, or to the European Council, or elsewhere, he will be in a position to exert his authority by direct talk with the people themselves over the heads of the bureaucrats in Brussels who seem to believe they can do anything they like without reference to anyone. I believe that the ball lies at the feet of my right honourable friend the Prime Minister and I for one am confident that he will use it to the utmost, not only with the public at large but in the moribund meetings of the Council of Ministers whose agendas are largely dictated by the Commission and received by other Ministers with a degree of acceptance which would not find ready appreciation within any democratic society.

4.27 p.m.

Lord Harris of High Cross

My Lords, I have great pleasure in taking part in this debate on an outstanding report. In one respect, the noble Lord, Lord Bruce, was uncharacteristically modest when he quoted the cost of the European Union at £3.5 billion as the net cost. I thought that we had been taught to say that the net cost was an understatement because the gross cost, which is perhaps twice as much, includes a lot of money that we pay to the Union and it pays back to us for things that we would not think worth doing with our own money. But otherwise, the noble Lord gave a good account of himself, as usual.

I wish to take the opportunity to compare two documents: the report of our sub-committee and the report from the Commission to the Council. The contrast is one of chalk and cheese. The document from the Commission is larger and weightier. It is verbose; it is full of gobbledegook; it contains a great deal of technocratic mumbo-jumbo; and it is special pleading. Of that there is no question. As I tried to work through its pages, forwards and then backwards, I asked myself who would read this stuff if they were not paid well to do so. Would any student take this document and work his way through all the stuff about flue cured, light air cured, dark air cured, Basmas, Katerini and Koulak? The Commission has experts in tobacco—they have all this useless expertise at their fingertips to ornament this report. It is really not worth devoting time to perusing it.

Now I turn to this document by Members of your Lordships' House. I looked at who were the 11 Members. As far as I can tell, there is not a declared smoker among them. They know nothing about air cured, flue cured and Basmas tobacco. There is not even an economist among their number, as far as I know. And yet the committee has produced a report which would do credit to a Ph.D student. It is an outstanding piece of economic analysis and argumentation.

There is only one false step in the report, which comes at paragraph 39 where it states: Our view has not been greatly coloured by considerations of the harm done by tobacco to human health". The last sentence of paragraph 39 states: Nevertheless, considerable political will will be required if radical reassessment of the tobacco regime is to be achieved and sensitivity to public health arguments—no matter how ill-founded—could assist in creating it". Therefore, there is a suggestion to play up the health issue. That is rather naughty. We did not need paragraph 39 in such a good report.

Unfortunately, it will not have any influence on the Greeks or Italians. The Greeks are believed to be the most heavily smoking nation in the world. I do not know whether we have the figures for China but that is the information I have from international sources. The Greeks' expectation of life is well up in the upper decile as, to a lesser extent, is the Italians', who are heavy smokers and who enjoy rather longer life expectations. I notice also that in Italy there has been a ban on the advertising of tobacco since 1962 and yet smoking rates there have continued to go up rather than down.

The Select Committee's report, in particular from paragraph 42 onwards, is devastating and does not put a foot wrong. It says that the Commission wants the Greek and Italian farmers to switch to higher grade tobacco because their low-grade tobacco fetches low prices. But the Select Committee asks why we expect them to be any better at competitively producing higher rather than lower grade tobacco? What is the point of it?

The report goes on to say that the Commission does not consider fairly the possibilities of gradual disengagement. In its wretched document, the Commission talks of disengagement as an instant process, leading to great distress and so on: therefore, it would be politically unrealistic. Paragraph 44 refers to converting the holdings from tobacco into other crops. The Commission says that the tobacco crop is important because it generates high gross profit margins per hectare. Our chaps say that is true but some 80 per cent. of the revenue of the producers is accounted for by subsidy. They ask what is the point of producing a high net revenue if the whole thing is subsidised by the taxpayers, as the noble Lord, Lord Bruce of Donington, told us.

In paragraph 45, the report states that the Commission rejects the disengagement of the Community because the Community market organisation in tobacco might be replaced by national organisation. Our chaps say that that is a jolly good idea and can see great merit in such a development. Of course, we should repatriate those so-called regimes. I do not like this being described as a tobacco regime. "Regime" is a perfectly reputable word. There are health regimes and financial regimes and so on. But we should talk about the tobacco racket and not the tobacco regime. Let it be repatriated and let the countries indulge their liking for tobacco-growing with their own national moneys.

Paragraph 46 states that, the Commission acknowledges that solutions to the socio-economic problems …will need to be found outside agriculture. But this is not followed by any consideration of what those solutions might be". Our chaps say that the serious weakness of the Commission's report arises from the rigidity of the structure in the Commission and that that, is a serious impediment to rational policy-making. If we are being rather harsh, the key issue here is that those indulgences cannot continue indefinitely. They cannot continue because new members will be joining us from Eastern Europe and they include a good many tobacco growers. Moreover, the World Trade Organisation, which took over from GATT, is very much opposed to those schemes which support production in that way.

A basic tenet of economic rationality, which I am sure the noble Lord, Lord Donoughue, would acknowledge, is that it is not efficient to give subsidies attached to output, thereby encouraging the continuation of a production which is not justified by being able to find its own market. If you are concerned with social, cultural and other considerations, then you are entitled to give subsidies to individuals and to actual people and to do that in a way which will lead them away from their wrong-headedness and misguided efforts to paths of virtue.

Therefore, terminable subsidies to individuals is one idea. It is a great principle of economics that we acknowledge legitimate expectations. Those wretched farmers, about whom we can work up a great deal of animus, are victims of a system which has led them to believe that they can continue doing what they have been doing for generations with their families at someone else's expense. To snatch the subsidies away from them would be unjust and upsetting. But perhaps we could say, "We will continue paying you for five years", possibly on a reducing scale. Then it is more likely that the farmers will discover for themselves more profitable outlets for their talents. They will find other crops for production which the Commission has mentioned are available. The Commission argues that there are those other prospects to which the farmers could turn but, in the meantime, the Commission continues to pay them subsidies to produce tobacco. The only way in which to concentrate the mind on finding more productive, fruitful and marketable production is to set a term to the subsidies.

Our committee talks about a 10-year period. I believe that five years is sufficient not to frustrate legitimate expectations. I hope to hear that the noble Lord, Lord Donoughue, with his great academic expertise, will go even further than the last Government in treating that kind of activity with the scorn and discouragement which we believe it deserves.

4.39 p.m.

Lord Boyd-Carpenter

My Lords, this has been a very useful debate because it has underlined what is one of the most astonishing situations with which your Lordships' House has been confronted. It is accepted now by all responsible opinion that smoking is dangerous to health and that the more people smoke the more sickness of one kind or another is produced. At the same time, it has emerged that the production of this dangerous commodity has been and is being heavily subsidised at the expense of the taxpayer. How quickly that situation can be reversed is a matter of judgment. However, that it is a situation which it should be the aim of all responsible legislators to reverse surely is beyond dispute. If we are to go on producing something permanently dangerous to health, surely at least we should do so only for a short time and we should make it quite clear that we propose to phase out all subsidy for its production.

4.40 p.m.

Lord Rea

My Lords, prior to the intervention of the noble Lord, Lord Boyd-Carpenter, I was about to say how pleased I was to follow the noble Lord, Lord Harris of High Cross, and to find myself—for the first time ever, I think—in almost complete agreement with everything he said. He was speaking as the champion of the free market. However, we should remember that he is also the chairman or the president of Forest.

Lord Harris of High Cross

My Lords, I am the chairman.

Lord Rea

My Lords, as the chairman of Forest, he also finds this regime insupportable.

With 10 other speakers discussing this short report I shall add only a little from an outsider's point of view. I was not a member of the Select Committee. But as a doctor and as a member of the British Medical Association I do have a particular position on the regime. Considering the short time available, the Select Committee, under the able chairmanship of my namesake, spelt with a y, the noble Lord, Lord Reay, produced a cogent even trenchant report but one that is also constructive. It is not simply a "hatchet job"; it is a careful demolition which considers the structure that is to replace the building whose foundations the committee shows to be so shaky.

I am asked by the British Medical Association to express its support for the Select Committee's report. The association would probably agree with the truth of paragraph 39—which was quoted by the noble Lord, Lord Harris of High Cross—that cutting Community production, would not affect levels of consumption …since demand would simply be met by suppliers from elsewhere". However, I believe the association would go further than the final sentence of that paragraph which states that, political will will be required …and sensitivity to the public health arguments—no matter how ill-founded—could assist in creating it". I agree with the noble Lord that that statement about ill-founded public health arguments is unfair.

While little of European Union tobacco production is consumed in Europe nearly all of it is eventually consumed in the developing world. To say that ending Community production would lead to its replacement "from elsewhere" avoids acknowledging the actual situation in which strong, bad quality tobacco from Europe is currently contributing to the rapidly growing epidemic of tobacco related sickness and death in the less developed world. Not only are we supplying them with a dangerous addictive substance; they also have to pay hard currency for it, although admittedly far less than it costs us in subsidising its production.

As all three noble Lords who have spoken so far said, the report on the regime contrasts with other Commission reports. The noble Lord, Lord Reay, referred to the well known argument between two branches of the European Commission. One talks of ways of reducing tobacco consumption and another talks of ways of propping it up within Europe—not to mention Her Majesty's Government's position where the banning of tobacco advertising is only one of a series of measures which will be taken to reduce consumption of cigarettes and other tobacco products. The noble Lord, Lord Harris, is right to say that banning tobacco advertising in itself does not have much effect; it has to be combined with other measures which the Government will bring in.

It is possible, with a slight stretch of the imagination, to compare European Union tobacco production with South American cocaine production or Asian opiate or heroin production. The production of crops of all these addictive substances persists despite the strong opposition of their governments because of the high price which the products command in relation to alternative crops. Efforts to persuade Thai hill farmers or Colombian peasants to grow other crops tend to fail because even if they are subsidised they bring in much less income. The price of the dangerous controlled addictive drugs is artificially high largely because of their illegality and their subsequent scarcity. In the case of European tobacco, which of course is a perfectly legal product, the reward to farmers is artificially high solely because of the regime which is funded by the taxpayer.

It is completely clear to the Select Committee—and to other noble Lords who have spoken this afternoon—that the solution should be to divert the subsidies going to tobacco production to other products or other ways of encouraging alternative economic activity. Unfortunately, however, that is not the way that eight out of 15 European states see it. We are informed that to divert subsidies to growing fruit or vegetables would upset other areas of the CAP. Fruit and vegetables for instance, have their own regime and there is a problem already with surplus production. To give higher subsidies to tobacco growers to divert production to fruit or vegetables would seem unfair to existing farmers who oppose any measures to increase overall European production of vegetables or fruit. However, I suggest—and the Select Committee also suggested—that the answer may well lie in that sort of direction.

As many noble Lords will know, it is interesting that fruit and vegetables are now recognised as not merely pleasant to eat but also, in contrast to tobacco, are highly beneficial in the prevention of cancer and coronary heart disease. If any group of products deserves a subsidy—I know that many noble Lords do not agree with subsidies—or other means of encouragement to consumers, it is fruit and vegetables. I might also add olive oil and some of the other seed based oils which have health giving effects. Olive groves might well flourish in some, although not all, of this difficult terrain. However, that would be a long-term project. Of course, other transformations of land use, with the growth of small industries and the amalgamation of plots that are too small to be viable, would be logical progress.

The Select Committee has put forward its view as to how small farmers who grow tobacco should be gradually weaned onto other occupations. However, all that is some way ahead. The important task at present—and one which the Select Committee report tackles well—is to persuade more European Union states that the current situation is illogical and deeply flawed. As two noble Lords have already said, the report states that it is, a scandalous waste of taxpayers' money". The recommendations of the European Commission were effectively demolished by the noble Lord, Lord Harris. They are weak; they do not go far enough. I hope that Her Majesty's Government will continue to try to persuade at least all the non-tobacco producing states, and eventually some of the tobacco producing states too, to join with the United Kingdom and Sweden to move for a rapid scaling down and replacement of the regime.

4.50 p.m.

Lord Wade of Chorlton

My Lords, I have the privilege to be one of the members of Sub-Committee D. I am most grateful to my noble friend Lord Reay for chairing our investigation into the tobacco regime and for the excellent way in which he presented our report. I am delighted that he has persuaded all noble Lords who have spoken of the excellence of the report and how important it is that we take the issue extremely seriously and encourage the Government to seek to persuade other members who will sit at the table in Europe to do something about it.

Noble Lords have spoken sufficiently about the problems regarding the tobacco regime and the enormous cost both to the European taxpayer and the individual British taxpayer to persuade us that something should be done. It will be more difficult for the noble Lord, Lord Donoughue, to persuade the other member states that something should be done. With the tobacco regime we are confronted with an issue which lies at the heart of some of the problems with the CAP. The policy has been used by individual countries to deal with social problems and problems of backwardness in rural areas. That was neither the basic nor the prime purpose of the CAP.

I shall refer to some issues which are not necessarily set out in detail in the report although we discussed how they might be addressed. The British Government now have to put forward positive proposals to their colleagues—who will not take kindly to any change—which will be just as effective in dealing with the long-term economic problems of those rural areas rather than continuing with a system which does not work. The tragedy of most of the CAP subsidy systems is that they hold those rural economic areas in a poor, dependent state rather than lifting them out of it and progressing to more wealth. The system does the opposite of what everyone believes that it will achieve. That applies not only to the tobacco regime but to the fruit and vegetable regime. The noble Lord, Lord Rea, stated that he would rather have more fruit and vegetables than tobacco. However, the fruit and vegetable regime pays for more fruit which is destroyed than is eaten. Clearly that is as ineffective as a method for producing fruit as it is for producing wealth for the people involved with it.

In this country we have some interesting examples of how we have sought to deal with the issue. Possibly the situation is not as bad. Our Rural Development

Commission, although not referred to by the European Commission, is an example of how we have been able to tackle specific rural economic problems. The Welsh Development Agency has done tremendously good work in identifying some of the issues which need to be addressed in rural areas, establishing systems of training and re-education. They will be important in developing those economies.

Parts of Italy, Spain and Greece which grow tobacco are extremely poor areas. Many families live together in one house. They share their work; they share the ownership of the land. It goes back to a feudal system. The worst thing we can do is to develop a regime which holds them into that system and does not encourage them to use their own native initiative and entrepreneurship to move out of the system. It will be important to teach them some of the basic principles that we practise in this country. I would rather see our taxpayers' money going into training and the development of new technology than into the production of a crop that no one wants.

The basic problem is that throughout Europe there are pockets of rural areas where there is a lack of a rural economic policy to stimulate growth of the economy rather than supporting a product for which there is no further market. That should be the cornerstone of any proposals which the British Government put to the Commission. We need a positive rural economic policy. Not only shall we be confronted with the problem in Europe as it exists now; we shall be confronted with further serious economic problems within pockets of rural areas if the Community is enlarged. We have to consider infrastructure investment, the development of new technology, and better communications in rural areas, teaching the opportunities provided by a proper education system. If we have a policy which deals with those aspects of the rural communities, we shall have one on which we can build inward investment proposals which can bring finance into those areas.

Another key element is land ownership. Many rural areas of Europe are stuck with land ownership problems which make it difficult to develop the larger units which will be the key to economic success. That issue needs to be considered not only in the context of the tobacco regime but also many other problems.

I believe that the right way ahead is to establish the bond scheme, as the report proposes, and to look closely at the bond scheme's capacity not just to deal with tobacco but many other problems related to the CAP. The bond scheme would give the financial opportunity to bring about the end of the tobacco growing system. I would not be against the five year period put forward by the noble Lord, Lord Bruce of Donington. If people's minds are concentrated on the fact that the tobacco regime will stop, the more quickly they will consider other alternatives. Having been brought up in the agricultural community in this country, I am well aware how quick we are to adapt to changes once we know that they have to take place. If someone cuts off a tap on one side, by God! you work hard to ensure you can open a tap somewhere else which will keep body and soul together. The incentive of a period during which people know that the regime will stop, with a floating off period, will make the measure more effective. At the same time we should put forward specific proposals on the basis of the Rural Development Commission and the Welsh Development Agency to develop a rural economic infrastructure which can ultimately attract new investment and encourage new entrepreneurship.

I believe that in this country we have a great opportunity to look more sensibly at alternative crops. I must declare an interest, being involved with Horticultural Research International at Wellesbourne. That organisation can bring tremendous expertise to bear in finding solutions in regard to crops and rotational systems which can maintain the economy of the area without continuing to absorb vast amounts of money.

I am delighted that noble Lords welcome the report. If the Government will act on it, it will be of benefit to a great many people.

4.59 p.m.

Baroness David

My Lords, first, I thank the noble Lord, Lord Reay, for an excellent introduction to the report and analysis of it. I thought that he did it brilliantly, if I may say so. I should like to thank him, too, for chairing the committee so well and getting the report produced in a remarkably short space of time with, it seems to me, a full account of all that we heard and talked about while we were in committee. I also congratulate my noble friend Lord Donoughue on his first appearance in the debate as a Minister in the Ministry of Agriculture.

It has become abundantly clear from the debate that the Commission's proposals are considered totally inadequate to reform the tobacco regime in any substantial or satisfactory way. There was condemnation of that regime by the previous Government. Mr. Baldry, then Minister of State, described current arrangements as, a crazy regime and a crazy way to spend taxpayers' money"; and went on, there must be a phased ending of the subsidised provision of tobacco". The response of this Government to the report came only last week. They complimented the committee on its well-presented report—which it certainly is; shared our concern that the Commission's proposals fall far short of what is required; and agreed that if changes of the kind proposed are agreed, further substantial reforms will soon be needed. The Commission makes no provision for future likely pressures from the WTO for the decoupling of subsidies, and seems to ignore the implications for the CAP of the likely enlargement of the Community. Poland, Hungary and Slovakia all grow large quantities of tobacco—a total of 61,000 tonnes, which would be a substantial addition to the 333,000 tonnes which was the harvest in the EU in 1995.

So why is the Commission so timid? The pressure of course comes from the Mediterranean countries which are the big producers—Italy with 39 per cent.; Greece, 36 per cent.; Spain, 13 per cent.; and France, 8 per cent. So it is not surprising that the UK had so little support for more radical reforms. Only Sweden was in favour of disengagement from the sector; other member states were apathetic.

It was suggested by MAFF that the non-producer countries like Ireland might be influenced by an interest in the continuation of CAP support in other sectors on comparable social grounds to those applicable to tobacco, and that is no doubt true for other countries too. Another reason was that the tobacco regime is wholly funded from the guarantee section of the European farm guidance and guarantee fund, whereas any structural measures which might provide equivalent social support would require a degree of national funding. So we can look on the Commission's decision as political. It knows that the chances of getting radical reform through at the moment are minimal and therefore funk it. Our committee had very much the same experience when we reported on the fruit and vegetable regime in 1995—another scandalous regime crying out for reform but with very inadequate proposals from the Commission, for much the same reasons.

Of course we appreciate the socio-economic problems that the producing countries have. The noble Lord, Lord Wade, explained that very well. The Commission points out that the reconversion to other forms of employment of 200,000 jobs is not feasible without an extremely high social cost. The fact that so many farms where tobacco is grown are very small and run mostly by the family, often the whole family being dependent on the crop, does not make planning easier. What I still do not fully understand is why, as the tobacco crop has to be rotated, some of the crops grown in the intervening years could not be developed[...]—although I do understand that the alternative crops could be fruit and vegetables, and, as I said, that regime has been condemned by us as scandalous and prone to fraud. We know that a great amount of fruit and vegetables are grown merely to be thrown away, as the noble Lord, Lord Wade, said.

The possibilities of fraud in the tobacco regime were decreased by the 1992 reforms when intervention and export refunds were abolished, premia were limited to provision within a quota and the number of premium rates reduced from 34 to eight, thus simplifying administration and reducing scope for fraud. But there is no doubt fraud still exists. It is significant that neither Italy nor Greece, the biggest producers, have yet, five years later, set up the national supervisory agencies provided for in the 1992 reforms.

What we have discovered in the course of a good many reports is that two commissioners (or even more) do not have a united front and work in harmony—sometimes they do not even seem to know very much about what is going on in the area of the other one—and communication seems minimal. In this case, we have Commissioner Fischler with responsibility for agriculture and rural development, and Commissioner Flynn, with responsibility for employment and health, where Commissioner Flynn argued that subsidies for tobacco production undermined the credibility of the Commission's measures to discourage smoking on public health grounds. The report we are discussing acknowledges the harmful effects of smoking on human health and the apparent contradiction between supporting tobacco production on the one hand and promoting anti-smoking measures on the other. But the report concludes that, aid to tobacco growers has no impact on the level of tobacco consumption". I am sceptical. I was reminded of a pamphlet I received the other day from the tobacco industry claiming that tobacco advertising had no effect on teenage smokers. Why, I wonder, do they go on doing it?

It seems a disgrace and brings the Community into disrepute that we should be subsidising to the extent of £800 million a year a crop which has little market value, and spend just £1.2 million on smoking prevention. The Court of Auditors in a special report in March 1994 concluded that, if direct income aid were to be paid to all tobacco farmers equivalent to their annual net revenue based on the 1988–90 average, approximately half the EU budget could be saved. I have heard suggestions which go further. If all the tobacco farmers were bought out and direct aid given to the farmer then in possession for his lifetime and no more, that would be a better, healthier and final solution and end the scandal. I fear this will not happen, but I join in the condemnation of these weak proposals and hope that something better and more radical can be put in their place. I hope that we shall hear that from my noble friend at the end of this debate.

5.6 p.m.

Lord Brain

My Lords, like the other two members of the committee who spoke, I congratulate the noble Lord, Lord Reay, on his chairmanship and on his excellent introduction to our report. The members who spoke dealt with the report very well. I should be repeating a great deal of what they said were I to make a long speech about the report. However, when the BBC has the opportunity of a headline to the effect that the subsidy of tobacco production is a scandalous waste of taxpayers' money, it makes an effort to find somebody to express comments on behalf of the committee.

I happened to be at home, and therefore available on the telephone, the evening before the report was published. So shortly after seven o'clock the following morning I took part in the "Today" programme. In order to present some opposition to the report, the BBC found a Mr. Fernández, a Spanish MEP who has served on the agricultural committee of the European Parliament. I thought it might help the House if I were to report some of the remarks that he made to me and to John Humphrys—and even when I was supposed to reply to John Humphrys!—about the topics. I shall also comment on remarks made by one or two other noble Lords as I do so.

First, Mr. Fernández agreed, as we have said, that this is a social issue. He made no bones about it being an agricultural issue. He said the problem is that 170,000 people rely on the tobacco subsidy to stay on the land in those European states with their families and have no other major means of income. The noble Lord, Lord Rea, mentioned fruit and vegetables. If I were to mention olive trees again, I might hear the noble Lord, Lord Bruce of Donington, saying that there is yet again a regime riddled with fraud. There is a problem related to keeping people on the land.

The MEP thought that we as a committee were merely saying, "Pay them for doing nothing", and asking how are they to occupy themselves if we merely pay them? He tried to compare the issue with that of set-aside. I had to tell him that set-aside represents only 15 per cent. of a normal farmer's income, or possibly less, whereas tobacco producers receive 80 per cent. in subsidy.

He also made a comment about our suggestion that the regime would have to be changed when the next World Trade Organisation round took place. He said in effect that the WTO was an American-biased organisation whose aim appeared to be to allow one of the major American manufacturers to buy tobacco of the same quality as that produced in Europe at a much reduced price. I just let that one ride.

However, I would mention this to the noble Lord, Lord Harris of High Cross, concerning a point that he made—though I do not accept what he said. He said that the tobacco experts in the Commission knew nothing about the quality of tobacco. I think that that is probably false, but it is a point that he made. They think that it is wrong.

He made another point which I believe is important, and it concerns the large number of smallholdings. The noble Lord, Lord Reay, mentioned, as we mentioned in our report, that the average size of holding on which tobacco is grown is no larger than 10 hectares (25 acres), of which two-and-a-half to three acres is all that is down to tobacco. The noble Baroness, Lady David, mentioned the question of rotation. The Spanish MEP said that this was a result of the Napoleonic Code on land inheritance. I believe that that raises a major problem, which the noble Lord, Lord Wade, raised but in a slightly different way. In this report and earlier reports we have suggested that it may be possible to buy out the farmer. The problem is that the farmer may be farming quite a lot of land within that 10 hectares which belongs to the extended family as a result of the Napoleonic Code. We are in the position of buying out one generation without there necessarily being the means to transfer the money.

I know from having lived and worked in France how family ownership of land causes family problems. Opposite to where I lived for about six years there was a field of some five acres. It was never sold for building—although it was perfectly viable to be built on and was sold 10 years later—because, of the family of about 25 members, none could agree on the price or how to sell it. I could see this problem arising if one were trying to buy with a bond or whatever.

I would draw the attention of the noble Lord, Lord Donoughue, to this matter. I wonder whether there might be a case at some stage for one of the committees of this House to look at the implications of the Napoleonic Code and land inheritance for the development of the common agricultural policy.

The Earl of Onslow

My Lords, perhaps I may briefly interrupt. What the noble Lord says is absolutely

fascinating. He produced the number of 170,000 people; he went on to speak about children and relations; and he then went on to talk about the Napoleonic Code, about which I understand. How many people are involved? Is 170,000 the gross figure or the net figure?

Lord Brain

My Lords, the noble Lord has me in a slight quandary. When we were taking our evidence we had to use a judgment. That was a figure given to me by a Spanish MEP. I believe that the noble Lord, Lord Reay, in introducing this debate said that we knew there were about 130,000 farmers and 30,000 to 35,000 in the processing industry. We discovered that a farmer rarely employs any labour and that it is the extended family—the wife, the daughters and the sons—who gain from this. Yes, it may be 350,000 or it may be 500,000 people who obtain some employment, but perhaps for only four weeks a year. I was not going to go into the technical detail, but we received quite a lot of evidence that one of the problems is that tobacco cannot be mechanically harvested, partly because of the way it is grown. Therefore they go along the rows, rather like picking grapes in the old days, picking off certain ripe leaves which they then transport, possibly in a pannier on their backs.

I am afraid that I have digressed from the point I was trying to make, which is that we have never studied the Napoleonic Code with reference to land when we talk about bonds, insurance schemes and getting people off the land.

I have spoken long enough. I believe that this is a very good report and, like others who have spoken, I shall be most interested to hear the Government's reply.

5.15 p.m.

Lord Grantchester

My Lords, I am grateful that time has been allocated by the House for a debate on this report. On the face of it, a debate might seem unnecessary given what appears to be virtual unanimity of opinion on all sides of the House on the tobacco regime. Notwithstanding that, it is important for us to underline the degree of dissatisfaction over this regime and the half-hearted reforms being proposed by the Commission.

This dissatisfaction is evidenced by the fact that the committee declared unanimously in paragraph 37 the following view. I am happy to underline it by repeating the quotation: the subsidy of tobacco production in the European Community is a scandalous waste of taxpayers' money …The tobacco sector is a hole in the ground into which money is being poured with no thought for the long-term prospects of those involved in it". Indeed, the tobacco regime would make an interesting chapter in Gulliver's Travels. The European Union pays large sums of money (£760 million this year) to grow a poor quality product of no usefulness, for which there is very little demand and whose effects on health cause us to spend even more money to counteract them. Tobacco attracts the highest subsidy of any commodity in the EU. Even the previous Government described the arrangements as: A crazy regime and a crazy way of spending taxpayers' money". It is encouraging that my noble friend Lord Donoughue responded to our report on behalf of the new Government, agreeing in principle that we should decouple support from production. We need to persuade our European partners to start the process of disengagement.

It is important to note that three-quarters of European tobacco production comes from just two member states, Greece and Italy. However, up till now the British Government have been able to gain the support only of Sweden and, to a lesser extent, Denmark. It is indicative of the previous Government's isolation in Europe that they could not attract more allies on this issue. Now, thankfully, with the Labour Government, who have immediately begun to improve relations with the EU, there is a prospect for reform. It is a not a practical proposition to end the tobacco regime completely and immediately, but we are now at least in a better position to encourage our partners to disengage gradually.

Negotiations on this issue will not be easy, as there are several other states, notably Ireland, which have an interest in maintaining common agricultural policy support for other crops on the social grounds which apply to tobacco. Not surprisingly, therefore, the status quo has its attractions for some.

We must resist calls for the status quo to be maintained. Tobacco is one of the few subsidised crops which is not eaten and which is uniquely recognised as injurious to health. Smoking is the greatest cause of avoidable death and in the UK alone kills 120,000 people each year. It is disappointing, therefore, to reflect on the possibilities of reform in other areas when so little seems possible so far as tobacco is concerned.

As regards practical proposals, I believe that the introduction of saleable bonds could be effective. They should be flexible in their payment scheduling to allow individual farmers to find their own solutions to restructuring their businesses. This need not require that farmers remain in agriculture. Of course, further resources would need to be put into regional development. Guidance would also need to be given on alternative enterprises within what are essentially objective 1 areas.

Solutions demand diverse responses and any scheme must, therefore, be able to accommodate alternative routes out of the problem. If premiums and quotas remain at existing levels, there will be little cash for bonds and local development plans. If reforms are to achieve long-term change, they must be coupled with gradual reductions in premiums. One cannot simply pull the plug.

The added advantage of bonds is that savings could be made by reducing the bureaucracy which comes with the administration of quotas. Perhaps the Minister could give the House an indication of the potential cost savings from quota administration and fraud control. If only more limited reforms are undertaken, quotas could be made saleable and a buy-up scheme implemented. Saleability would result in the less efficient producers moving out of tobacco, thus encouraging departure from the regime. New entrants to the sector would have to be barred from purchasing the bonds, which, make no bones about it, is difficult to achieve in an open society, where farmers like to pass on their "inheritance".

The committee's deliberations on this subject were unavoidably constrained by the fact that they took place toward the end of the previous Parliament. With more time, we could have conducted a more detailed investigation. That would not have undermined the case for reform; rather, it would have reinforced it.

The new Government have brought a new credibility to our relations with the European Union. Let us hope that one of its fruits will be the ending of this scheme, which wastes our money and our health. I commend the report to the House.

5.22 p.m.

The Earl of Balfour

My Lords, the 13th report of the European Economic Communities' Committee on the tobacco regime makes depressing reading. Although it has already been said by the noble Baroness, Lady David, I should like to quote one sentence from page 17 of the report: The figures speak for themselves—we currently spend £1.2 million on smoking prevention and £800 million on subsidising a crop which has little market value". In this country we have decided to ban tobacco advertising in sports activities—yet I should have thought that sport was one activity that would have discouraged smoking. But be that as it may.

Perhaps I may speak as a smoker, a farmer and a forester. As a farmer, there is no earthly point in my growing a crop that I cannot sell. If I cannot sell a crop, I shall not grow it. Agricultural crops are zero-rated for VAT. Forestry, on the other hand, is rated for VAT. That is unfair because trees should be regarded as a crop. Tobacco is bad for us—I accept that, as a smoker—and so why not add on VAT in respect of its production? If a tobacco plant can be grown, so can a tree. I should like to put forward some constructive suggestions.

But, first, let me ask this country to think again. I have always been fascinated when we have tree planting days. With great respect, any fool can dig a hole in the ground and stick in a tree. But unless that tree is looked after carefully for the first 16 years of its life, its chances of survival are extremely slim. At the end of about 16 years one may start to obtain some return from thinnings. Today, however, one will obtain only about £1.50 per tonne and it goes to make chipboard. It is not until perhaps the tree is about 30 years old that one can achieve any kind of return. I am also fascinated by local authority tree preservation orders. Nothing lives for ever and trees die just as we do. If we allow the old trees to carry on living, we risk spreading a disease which will destroy many other trees. If the legislation had been worded so as to have a tree management order, it would have been very much more productive.

Where crops other than tobacco cannot be grown, I suggest that forestry should be established. It is labour-intensive. But it should not be done as the Forestry Commission has done it so often, with large areas which contain only one or two species of trees. There, there is a risk of disease and also all the trees mature at the same time. We should have a wide variety of trees of all types, if necessary even to the extent that the land is terraced, as might be necessary in parts of Italy and Greece. We should make woodlands zero-rated for VAT and forestry should be treated as an agricultural crop. Europe imports a great deal of timber. We should grow our own. Even coppicing for baskets or charcoal might be a possibility.

The noble Lord, Lord Harris, rightly pointed out that the Government should subsidise or support people, not industries. The noble Lord, Lord Brain, said that the Napoleonic land tenure arrangements may make forestry difficult. But if forestry can be regarded as a crop, there may be more possibilities.

5.27 p.m.

Lord Beaumont of Whitley

My Lords, we have had a good debate on a good report. I offer my thanks, along with those of other noble Lords, to members of the sub-committee and its chairman, the noble Lord, Lord Reay, who so ably mixes the blood of the aristocracy from at least three European countries, thus making him a very suitable chairman for this particular operation. I very much look forward to the reply of the Minister whom I welcome to his post. Let me say, however, that I shall greatly miss the noble Lord, Lord Carter, who has been banished to the slightly less rewarding office of the Whips.

The Commission has dismissed gradual disengagement. That is wrong and indefensible, as the committee points out. It was very ably said by the noble Lord, Lord Grantchester, that there could be few bodies which would continue to provide heavy subsidies for harmful substances of admittedly poor quality. I understand why the committee did not take particularly into consideration the health issue. Apart from anything else, by doing so it managed to earn the well deserved acknowledgement and praise of the noble Lord. Lord Harris. But I do not believe that the health issue should be dismissed. The argument that if we do not grow tobacco other people will do so is morally contemptible and on an intellectual par with similar arguments about, say, landmines. Before anyone misquotes me or takes me up, let me say that I am not comparing tobacco with landmines. I am merely comparing the intellectual arguments used in both cases.

The evidence of rural communities must be supported and I would willingly spend a considerable part of your Lordships' time saying how that should happen. However, this has been a full debate; we have covered a lot of ground. The noble Lord, Lord Wade, covered that issue well and the House will no doubt appreciate it if I keep my remarks short, which I intend to do.

Of course rural communities must be supported and there are interesting suggestions as to how that should be done in paragraph 4.4 of written evidence. However, it seems to me that we are quite clear that this is not the way in which rural communities should be supported. An interesting point was raised by the last speaker and by my noble friend Lady Robson in the questioning in written evidence in relation to the World Trade Organisation.

I do not often defend the World Trade Organisation. However, it is useful that that body is visualised as bringing an end to this particularly ridiculous and corrupt regime at some time in the near future. If that is so—it appears to be so—it is short-sighted for the Community not to start thinking now about the way forward. As one noble Lord said, the British farming community is very good at thinking of alternative uses when it is told that certain crops are no longer needed. I have no reason to believe that European farmers will be any less efficient. The sooner all the regimes, including the Italian and Greek governments, turn their attention to that and stop merely blocking it, the better.

This is a thoroughly good report on a thoroughly bad European document. I hope that the noble Lord, Lord Donoughue, will be able to give us some hope that the Government will be able to see their way forward to doing something about it.

5.33 p.m.

Lord Lucas

My Lords, I too congratulate my noble friend Lord Reay on this excellent report, which I am sure would have gained just the plaudits from us had we continued in government as it will no doubt receive from the noble Lord, Lord Donoughue, and justly deserves. Also, I congratulate the noble Lord, Lord Donoughue, on finding himself in the position which I was happy to occupy so recently. I am sure he will fill it with great ability, to which I certainly cannot lay claim.

This is also perhaps an opportunity to congratulate the noble Lord, Lord Beaumont of Whitley, who I find on this occasion so converted to the cause that he is wearing the Swedish flag in his lapel, on representing the only other member of the Community who supports us in our endeavour.

Lord Beaumont of Whitley

My Lords, the noble Lord is mistaken. It is National Carers' Week and these are the colours of carers.

Lord Lucas

My Lords, nonetheless, it is always a pleasure to discover a member of the Liberal Democrat Party at one with us and at one with reality. It is not often that we encounter those two happy conditions.

Most noble Lords who have spoken today pointed out that this debate concerns a social subsidy. We could be subsidising anything. It has nothing to do with tobacco, and I shall not therefore stray into the areas of anti-smoking and tobacco quality which others covered. Nor—I hope not too much to their disappointment—shall I follow the noble Lord, Lord Brain, down the route of the "Code Napoléon" or my noble friend Lord Balfour into forestry.

I was fascinated by the little vignettes that today's debate provided; its ability to hold a magnifying glass over this particular vignette at work and its characteristics and foibles. It is fascinating to see what a bureaucracy is like when it has no proper political control. It is comforting for a politician to see that we do have a function in this world. The Commission possesses all that supreme intelligence and so little common sense. It has so little ability to indulge in radical self-criticism and radical change. It seems to believe that if one changes something radically, everything is lost and all is chaos. Politicians live by change. We live for what we can change in the world, and the combination of the two is the way the system should work. An organisation that is so biased towards a bureaucracy has some fundamental faults which are hard to eradicate and which appear throughout its work.

The Commission has an attachment to stability at all costs, even when it comes to keeping people in poverty because that is the way things are and that is the direction in which they are set, even to the extent of running a system to a point where, in the end, change has been ignored for so long that when it comes it is catastrophic and calamitous.

What really astonished me about the report was the sheer mendacity of the Commission. I find it difficult not to characterise what it says as anything other than outright and deliberate lies. When there are politicians around, the bureaucrats have other people to do that for them and I am sure that they are grateful for that.

The report also gives a little vignette of European politics and the way in which countries fight over what is "our" share of the cake. To the Greeks and the Italians the tobacco subsidy is their share of it, and they fight not out of any rationale but because other countries have other subsidies which is "their" share. The trade-off works because the rationality and the possibility of reform become crippled by the inability to deal with individual subjects on their own. One can only deal with the tobacco subsidy when one is dealing with all other sets of regimes at the same time. Therefore, if the Greeks and Italians are to suffer from these changes, then in some way they can make the Brits suffer.

One can see the clash of the old and the new socialist cultures; the belief that is still common in Europe in relation to subsidy—that is, subsidy at its most extreme. In some cases 99 per cent. is represented by subsidy. We are almost inventing jobs for people to do. Indeed, we see in France some more of that to come—350,000 jobs to be created in the public sector. To do what? To add what to the economy? That is the sort of feature of socialism which I am sure the noble Lord, Lord Bruce of Donington, recognises from his youth in the Labour movement. It is a characteristic of the cause which he once so ably espoused, and perhaps still does, in which case he may enjoy seeing it come to fruition in the European Community.

The noble Lord, Lord Harris of High Cross, made a valid point when he said that we should not look at the net expenditure on the European Commission; it is gross expenditure. The money that comes back to us is not spent as efficiently and wisely as we would spend it or indeed, if we were to leave it to the individual members of our nation to spend wisely. We cannot equate money with money; outgoings with incomings. It is a large amount of worth and value which we invest in the European Community.

Several solutions were proposed to the problems that the tobacco regime represents—and a number of good ones. It was said that the subsidy should be directed at the real problem for which it is supposed to exist. If there are social problems, let them be dealt with directly. Trying to deal with them through a different method is fundamentally unsatisfactory and leads to all kinds of distortions.

The World Trade Organisation will clearly have some effect on the future of the subsidy. If the European Community wishes to keep it the way it is, perhaps it should redirect it into something which is economically neutral. Perhaps we should pay the Greeks to grow wild flowers in their fields and to sit outside their front doors playing the bouzouki. It would scarcely cost more and would produce many benefits for the rest of us, even perhaps for the Greeks themselves.

On the question of subsidiarity, as my noble friend Lord Reay said, why should the European Commission tell these individual countries how they should live? Why should it be the Commission's business to keep Greek peasants doing what they have always done—living in poverty, growing tobacco? Why should this not be a matter for the Greek Government to choose? Yes, we agree that we as a Community will give money to Greece and will give money to the poorer areas of the Community to help them prosper. But why should we be limited to the imagination of the Commission to deal with this matter? Why should we not, as my noble friend Lord Wade of Chorlton so ably said, draw on the kind of experience we have in this country of how to revive and revitalise rural communities? These things are much better done by individual countries than done in a regimented way by the Commission. We are much better placed to respond to the individual problems that we have and to deal with the particular problems which come from the Code Napoleon. If money is needed to solve that kind of problem, why should it not be applied to solving that kind of problem? That is fundamental to the difficulties these rural areas find themselves in. Why should it be restricted to subsidising the growth of tobacco? If we are to supply subsidy, subsidising new businesses, infrastructure, the ability to market and transport produce and communications of all kinds are what rural areas need and not money to spend on a totally useless activity.

I look forward with great interest to hearing what the noble Lord, Lord Donoughue, will say in reply to the report. I shall put one particular emphasis on it. I shall listen carefully to the answers that he proposes Europe should adopt and I shall imagine him trying to apply those same answers to our own little tobacco regime in miniature—the hill livestock compensatory allowance. There we are, facing the same problem of looking after rural communities which are no longer viable. There is no way in which those rural communities, as farming communities, can pay their way without subsidy. How are we to deal with that problem within our own shores? Will we adopt the recipes which we suggest for others?

5.42 p.m.

The Parliamentary Secretary, Ministry of Agriculture, Fisheries and Food (Lord Donoughue)

My Lords, I thank the noble Lord, Lord Reay, for initiating the debate. I agree with virtually all he said and I do not propose this evening to defend the indefensible. I thank him for the kind words he said about me personally and assure him that I am very committed to the reform of the CAP. However, I should warn him that I do not expect to achieve all of that before Ascot—not before the first day of Ascot anyway!

I thank my noble friend Lady David for her characteristically kind words. I thank the noble Lord, Lord Beaumont of Whitley. I can tell him that during the first few weeks of this job I totally shared his regret at the banishment of my noble friend Lord Carter away from agriculture. But it is beginning to feel better. I thank the noble Lord, Lord Lucas. He was modest. I say that with the hindsight of my present experience I look back on his performance in this job with growing retrospective admiration and sympathy. I shall look carefully at what he said about hill livestock.

As a government, we welcome the committee's excellent report. It is a well organised analysis of the position and is commendably frank in some of its justified criticisms. As stated in the Government's response to the report, we agree with most of the points made by the committee. I certainly agree with a good many of the comments made in today's debate, in particular with the comments of my noble friend Lady David on the Brussels contradictions and with the belief of the noble Lord, Lord Harris of High Cross, that such nonsense cannot survive enlargement and what is to happen in the World Trade Organisation.

The House will be aware that the European tobacco regime has attracted criticism wider than here. It has attracted this criticism for a number of years not least because of the great expenditure involved and the health implications. There has also been widely reported criticism—it has occurred this afternoon and even within the Commission—of the illogicality of supporting production at the same time as encouraging anti-smoking measures. The House of Lords report, commendable in almost every way, is, if anything, a little gentle on that aspect. My noble friend Lord Rea spoke with great medical expertise, especially with regard to his concern for health in the less developed world. I noted, too, the comment of the noble Lord, Lord Beaumont of Whitley, in that regard.

The ban on advertising is fairly oblique with regard to this debate but perhaps I may say that the Government believe that the ban will be most effective if introduced as part of a package. Next month the Minister of State for Public Health is holding a summit of experts on ways to reduce smoking. We are also looking carefully at how best to remove tobacco sports sponsorship without putting at risk particular events in the UK. It involves a number of sports, particularly horse racing. National heritage Ministers will be consulting the sports concerned and legislation will include a transitional period.

Coming back to the central concern of the debate, we must ask what are the chances of reform. We have to concede to the Commission—even critics must concede—that the 1992 reform was a significant step in the right direction. It reduced the scope for fraud and it cut overall expenditure. Costs on the regime are now down 23 per cent. from the 1991 peak. Fraud has been reduced. There are now no intervention and export refunds, which were the areas most prone to fraud. The aided categories have been simplified—cut from 34 to eight—and monitoring strengthened. We note that the Greek and Italian tobacco agencies have not been set up and that the Commission at least is reasonably satisfied that other crop control agencies now being used for tobacco control have good effect. We believe that the Community now needs to take the opportunity to build on those reforms.

Looking at what is proposed, we are pleased that the Commission accepts that maintenance of the status quo is not an option. The fact is, as often mentioned in the debate, that the regime supports production of tobacco—nearly 5 per cent. of world production—of a very low quality and that the product would barely be grown in the European Union without subsidy. The Commission report says that the quality could improve. There is a long way to go. That is reflected in the fact that Europe imports most of the tobacco it consumes and exports 80 per cent. of its own production to those less privileged—mainly north Africa and eastern Europe—as my noble friend pointed out.

The Commission examined and rejected the option to disengage, which is attractive in many ways. We, like the noble Lord, Lord Harris of High Cross, whose anti-political correctness status I always find engaging, were very disappointed by that conclusion. We pressed hard for decoupling from production, but it was the Council of Ministers who insisted that that should not happen. It preferred the proposal to reform the existing system, the key elements of which are modifications to encourage quality and measures to enable growers to move out of tobacco with a voluntary buy-out scheme and flexibility to transfer into varieties in demand.

Broadly, we welcome the Commission's proposals in so far as they go because they are a modest improvement, but one of our main concerns is that the Commission's ideas fall far short of what is required. It is our view that further reform will soon be needed.

The Commission's preferred options for improving the regime raise questions of effectiveness and control as well as of health. One can argue that the more quality is improved then there are more tobacco and health questions. Those issues will need to be fully explored when the detailed proposals are made available. We shall be probing those issues.

The Commission's report focuses on making more effective use of funds to secure better quality production while maintaining broadly the current level of support. This approach seems certain to be reflected in any formal proposals eventually put forward. The Commission is waiting for the European Parliament's opinion on its report before issuing its detailed proposals. We regret this, but it is expected to take until the autumn.

The cost of the regime is over one billion ecu paid on a maximum quota of 350,600 tonnes. That makes tobacco the eighth most costly CAP regime and accounts for about 2.5 per cent. of CAP expenditure. It is the most costly CAP regime in terms of support per hectare. We agree with many noble Lords, including my noble friend Lady David and my noble friend Lord Grantchester, in that we do not consider that financial support for tobacco production is an effective way of spending Community money. We have strongly argued that the cost of the regime should be reduced. At this point I say to my noble friend Lord Bruce that many of his views on EU expenditure are not entirely unfamiliar to me, but on his general point I agree that CAP imposes a big burden on both taxpayers and consumers. We point out that the percentage of the EU budget has been reduced from two-thirds in 1988 to under one-half now, but it is still too high. The Government are pressing the Commission to come forward with further proposals.

A point made by a number of noble Lords, which is central, is that the problem is really a social one; it is not a commodity issue. Tobacco tends to be grown in remote rural areas on very small plots with an average size, as mentioned, of about three acres. It also involves Napoleonic or Continental land ownership issues. There are great difficulties in changing land use, which the noble Lord, Lord Brain, mentioned. It is an intensive crop and the social problem is that in some areas it is a, or the, major employer and important local source of income. The question of the numbers of people involved was raised. It involves 170,000 full-time jobs including 135,000 growers and in addition 30,000 processing jobs. I say to the House that we do not dismiss that as a social problem. It is a significant number of people. We sympathise with the attempt to help to deal with that problem, but our position is that what is proposed is not the best way to do it. It is a difficult problem. The farms often have no irrigation and there are no real alternative crops which would make such small farms economically viable. Switching to other crops runs the risk of upsetting the balance in those sectors and the European Union has placed quantitative restrictions on support for some of them.

We are disappointed that the Commission did not look closer at non-agricultural alternatives. There is also the wider question of rural policy raised by the noble Lords, Lord Wade and Lord Lucas, and the argument that we need a positive rural policy in Europe as here. I wholly agree. My right honourable friend the Minister is looking at ways to alter the balance in our own ministry towards a wider rural policy, away from the concept of just supporting agricultural production. We propose to advocate that change in Europe, but one would be foolish to pretend that it can happen overnight.

Our central, particular approach is that any measures introduced in this area should be aimed at reorientating growers towards other activities. Our view of the ideal solution would be a Europe-wide commitment to an eventual phasing out of the regime. I note that the committee suggests 10 years and I wholly agree. I agree with the noble Lord, Lord Reay, that the large amounts of money involved would be much better spent phasing out the industry and not perpetuating it.

As regards the tobacco regime, we are critical. We agree with all the criticism so pungently expressed by my noble friend Lady David. We encourage voluntary departure from the regime so long as it leads to permanent reductions in quota. We do not believe that the quota obtained through a voluntary buy-up scheme should be redistributed nor do we wish to see new entrants encouraged. The Government support the Commission's ideas for premia modulated according to quality, in so far as they go, but we much prefer to see lower premia to expose producers more to the market.

Looking at the political practicalities of achieving what we believe in, we have to state the unfortunate fact, as the noble Lord, Lord Reay so excellently said, that few other member states support our views on reform. No fewer than eight countries have producer interests which they are not prepared to set to one side. So far—and I stress this—most other non-producers have had little to say. Given that and the system of qualified majority voting in the Council, the chances of our being able to bring about a radical change are limited unless and until external forces such as the World Trade Organisation talks and enlargement pressures force it. In the context of enlargement, we note that current production in Poland and Hungary alone would increase the European Union quota by 17 per cent.

In conclusion, it would be foolish to promise the rapid reforms in which we strongly believe, but I assure the House and members of the Select Committee that when the Commission's proposals come forward this Government will press for the greatest possible degree of reform, and, bearing in mind what my noble friend Lord Grantchester said, we shall also try, unlike our predecessors, to build a coalition of support for our rational position among our European partners.

6 p.m.

Lord Reay

My Lords, I am extremely pleased that so many noble Lords have participated in the debate, and particularly that so many have done so who are not members of Sub-Committee D. All too often, members of sub-committees tend to end up talking to themselves on occasions such as this, but that has very much not been the case today.

I should like to refer briefly to the remarks of the noble Lord, Lord Harris of High Cross. I value highly the support that he gave to the report. The noble Lord had a criticism of the last sentence of paragraph 39 in which we say how public health arguments, even if ill founded, could nevertheless help to create the will to change the regime. I can see why a campaigning smoker like the noble Lord could be offended by the apparent lack of scruple in that observation. However, I take the sentence to which he objects more in the nature of an objective and passive observation than as an incitement to indulge in anti-smoking propaganda. I hope that others will do the same. However, that was the noble Lord's only small criticism among all his other highly complimentary remarks about the report, for which I am truly grateful.

I have detected hardly any other criticisms of the report during this debate and I am grateful for the degree of support which it has received. Indeed, familiar antagonisms in your Lordships' House disappeared in the cloud of unanimous agreement which the report received. The noble Lord, Lord Beaumont of Whitley, found nothing with which to disagree in what the noble Lord, Lord Bruce of Donington, had to say. My all but namesake, the noble Lord, Lord Rea, found nothing with which to disagree in anything said by my noble friend Lord Boyd-Carpenter. What else is there to live for?

I am also grateful to all members of the sub-committee who have spoken, including my noble friend Lord Wade, the noble Lords, Lord Brain and Lord Grantchester, and the noble Baroness, Lady David. I thank them particularly for the kind things that they said about me. I also thank the noble Lord. Lord Beaumont of Whitley, for the same reason.

I listened at the time to the early morning interview of the noble Lord, Lord Brain, on Radio 4—and very good it was too. The noble Lord told us about the Portuguese MEP who asked, "What about set-aside?". As my noble friend Lord Lucas correctly pointed out, we must not forget that there are regimes under the common agricultural policy which benefit producers in this country. My noble friend mentioned one which is of particular interest to us. I refer to the hill farmers' scheme. We cannot say, hand on heart, that none of those would or should have happened if the CAP did not exist or if it were to be in some way repatriated. We must always bear that point in mind.

I am grateful to the Minister for the way in which he has received the report. I am sure that what he has said will bear close study. But it gives me confidence to believe that the Government will continue to strive for reform in the Council, which is what we all wish to see. I commend the report to the House.

On Question, Motion agreed to.